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IP: Crisis in Venture Capital and National Security
From: Dave Farber <dave () farber net>
Date: Wed, 03 Jul 2002 14:43:14 -0400
Crisis in Venture Capital and National Security by Mark Stallman <Newmedia () aol com> One of the perhaps overlooked fallouts from the DOT.BOMB collapse is the longer-term impact of what is turning out to be a very deep and long-term crisis in the Venture Capital industry. Simply put, there is virtually ZERO money available for early-stage innovative computer/networking technology company formation in the U.S. today. This crisis really must be seen as a potential threat to national security, given the technological world in which we now all live. How did this happen? The ³madness² (actually a sort of secularized MILLENIAL madness) of the late 1990¹s dramatically distorted the venture business . . . almost beyond recognition. What was originally a named for a shortened version of ³adventure capital² and what was originally composed almost entirely of ³family offices² (i.e. Rockefeller, etc.) investing for what might be multi-generational ³returns,² became a matter of ³alternate asset allocation² in which every pool of capital was expected (actually compelled) to participate. As a result, tens of BILIONS were raised from the wrong people with the wrong set of caveats attached. Limited partners (the source for most venture funds) were effectively promised low risk through rapid exit liquidity strategies . . . dependent on an endless stream of ³greater-fool² IPO sales of questionably valued securities. This money overwhelmed whatever actual VENTURE capital might have been available and due to the mechanism of paying venture managers a fixed management fee from TOTAL capital committed those who should be managing much smaller ³true² venture funds are TRAPPED (by their own paychecks) into shepherding much larger PRE-PUBLIC money funds. At the same time, the generally terrible performance of corporate funds (at Intel, Sun and elsewhere) has simultaneously taken these players off the field. Ultimately, the low-level of understanding about the processes involved and the general interest in KEEPING QUIET about what really happened few want to ³give back² the money that is paying them millions annually for doing relatively little has left those who might step up to fund actual venture investments (as well as those who might leave academic and other labs to start companies) dazed and confused . . . and, therefore, mostly sitting on the sidelines. Ironically, perhaps, at just the moment that the CIA famously launched their venture-arm, In-Q-Tel which in many ways is an ³adjunct² to the legendary Kleiner-Perkins is exactly the moment when the collapse of the venture business overall has most weakened the defense and intelligence communities access to new ³breakthrough² computer science. It is this author¹s firm belief that Moore¹s Law reflects itself in macro-economic terms with a CYCLE of ups and downs as new PLATFORMS are launched, attract tens of thousands of people¹s attention, sell billions worth of new systems and, eventually, reach market saturation. The period of this TECHNO-ECONOMIC cycle is eight years and there have been exactly five of them over the past 35+ years. (See www.markstahlman.com <http://www.markstahlman.com/> for further details.) We are now at the beginning of a very significant new cycle (possibly even a new multi-cycle ERA), which will begin the commercialization of a sweeping set of capabilities which have been bubbling up from the labs over 20 years or more. We are on the verge of building what MIT¹s Michael Dertouzos called ³Human-Centerer Computing² (see his ³The Unfinished Revolution² for an excellent description of what lies ahead) . . . and in the process of solving what IBM correctly calls a ³crisis in complexity² in existing systems (see IBM¹s ³Autonomic Computing² manifesto for further details). Pointedly, we are going to SCRAP much of today¹s installed-base along with the massive SECURITY problems inherent in these designs and replace these systems with radically improved ARCHITECTURES. The ³inventions² are there and so are the ³inventors.² But, where is the CAPITAL? It doesn¹t exist. This is very serious crisis, indeed. Mark Stahlman Director New Media Laboratory New York City newmedia () aol com (212) 645-5444 For archives see: http://www.interesting-people.org/archives/interesting-people/
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- IP: Crisis in Venture Capital and National Security Dave Farber (Jul 03)