EarlyStageVC: Venture 2.0 - Preamble

Peter Rip, a partner with early stage venture firm Leapfrog, has started a series on the evolution of the VC world, which he calls VC 2.0. Despite the fact that I'm calling for a moratorium on 2.0-ing things, this is clearly going to be an interesting set of essays.

These are his premises:

A belief in forward-averaging the returns assumes that history will repeat. The thesis of these essays is that the venture cycle has fundamentally changed for Information Technology and that formulae that worked over the past 20-30 years no longer broadly apply.

• Globalization is both a risk and an opportunity with venture branding.
• Capital is no longer scarce, nor is access to venture capitalists.
• Information technology is no longer rarified and, in many cases, it is inexpensive.
• Global 2000 Enterprises, once the 'go to' customer for any fledgling IT startups, no longer have the risk profile they once had for IT innovation.

With IPOs thin on the ground, yet capital (and access to venture capitalists) increasingly available, argues Rip, the VCs have entered into a world of stagflation. As an asset class, they're going to have some difficulty providing returns that justify their fees. So, whither VC? Cleantech or other types of diversification? Expand dealflow by bringing their capital to foreign startup markets?

The last point, about enterprise IT, is of particular interest to me. Is it really true that large businesses (say, greater than $1 billion in revenue per year) no longer have an appetite for technology from startups, or is it that, when capital is plentiful, entrepreneurs and VCs alike target the larger rewards of the mass market? There are 2000 companies in the Fortune 2000, but hundreds of millions of consumers out there looking to be entertained on the internet.

I'm keen to see the upcoming essays.