[anatari]

If this trend continues, the implication will be that venture capital will cease to exist as we know it, but instead will resemble traditional private equity where capital is mostly allocated to established viable businesses.

[akbar501]

> venture capital will cease to exist

There is a general consensus that venture capital as we know it will not continue indefinitely.

1.) AWS and it's ilk virtually eliminated the high cost of hardware/hosting from the previous era.

2.) Open source software has eliminated server software expenses. The contribution of OSS to lowering startup expenses cannot be understated. I still remember flying from SF to LA will a million dollars worth of software in my backpack in the 90's. Server software was a big cost that's been nearly eliminated.

3.) Development. Given that #1 and #2 are now close to zero, it follows that entrepreneurs should be responsible for hacking out a prototype, if not a 1.0 release. Obviously, this cost will remain high as a business scales and venture capital will continue to play a role in helping startup founders scale development team. But, there is no reason outside capital should be wasted on building a prototype (with a few exceptions).

4.) Marketing. This will be one of the last vestiges of high cost. Winning in the market is expensive. Venture capital adds value in scaling marketing faster than a company can organically generate cash. It follows that it is fair and reasonable for VC to demand that their financing be used for growth capital, not search capital (i.e. searching for P/M fit)

5.) Management. Building and running a business will continue to be expensive. As with #4, VC will continue to add value here when a company can grow bigger and/or faster with outside capital than it can with organically generated cash flow.

However, there are new models emerging. Capital, at least in a capitalist economy, will move to its most profitable use. If venture capital for technology startups is a profitable use of capital, then VC will continue in one form or another. If not, then it'll die, and the world will be no worse off.

[AznHisoka]

I disagree with #1. Did you see how much they spent per month on AWS? If a normal bootstrapped startup was spending that much, they wouldn't last more than a couple of months.

[akbar501]

@AznHisoka, I did not mean to imply that hosting is free.

What I was driving at is that hosting was previously a multi-million dollar investment.

Before LinTel became the norm, servers ran on Sun, which was extremely expensive at their scale.

[not_that_noob]

The number of small and midsize venture firms unable to either raise a fund or raise a fund comparable in size to their prior fund is growing. There are now many ex-partners from several firms, who have been discarded because the new fund is too small to support them.

On the other end of the spectrum, large funds which supply capital for rocketship companies have been doing well and raising more. These funds are akin to PE, and are primarily supplying the money to keep companies private long after they could have IPO'd. Hence the large valuations for dropbox, etc.

[brador]

Or maybe we're just getting better at identifying viable businesses from earlier metrics.