Moritz: Silicon Valley Needs Just $400M a Year

A lot of venture capitalists are concerned about how their industry is shrinking, but Michael Moritz isn’t one of them.

A partner at Sequoia Capital, Moritz was one of several VCs at the DLA Piper Global Technology Leaders Summit in October who claimed the industry might be better off contracting.

“I don’t think Silicon Valley needs all that money,” Moritz said. Innovation can be funded for $300 million to $400 million a year, he said.

To put that into perspective, venture capitalists invested $7.3 billion in 761 Silicon Valley-based companies last year, according to the MoneyTree report by PricewaterhouseCoopers and NVCA, based on data from Thomson Reuters (publisher of VCJ). Since 1990, the median amount invested annually in Silicon Valley has been $6.4 billion, while the average amount has been $7.3 billion, according to VCJ’s analysis of the MoneyTree data.

Moritz’s extreme view might be selling the Valley short. If VCs put $400 million or less into Silicon Valley annually, that would put the region on par with the amount of venture dollars that flow into Dallas and Philadelphia annually. Clearly Moritz set out to raise eyebrows and spark debate.

I don’t think Silicon Valley needs all that money.

Michael Moritz

Promod Haque, managing partner at Norwest Venture Partners, told the audience that VCs have to look for a new “efficiency of innovation.”

There is no doubt startups—particularly Internet startups—are coming together for a lot less. With cheap Intel-based servers and open source software, entrepreneurs can test their ideas for about $500,000 in funding, SV Angel founder Ron Conway told the crowd.

That means an average angel round can be $100,000, and a good sized angel fund $10 million to $20 million in size, Conway said.

If startups survive longer on the same dime, then innovation efficiency becomes a new measure of performance. The theory is this new efficiency (perhaps calculated as a ratio of sales to dollars invested) will lead to better returns.—Mark Boslet