There has been much talk these past few years in the venture capital markets, about what works and does not work in early stage funding and exits of technology companies, which seems like a great deal of conflicting noise.
Consider what we see and hear:
- We are told that the venture-funding model is “broken.”
- Venture companies complain that ROIs are low.
- We are in the midst of a flourishing boom of new companies built in garages.
- There is a huge range of newly developed early-stage funding sources (Incubators, Accelerators, Angels, Super Angels, and crowd funding).
- We see new secondary markets.
- There are strategic sales with extreme multiples.
- And we see the return of IPOs.
- We hear we may be in a “bubble” again.
So, what’s going on? Can all this be so, all at the same time?
Well, yes: this is the picture of disruption, not only in technology, but in the marketplace itself. And the disruption is the result of the last 30 years of technology development coming to fruition. It is what we’ve been working towards, this chaos of opportunity and the optimism it brings.
Since the release of the first PCs in 1981, through the release of the “new media” in 1991, to the opening of the worldwide Web in 1993, to the beginning of standardization of pricing and distribution channels with the iTunes Store (2003) and the App Store (2008), we have been on our long journey to now.
This last decade has been difficult economically: a tech downturn in 2000 (the crash of the dot.com bubble), a national economic downturn in 2001 and a global economic downturn in 2008.
And through it all, with good years and bad, the American engine of innovation keeps chuffing along, building new tools and toys and technology that we distribute to the world.
And not only does this engine build technology, it re-creates what it needs to keep moving forward: new funding approaches, new ways to lower or share the risk, new models to support the boom of new companies now exploding.
The tech boom is exploding because we have, after 30 years, solidified our infrastructure, standardized our technology platforms, built the off-the-shelf tools to build new products quick and lean, and stabilized our distribution channels and pricing.
So, is the funding model broken? The old model is, but the new models are already in play. And the investors still standing from earlier days are wiser now, and the new investors tend to have created their wealth from the success of building their own companies.
Are the exits too good to be true? No: the IPOs are mostly companies with 8-10 years in the marketplace. And some over-zealous acquisitions seem to have a strategic thought behind them. And to some degree, this doesn’t matter, as long as there is an exit path open to spur on the initial capitalization of all these new companies.
Are we in a “bubble”? I doubt it… we are in the moment of bursting expansion that arrives when we have done our homework over decades, when the spirit of the entrepreneur is alive and well (because of and in spite of the current economic and job markets), and when we let loose our new generation, born with a mouse in their hands, to build what they think the world needs to give consumers and companies the magic of the chip only promised up until now.
I am excited. I think, after all these years working on each new edge of new technology, that we have arrived at the beginning of our promise to change the world.