According to a lot of fairly smart people, the current funding model for new media startups may not be in synch with the times.
Adeo Ressi, founder of TheFunded, the site that lets people rate venture capitalists, is the latest to try to articulate the changes with a dour set of slides…One of the shortcomings with the VC model, Ressi argues, is that venture capitalists rely on their network of friends. Of all networks, HBS is one of the tighter ones. Needless to say, Ressi’s message wasn’t very warmly received. In fact, while blasting the old boys network is a popular thing to do, I’d actually disagree with Ressi on this point. Increasingly, you’re seeing diversity within the VC community, and they’re pushing themselves hard to find great entrepreneurs of any kind. I disagree that the Google founders were outsiders. They were part of the Stanford engineering student machine, a source of Silicon Valley magic for years.
Where I do agree with Ressi is in the ugly economics overall. Most daunting is that there’s more money being invested into venture firms than those same VC firms are generating from their investments in start-ups — in other words, Ressi argues, they’re now having a net negative affect on the economy. You’d expect this lopsided dynamic to exist temporarily in a downturn. But the worrying thing is that this state of affairs may last for quite some time.