<img height=”220″ src=”/vcj/images/Larry.jpg” width=”180″ align=”right” />Sometimes VCs get things backwards. The Internet is a perfect example. They poured more than $100 billion into the space before enough “infrastructure” was in place to make the Web truly useful to consumers. Now that there is significant broadband penetration and an eager audience of sophisticated users, venture capitalists aren’t putting enough money to work.
It may appear that too many dot-com deals are already being done, but that’s only because of some high-profile deals of late. In gathering data for this month’s Cover Story, I was stunned at how little money VCs are investing in dot-coms relative to the amount they invested five years ago. At the peak of the bubble in 2000, VCs put about $80 billion into approximately 4,500 companies. (To be clear, that’s for everything Internet-related, including communication technology, computer hardware and chips, software and services, and all the various vertical markets with an Internet component.) Last year VCs invested $6.7 billion in 829 companies, with most of that ($4.7 billion) going into deals that could be broadly described as consumer-related, from content to e-commerce.
The VCs we talked to for the cover story say they’ve learned from their mistakes, but maybe they learned too well. Sure, it’s safer to invest in a mature dot-com that’s already profitable, but monster returns only come when you invest much earlier, like Kleiner and Sequoia did with Google.
Now that the crazy predictions made about the Internet during the bubble are starting to sound sane, VCs should be making big bets on gifted entrepreneurs with little more than a vision.
Close your eyes and think about how different the world will be just three years from now. The ubiquity of wireless broadband alone will allow people do all sorts of new things with their phones (or whatever they’re communicating with in 2008) that are just neat ideas today.
Close your eyes and dream again.
Email <!–a href=”mailto:Lawrence.Aragon@thomson.com”>Lawrence.Aragon@thomson.com</a–>