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News & Updates - Monday, January 30, 2006

Few VC Firms Interested in Web 2.0 Investments

Web 2.0 honchos quickly beat the meme horse to death with the notion that the VC model is broken and that the solution might be that VC firms should take more of a shotgun approach and make more, smaller investments. Dave Winer takes the lead by labelling VCs useless 'middlemen," then sticking the dot com pet-food company example in their faces -- and he even goes after the patron saint of venture capital -- John Doerr.

As we post our fresh VC deals every day, we see very few VC investments in what might be labelled "Web 2.0" companies. Rather, VCs are investing in semiconductor, RFID, wireless, enterprise software, networking, security companies, etc. Such companies require significant investments to get to profitability and beyond. And the VC model is working quite well here. If returns were not so great, then investors in VC firms would not continue to pile on more cash year after year -- and there would not be the proliferation of VC firms, which make the practice even more cut-throat.

From conversations we've had with VCs, many don't like Web 2.0 companies because they have low barriers to entry, and so far there have not been overwhelming liquidity events.

Through our glasses, we think the stink about the VC model being broken reflects the fact that thousands of Web 2.0 startups are looking for funding and don't understand why they can't get it. The argument that the VC model is broken is silly and boring. Next meme please.

Read - How To Reform The VC Industry (Dave's WordPress Blog)