If you aren't reading Fred Wilson, you should. He's a venture capitalist who runs Union Square Ventures in New York and regularly writes about being a VC at his aptly named blog, AVC. Many people who are pondering the woeful state of the U.S. economy are looking to tech as something that may lead us out of the woods. Problem is, tech costs money. And tech is extremely competitive. And there's been some discussion of late that VCs are having trouble raising money to fund new companies.
Wilson breaks it down. Here's what I think is his most interesting point:
5) The internet investing market is transitioning. Social was the driving force for the past three or four years. In the wake of Facebook and Twitter, how could it not be? Mobile has also been a hot theme. Both sectors have consolidated a few winners and a number of additional interesting emerging companies. But how many social platforms of scale will there be? Five, ten, twenty? And mobile is hard because distribution continues to be limited to the app store model where you get on the leaderboard and win or you don't and you don't. Investors are moving into new areas like cloud, peer to peer marketplaces, and trying to take what worked in consumer into the enterprise. There is no lack of interest in internet investing, but investors are having to learn new markets and new sectors. And that kind of transition takes the heat out of an overheated market.
The best part of that is "trying to take what worked in consumer into the enterprise." That means finding something that people have really latched onto, like Twitter or Foursquare, and bringing it to business. The best template I can think of for this is Research in Motion and BlackBerry email. Of late, the company, its signature push-email network, and its devices have been getting clobbered. But you can see the trajectory that Wilson is talking about.
Long ago, email was something that computer scientists used to share notes. Gradually — mostly through AOL and dial-up — email became pervasively a consumer technology. RIM combined it with mobile, developed a secure network that executed email management better than anyone else, packaged it in a "smart" device, and Presto! business beat a path to its door. No matter how much you love your iPhone, you still have to admit that BlackBerry does email better.
Other companies are now trying to execute this move. Yammer is Twitter for the enterprise. The Chicago company 37Signals has organically developed a suite of online services, such as Basecamp and Campfire, that have found an enterprise following — and 37Signals avoided taking any venture funding for much of its existence.
I look at this two ways. First, as Wilson points out, there's some constriction in venture funding that's being brought on by the weak economy and the halting IPO markets. This makes it tougher for a VC to keep a company going until it can access the public funding. Second, a lot of startups are failing to look to business first. They think of everything in terms of consumers, rather than reverse-engineering their products from something that they need to do themselves (a 37Signals mantra), or that other businesses might need to do.
Wilson ends up arguing that VCs might need to do more, in the current environment. Or at least understand that it's their job to keep the money coming in, even when the market isn't (yet) buying.
It's a valuable post. Check it out.