IP: Crisis in Venture Capital and National Security

[Dave Farber <dave () farber net>]

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

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