Fred Wilson, in typical clear and direct fashion, nails the shift as venture capitalists withhold additional rounds of funding from consumer-web companies and pivot toward the search for "enterprise" opportunities — ways to invest in software for businesses, not for the masses. Here's Fred:
[I]nvestors have moved from consumer to enterprise. there is a large pool of money in the venture capital asset class that is opportunistic, momentum driven, and thesis agnostic. this pool is driven largely by the public markets. this pool of capital was "all in" on consumer web/social web in the 2009-2011 time frame. it drove a lot of activity throughout the venture capital markets because each layer of the VC stack...needs to be aware of what the next layer up wants to fund. when the momentum/late stage wanted web/social, the layers below gave them web/social. Now that the momentum/late stage wants enterprise, we should expect the layers below to give them enterprise.
The combination of these three factors is making it harder for consumer internet companies (web and mobile) to get funding.
When Fred says a "VC stack," by the way, he's talking about a sort of capital ladder, with smaller "seed" amounts assuming the most risk early on, and later, larger sums being raised in subsequent series, usually denoted A, B, C, and so on.
It's an important point, particularly if you're an entrepreneur who hopes to build a software product for people rather than companies (and before any of that, for the VCs that will provide the operating capital). I started blogging about this trend earlier in July, when Dell spent $2.5 billion to buy Orange County's Quest Software. Microsoft's $1.2-billion acquisition of Yammer, a 'Twitter for business," a few weeks later confirmed that there's real money in the enterprise "renaissance," as HootSuite CEO Ryan Holmes has called it.
Southern California is at least as well positioned as any other region to jump onto this bandwagon, although the sweet spot of "Silicon Beach" has more to do with advertising/media/entertainment than with building applications for businesses. SoCal's smaller overall VC scale, relative to Silicon Valley, could fit nicely into Fred's framework: If later stage investors want enterprise, early stage investors can build those companies — and they can build them in L.A.