Some great points about the lack of Innovation (see story here) in America and why it might have happened. I don’t agree with all of it but one thing that resonates with me is the Venture Capital Quote (reprinted below)
“My first book, The Breakthrough Illusion, written with Martin Kenney in 1990, argued that the U.S. system of venture capital-backed breakthrough innovation was skewed to encourage short-term super-returns from new breakthrough innovations, and was structurally ill-suited to capturing the longer-term wealth derived from developing these innovations into successful products and industries.”
– Richard Florida, Creative Class Blog (www.creativeclass.com)
This is so right on it’s scary. All Venture Capitalists want 10x in 3-5 years. If you don’t produce that, they are not interested. Period. The model has to change. The whole attitude that the big wins are all that matter actually make Venture Capitalists a lot less capital efficient. The reason stems from throwing good money after bad so that they can ensure the big win and their bandwidth limitations.
A partner in a VC firm can only really do 2 deals a year since practically, they can only be on 6-8 boards at any one time. This is a huge bandwidth limit and the primary reason they want the big win — it’s worth their time to focus on. To put that in perspective, a typical partner will see 2000 deals a year, have 200 pitch meetings, widdle those down to 20 and pick 2 a year. Plenty of good ideas will never get past that filter.
This post starts a series that will look deeper into this. Can’t wait to read it.