More startups? Fewer VCs?

Last week, “I wondered”:http://www.geekfun.com/archives/000594.html whether the appearance that its easier for small companies to do more, had some relationship to the appearant over-supply of venture capital and venture capitalists. Continuing on that theme, Business Week “reports”:http://www.businessweek.com/the_thread/dealflow/archives/2005/05/half_of_all_vc.html?campaign_id=rss_blog_dealflow on a recent VC panel discussion, and quotes “Promod Haque”:http://www.norwestvp.com/team/teamBio.aspx?StaffID=21 of North West Venture Patners

bq. “Over the next five to ten years, I believe there are going to be half as many venture capital firms in this business, and there are going to be half as many companies being created”

My bet is that he’s only half right. There will be half as many VC firms in the business, but the number of companies created will expand, not contract.

Either way, its not a promising trend for the VC world. It’s bad enough being a player in a shrinking market, but its even worse having a shrinking marketshare in a growing market.

Perhaps its time for a bunch of VCs to see if they can find the find economies of scale in “Grameen-style microinvesting”:http://www.grameen-info.org/. Perhaps they can find a way to salvage the social networking investments they’ve made to create a new form of social reputation-based credit-rating for micro-investing. Or maybe-not, given the amount of gaming people do on sites like friendster when there isn’t even any money involved.

pointer to BusinessWeek article via “TJ”:http://www.tjacobi.com/archives/venture_capital_to_disappear.html

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