Venture capitalists may be experts in judging business plans for geeky semiconductor startups. But in the Web 2.0 world, where a website’s success hinges on its popularity with the young, VCs are at a loss.
So says Geoffrey Moore, a partner at Mohr Davidow Ventures, who claims his investing peers are ill-suited for investing in the next generation of Internet leaders for a simple reason: ““This is a terrifying thought. VCs are not cool. But the money is in cool.”
Moore, in speaking to attendees at October’s IBF Early Stage Investment Conference in San Francisco, observed that blue-shirted venture capitalists are probably no more adept at picking a the next MySpace than they are at leading fashion trends.
Then again, he admits he’s not one to judge. Moore, the author of Crossing the Chasm, watches his colleagues go online to upgrade their professional networks for the 2.0 age, but he has turned down the sector altogether. “I’ve rejected every LinkedIn invitation and every other social networking invitation I’ve ever received,” he says.
Moore’s cohorts at MDV don’t appear to be heeding his advice. So far this year, the firm has invested in four Web 2.0 companies, including video sharing site Fliqz, wiki hosting provider Conceve, mobile search startup Medio Systems and social networking site Hi5.
Another DFJ space case?
One has to wonder if Don Wood hasn’t spent too much time near his cohort and Rocket Man Steve Jurvetson, whose penchant for model rocketry is the frequent subject of his Flickr photo stream.
After all, Wood, the globe trotting Draper Fisher Jurvetson managing director, recently added a unique souvenir to his office collection—a photo of him in Russia standing in front of the rocket that launched Sputnik in 1957.
Wood took a break from his trip to Russia to see the Space Pavilion of the All-Russian Exhibition Center in Moscow. The main draw of that exhibit is the 8K71PS, informally known as the “Sputnik Rocket.” The modified R-7 intercontinental ballistic missile carried the first Sputnik satellite into space 50 years ago last month. Wood was in the area to help cement DFJ’s recent partnership with Bank VTB to build a $150 million Russian affiliate. The fund will take advantage of matching funds from the Russian government designed to stimulate the country’s tech industry.
Prodigal son Moritz returns home
Sequoia Capital’s Michael Moritz last month returned to Cardiff, Wales, the city of his birth, to talk to the Cardiff Business Club about how he amassed more than $1 billion in wealth betting on hot tech companies.
Moritz, who went to Howardian High School in Cardiff, the capital of Wales, said his firm, which has backed Internet businesses such as Google and YouTube, believes in the cultivation of knowledge and confidence in the young entrepreneurs behind the startups.
“I have now come to the conclusion that the preserve of great intelligence is lodged in people far younger than I,” said Moritz, according to icWales news service.
“There is a phrase in the U.S. when you invest in a small company run by young people, and it’s a horrible phrase. It’s called ‘adult supervision,’” Moritz told the crowd. “It means surrounding enterprising young people with all the conventions of middle age.”
Attracting limited partners is easy when you’re a top-tier firm. But for upstarts, rejection is as routine as bad business plans.
That’s why some first-time fund-raisers have taken to telling LPs: “My second fund is already oversubscribed,” says Bill Reichert, managing director at Garage Technology Ventures. That should be interpreted to mean: “I’m still raising my first fund. Every LP I’ve talked to told me to come back when I’m raising my second.”
Of course, limited partners have sound reasons for turning down emerging managers, says Paul Yett, managing director at Hamilton Lane. History shows it can be a very expensive tuition payment.
“They say it takes $30 million to train an early stage venture capitalist,” he says. “I think there’s some truth to that.”