The News of VC Death Has Been Greatly Exagerated
New fangled venture accelerators, angel-list-addicts, and angels commonly predict the death of Venture Capital. I say that accelerators are yet to prove they have a sustainable model, angel list is a fad that’s fading as fast as Facebook and angels (like me) are the pigs on our way to the VC slaughter.
Fifteen years ago there were 6,000 VCs today there’s 1,500. That’s because 15 years ago anyone who could spell VC was a VC (and even I can spell VC). The culling of the herd down to 1,500 created super-VCs. It’s like in the world of bacteria, all the anti-bacterial soups and antibiotics have killed the weak bacteria breading indestructible, super-bugs.
What’s more these stronger, less vulnerable VCs are benefiting by the growth of a new subfilem…. the Angel. According to the Center for Venture Research at the University of New Hampshire there were 200,000 angel investors in 2002 increasing to 270,000 in 2012. Money invested jumped from $15.7B in 36,000 companies to $22.9B funding 67K companies.
Drunken sailor spending by Angels and indiscriminate investing by Accelerators like 500 Startups are creating what Harry Weller of top Venture Firm, New Enterprise Associates (NEA) calls labortories of petri dishes. Where VCs can watch the new companies grow and prove or disprove their ability to survive outside the startup lab. What’s better, these labs are funding on someone else’s dime.
Venture Capitalists are able to take less risk, invest in fewer stinkers, passing the highest risk off to Angels and Accelerators to invest in startup science experiments while VCs cherry pick the winners…. that’s the Series A Crunch.
Ten years ago, VCs had to fund these petri dishes on their own taking on more risk. Thanks to the availability of amateur seed capital, VCs today get to invest later, have a better sense of the quality of the team, the soundness of their product thesis, and the chances of market acceptance. Today, the Superbug VCs are investing in better quality companies with better chances of survival which should boost their returns.
VCs aren’t going anywhere but I predict that the majority of today’s 2000 or so accelerators will be cut down by 75% as will Angel investors. Because Angels who’ve invested in the many bacteria infested petri dishes of startupland, are not going to be happy with their returns and there will be a movement to safer investment vehicles… like as LPs of VCs.