Innovation past and future: the Hidden Cost of Venture Capital

Posted by Andy_Updegrove on Nov 3, 2008 12:07 PM EDT
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If you hail from one of the hot beds of high tech - Silicon Valley, say, or (in my case) the Route 128/495 area of Massachusetts, you've doubtless heard the phrase "serial entrepreneur." What those words describe is someone who has started several companies, and the phrase, when used, is invariably regarded as a compliment. These days, if such a serial entrepreneur has some major successes under her belt, that makes her one of the elite of the high tech nobility - someone with the golden touch, that can turn ideas into huge returns for founders and investors alike. But should this really be a compliment?

That may sound like a silly question, until you remember that in order to start a new company, you need to get rid of the old one - or at least leave it in someone else's care. That isn't how the great companies of the past came to be what they are today, and it makes me wonder where the great companies of tomorrow may come from.

A lot has changed over the thirty years that I've been representing emerging companies. Way back when, venture capital funds were small - $20 to $50 million, and they typically had ten year terms, with options to extend for another three, so that any non-public portfolio stock could be liquidated through an "at-last!" IPO or company sale. If a fund got lucky and sold a portfolio company early, it plowed the money back into new investments. In short, VC money was a lot more patient back then. Entrepreneurs were different, too. Almost to a man or woman, they wanted to build a company and run it for the rest of their careers.

All that changed as venture capital got to be more popular with investors.

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