Future of the VC industry

I see that Dave Winer over at his blog has picked up the discussion on the need to “reform” the VC industry (see myNovember 20th post on this and the comments here) and, in his view, “disintermediate” the VC industry.

Writes Winer:

“1. One word: disintermediate. Take out the middleman. We don’t need the partners, limited or general, they gum up the works. We need money to start new ventures. Luckily we know the people with the money, they’re the users. And we need people to validate the ideas. Same people, the users.”

A reminder back to bubble 1.0 for Winer: there were a couple of attempts at this. Draper Fisher launched a public MeVC vehicle (some interesting reminder links: here, here and here) that popped with the bubble. It is investing in other things now. There were a few more “Customer as investor” start up attempts at this around ecommerce as well.

Dave — Unfortunately, the VC industry is only slightly more complicated than being a user. While you are correct in asserting that much has changed and you can build companies on very little money, that is only part of the company building exercise. You see Dave, Sequoia, KP and Benchmark are not born of the “wisdom of crowds.” They have a lot of skill in finding unique value before the masses find them. They spend lots of time cultivating relationships and recruiting executive talent to turn popular services into big businesses.

Think of all the flash crowds that use a service but end up fizzling out. In your model, you could lose a lot of dough that way. I also assume that in Winer’s new VC world, the very popular Porn and gambling sites would get a lot of investment. That would be a terrible end to the VC industry and innovation brought on by the masses.

See scobleizer’s post as well here

[Originally published on 31st January 2006 by MIchael Eisenberg]