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Dinosaurs aren't going anywhere

Scott Kirsner has a very interesting blog post today entitled "Why Waltham Doesn't Matter."  His opinion is that most of the local VC's (particularly those with offices in Waltham in what Scott calls Mount Money) are dinosaurs that are out of touch with the latest happenings in the local tech community.  They don't pay attention to young entrepreneurs and don't fund ideas in the coolest new technologies.  Like a bad doctor, Scott has the symptoms correct but the diagnosis wrong.

Most of the more established VCs do tend to focus on areas that have been successful for them in the past.  And, they'd prefer to work with entrepreneurs who have been successful in the past, too.  There are so many risks with early-stage start-ups, why not increase the chance of success by limiting the places where you will fail?  And, there have been plenty of strong returns in recent years from following this formula.  I'd submit that the list of local IPOs and large acquisitions is dominated by companies in this category.  There are exceptions, but this is where the money has been and, for many, continues to be.

There are other VCs who can't break into this space successfully.  Or, perhaps they decide that to make their mark, they'll venture into some riskier waters.  The jury is still very much out as to whether they'll make money from these deals.  There are some good exits to date, but not enough to prove the point.  The contrarian in me will argue that they have a better chance of long-term success as these areas should be less crowded and will attract less capital in the short-term.  In fact, if every local VC flooded these new areas, they'd probably overfund a lot of mediocre companies, which would hurt everyone.

I've focused on the exits because that's what VCs and their investors (limited partners) care about.  Market development, fostering young entrepreneurs, networking events, etc. are nice.  I actually like them and have participated in more than my fair share.  But, they don't pay the bills unless they lead to deals that generate big returns.  Some VCs may feel that they do.  Others may feel that they can generate large returns without them.  I don't see the point of bashing one strategy over the other, particularly when I think that the old-fashioned way is still generating stronger returns.

I like Scott.  He's on a mission to have us all invest more in developing our local market.  Many of the VCs he's bashing do that, but perhaps not in the way he'd like.  They sponsor entrepreneurial events at MIT and elsewhere.  They've all done at least some deals in newer technology categories (even if they don't take the brave step of having the recent college grad run the company).  It might be nice if more of them did even more.  I think that seeing strong returns from the upstarts will make that happen.  Until then, Scott's 'dinosaurs' will continue to do pretty well for their investors and themselves.

And, don't be blinded by all the market development activities that Scott mentions.  At least some of those firms do these mostly for marketing appearances.  They want to appear to be more 'early-stage' and 'leading edge' than they really are.  Check out how many of these early-stage, seed-stage, wet-behind-the-ears deals that these firms really do.  Some, but not a lot.  Just like the dinosaurs.  They just do a better job marketing themselves doing it.

I'd love to see more VCs networking with young college students and entrepreneurs.  I've done a lot of mentoring of first-time entrepreneurs.  Although they are passionate, most of them don't deserve to be funded (just like most business plans put forth by experienced entrepreneurs).  It's a very fine sieve that filters out most of these unworthy ideas and leads to the small number that do get funded.  There are also a bunch of interesting ideas that don't fit the 'venture model' and have to get funded by other means -- angels, bootstrap, etc.

I think Scott would be more successful if he was less harsh.  He can heap praise on all the nice market development activities that he is in favor of.  But, he should also recognize the deals that become the strong exits that pay the bills.  Once some of the upstart firms that back upstart deals generate outsized returns more consistently, you'll see even more activity, even by the more established firms.  Until then, the dinosaurs and the evolving new species will co-exist.

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Comments

Yeah, you may to resort to email or the phone if you want to speak to them...Most of them are pretty shy about talking to the media anyway. They're too busy investing in deals with big exits...

Mike, dinosaurs have thick hides. Also, I am not sure how many of the Waltham dinosaurs even read blogs or have Twitter accounts, so it's not likely they will see my original post or this conversation.

Scott, there is no doubt that things will change. Just don't assume that your so-called dinosaurs won't survive. They may not be first in line, but the VC business changes slowly due to long capital commitments from LPs.

I'd love to see the area with a thriving, innovative economy. You have a better chance of achieving that by enticing the 'dinosaurs' to join you rather than have them get mad at you and stop listening.

Hi Mike-

I agree very much with your headline: "Dinosaurs aren't going anywhere." It's true. The dinosaurs of our local VC community are stuck in the tar pits of Waltham, sinking slowly. In a few decades, we will have a great tourist attraction. I suggest naming it the Bay Colony Tar Pits, and charging admission:

http://www.tarpits.org/

Kidding aside, one of my favorite books is "The Innovator's Dilemma," by Clayton Christensen. One of the key lessons of that book is that strategies that have made you money in the past, and that satisfy your customers (like limited partners) in the present, do not necessarily continue to do so forever.

I don't think I'm being harsh -- I'm just calling it like I see it. And I have a vested interest in having our regional innovation economy thrive, so I have something to write about. Great new start-ups and innovative big companies generate lots of stories. Tar pits do not.

Scott

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