Getting Venture Un-stuck From Its Subprime Maelstrom

It is time we treat innovation exploration like a real marketplace and apply an equally rigorous evaluation of merit to innovation’s arbitrage.

I keep hammering on the systemic dysfunction of our financial system in Venture that sits atop the massive entrepreneurial capacity of this country, crushing it slowly to death (having done so for some 20 years already).

And frankly, I start getting a little tired of having to repeat myself, over and over again, spawned by misleading articles from VC bloggers and their cohorts and being surrounded by a halo of negativity (albeit deserved). I prefer to spend my time fixing and building things.

“Be the change you want to see in the world…” Gandhi

Fix 1 of 3: a top-down fix for Limited Partners. Check!
To combat that dysfunction, I took action, analyzed the Venture ecosystem from the outside-in and covered in my presentation “The State of Venture Capital” how Limited Partners (LPs) with $1B in assets under management dedicated to Venture can instantly correct its malaise from here-on-out.

Intrigued, many of the LPs in Venture I spoke with now need to go back to their management and essentially confess how inadvertently they allowed Venture Capitalists so much slack in “playing” with the money they committed, that caused the descent to a predominantly subprime sector in the first place. Some big-boat LPs will find it hard to make the turn and merely leave the sector. In light of the massive opportunity in technology venture that will prove to be a very foolish choice, because unlike in any other committed asset class or sector, ahead in technology venture lies a massive greenfield ready for the taking.

Many entrepreneurs will keep pressing forward no matter what financial system they encounter. Their need to make lemonade out of lemons will force them to submit to subprime terms and conditions prevalent in Silicon Valley today.

Fix 2 of 3: a fix for groundbreaking entrepreneurs. Check!
I run into entrepreneurs all the time (or rather, they run into my philosophies on my website), who have laid the foundation of some groundbreaking innovation that does not fit the mold of subprime investors and is poised to die a sudden death if not helped along. After all, not the false positives are the most significant source of failure in Venture, but the inability to attract real outliers who refuse to be the pimp’s ho.

If I only had the time to dedicate more time to them:

One of those companies was a company with great technology, a much better immersive gaming experience than the Nintendo Wii (available before the Wii) that would dramatically broaden the bell curve of adoption of gaming and, because of the subprime nature of Venture, is now relegated to a less optimal strategy of becoming a technology services company and a PE deal at best.

Another company tapped into a lack of free-market principles in digital photography. Supply and demand transact in artificially arbitrated manners, much like music before iTunes, where the Internet could provide immediate disruptive value to assets sold today. That is if investors would understand that macroeconomic value supersedes pure technology plays.

Another company had developed a small part of a new way to find things on the internet that had the ability, with some significant elevation of its macroeconomic benefit, to become a much more intelligent operating system than what is currently available on the iPhone or the iPad. Again and again, the stale investment thesis of many investors in Silicon Valley fails to recognize the potential of big ideas that have proven to yield significant returns.

Examples abound
But investors with a dumbed-down investment thesis and limited scope will never get to see or hear from these innovations:

“Whether you can observe a thing or not depends on the theory which you use. It is the theory which decides what can be observed”. – Albert Einstein

So, what I decided on is to retake action and capture, nurture and proliferate the creation of groundbreaking innovation by having entrepreneurs not foolishly follow the investor compass but follow their own – with a little help from us – in identifying large social-economic value and help deliver that proposition to prime investors all while making Limited Partners aware of the vast opportunities that still lie ahead.

It is time we treat Venture like a real marketplace.

Let’s lead the world by example with new rigors of excellence we first and successfully apply to ourselves.

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