If you have any thoughts or quibbles, I'm interested in hearing them - we're trying to get a wide array of input before we do a long-ish post on it.
The problem is where the money comes from upstream. The LPs in a fund want huge returns in 5 to 10 years. The work of raising money is so great that VCs do it all at once (hah, that sounds familiar). Then they are locked in.
The YC model is trying very hard to form a conduit of startups up to larger but sub-$1M rounds, but so far no one's figured how to get that tier established. You probably don't want money from podiatrists and i-bankers, but neither does there seem enough talented geek millionaires who want to join in.
If a firm's GPs expect a seven-figure base of compensation they are going to want to raise 200-500MM depending on the size of the firm, which is difficult to effectively distribute in chunks of less than 10MM.
... why couldn't these lower cost deals scale out? Couldn't they make more investments at lower initial valuations rather than less investments at unrealistic valuations?
Maybe it's because I live in this world nearly 24/7, but I can look at the press and the presentation of everything I get pitched by the PR flacks on a daily basis and make a snap judgement on at least 80% of what I see as to whether or not it's going to last or make money.
I'm not 100% right, but I'm right a lot more than I'm wrong.
If I'm just a pundit, a guy who blabs for a living (who, btw, isn't very expensive to employ), why can't more folks like me be employed by these VC firms to scale up these low cost investments?
Is there something completely wrong-headed about what I'm asking that I just don't get?
I think he only brought it up as a sort of "this is an example of widely accepted success that could be getting lost because of this system."
Maybe not the best lynchpin to hang it all on, though.
My other point is that many entrepreneurs need more than 25k to build their prototype yet fail to do it do to the clutter in the funding market hence two guys building in a garage for a customer project might not get funded in today's climate.
To me if an entrepreneur can create a product get it to market and get profitable they are a success and possibly could be a big "home run". If the investment thesis is to get the home run then it most likely will overlook two guys in a garage.