Will Venture Capital Be A Recessionary Victim?
Paul Graham recently suggested that venture capitalists could actually be a victim of the recession, because they will be decoupled from entrepreneurs who learn to live without. He wrote, in part: "The reason startups no longer depend so much on VCs is one that everyone in the startup business knows by now: it has gotten much cheaper to start a startup. There are four main reasons: Moore's law has made hardware cheap; open source has made software free; the web has made marketing and distribution free; and more powerful programming languages mean development teams can be smaller. These changes have pushed the cost of starting a startup down into the noise. In a lot of startups—probaby most startups funded by Y Combinator—the biggest expense is simply the founders' living expenses. We've had startups that were profitable on revenues of $3000 a month." My initial reaction is that Graham bought some Web 2.0 blinders, in that the above argument does not apply to large swathes of the startup community (particularly most life sciences and cleantech efforts). I’m also not sure I agree with a concurrent Graham argument that VCs will slow down their investment pace as drastically as they did in 2002. After all, that drop was dramatically lengthened because VCs had been so gregariously reckless in the preceding years. Say what you want about VCs in the 2003-2008 era, but no one can say they've been investing as much cash as they did between 1998 and 2001. But then I’m a bit conflicted, because the types of deals Graham is talking about are the very types of deals VCs may need
