What is the optimal size at which to do real venture capital, the kind of investing that nurtures tomorrow's Googles, Amazons, Ciscos and Microsofts, as well as the loads of applications and technologies that add real value to existing companies and customers? The answer to this question has undoubtedly changed over time, as the cost of enabling technologies has plummeted and massively scalable businesses can be built for a fraction of the cost of even 10 years ago. But still the debate rages on, particularly given the problems of the large-scale branded venture players and worries over a sharp drop in the availability of start-up capital. The topic has recently bled into the political arena, with President Obama's tech-friendly bias and the hundreds of billions of dollars going towards programs many feel will lack real job-creation power. Perhaps a portion of these funds can be intelligently deployed across the venture capital arena?
My friend Matt Harris, his partner Bo Peabody (both Managing General Partners of Village Ventures) and I have been talking about the right way to scale the venture business for quite some time. The issue: while the most attractive risk-adjusted returns are available at the early-stage end of the venture continuum, and it arguably hold the promise of creating more and better jobs than at any other stage, it is very hard for institutions to access this asset class due to scalability problems (read: can't deploy enough capital in a single fund to be material). Therefore, when problem-solvers think of throwing big dollars at venture industry, they immediately migrate to the larger, later-stage venture firms. The problem is, as Matt explains below, simply providing large firms with more dollars isn't going to facilitate more and better job creating, higher returning investments. The solution required is more complex and textured than that.
While Matt doesn't have a blog, he frequently has terrific thoughts and powerful ideas, and this is one of those times. While we were all struck by Tom Friedman's
recent Op-Ed in the New York Times about deploying big stimulus dollars into venture capital, Matt put thumbs to Blackberry and came up with the following thoughts:
Tom Friedman recently advanced a proposal to deploy $20B in $1B chunks to the country's leading VCs, to spur investment in start-ups.
