Small is beautiful for science start-ups
Venture funding is declining quickly and is unlikely to bounce back. But less money means lower expectations — good news for smaller science start-ups, says John Browning in an Essay in today's issue of Nature (460, 459; 2009 - free to access online for one week from publication date). From the Essay:
Given the lacklustre returns of traditional investment strategies, venture capitalists are also looking to do more with less. Marc Andreessen, co-founder of Netscape Communications and a pillar of the Silicon Valley establishment, recently co-launched a venture firm that plans to invest as little as $50,000 per start-up — far less than the $3 million considered to be a minimum by many venture capitalists. Although it is early days, efforts such as this might reshape venture capitalism. Without the weight of Googlesque expectations on their shoulders, companies that might have joined the ranks of the living dead could start to look lively. A start-up focused on a non-blockbuster drug or diagnostic test might now find itself with an attractive niche market, garnering the attention of venture capitalists who would usually have avoided this type of limited-growth company.
Smaller investments will force entrepreneurs to work harder — no more plush offices or fridges stocked with designer fruit juice. But, because the returns demanded by investors are proportional to the amounts put in, smaller investments also reduce the pressure on companies and allow them to become more flexible in their business strategies. And that is what entrepreneurship needs most.
Comments
What is telling about the ink Marc is getting is just how ignorant mass media is, and how slow the herd is.
We offered a very similar VC fund 7 years ago with a team of 7 very strong partners, several of whom have actually done what Marc hasn't- build sustainable companies rather than bubble products.
This tells me far more about the ignorance of the herd than it does about any change in markets, models, or entrepreneurism, even if the author is essentially correct.
Where were all the brilliant observers when I was screaming in the 1990s.... and throughout the housing bubble?
A great deal of credibility has been lost in the past decade, particularly relating to all things institutional- much of which will likely be perm.
Posted by: Mark Montgomery | July 25, 2009 04:26 PM