VCs: Dead or Alive?
Should we start putting venture capitalists on the endangered species list? Judging by some of the talk on conference panels held this week at Stanford University and The Wharton School, one might be tempted to start counting.
Thanks to the rising power of the Web and social networks, the theory goes, traditional VCs are no longer the "must-have" middlemen they used to be for early-stage start-ups. Sure, they're still valued -- especially by established start-ups and social enterprises looking to scale. But is VC money needed as much now to launch a company, when the Web and burgeoning new social networks can put you directly in touch with a spurt of new angels, small-fund investors and high net-worth individuals now streaming into deals at the seed stage -- and at far less the cost?
Consider some recent riffs on the question, from panelists at both the Stanford Summit and Friday's Supernova conference at Wharton in Philadelphia:
* Chris Barbin, CEO of Appirio: "Starting a company now, you definitely don't need nearly as much capital. There's a ton of capital and you don't need to take it. There will continue to be a shake-out in the VC world, in my opinion, in the next 10 years."
* Barry Silbert, founder and CEO of Second Market, an online auction site for non-cash assets: "There's a lot of talk about how the venture industry is too big and I think it's fair to say that's true. The venture industry is shrinking and I think that is healthy; the good venture capitalists will continue to add value, but what's changing now is that you can get capital -- up to $5 million -- from lots of different sources like seed funds and angel networks and even high net-worths (individuals). Before, you had to rely almost entirely on venture funds."
* Josh Kopelman, First Round Capital, a seed-stage venture fund: "The power of networks has changed start-ups and how entrepreneurs both conceive of ideas and get them funded. The Internet and open and closed networks have made a big change in terms of entrepreneur's access to funding and is reshaping the ecosystem that is there today. It used to be you had to go to a VC and the VC would fund you and the press would write about you. ... Ten or 15 years ago, Upside magazine and Red Herring were the two sources that covered startups and there was not much interaction among or between startups. ... Today that's fundamentally changed. The Net has created open networks, networks of local entrepreneurs and others, and the ability of startups now to gain visibility has really changed, too, thanks to the Web. The power is much more in the hands of entrepreneurs than in the hands of investors today. There are different gatekeepers in the system."
* Kopelman: "Entrepreneurs now have the ability to connect directly to funding sources, whether through (social networks) or through new geographic networks or the new Angel List which just launched as a tool for new companies to get connected to top angels. These and (new venture firms specializing in funding early stage start-ups, like) the Y Combinators -- all of those -- are leveraging closed and open networks (like Angel List, Yelp, Dreamit Ventures and Techstars) to reach venture capitalists. These are new tools entrepreneurs have at their disposal now; ten or 15 years ago, you didn't have that. It was all through personal relationships or getting exposure at conferences like Demo, which was then one of the only places to get attention. Now, blogs and social media are really disrupting that. Networks are now very powerful for the discovery of new talent."
What do you think? How is the power of the traditional VC changing as a result of the Web and social networks? Let us hear from you.