The combination of Cringely’s essay on Innovation at Google and Marc Andreessen’s 3-Part post on VCs with follow-up post’s by Kedrosky and Fred Wilson has my head spinning with thoughts of past, present, and future.
Quick Summaries from my bent
Cringely’s post on Google points out that Google can’t fund all the ideas that are being generated and that 4 year vesting is soon to come for many at Google. This means that most of these ideas will “fester” or will get “funded” elsewhere.
Andreessen’s posts on the VC industry. The first is on the batting average ( ~1 HR, 2 basehits, and 7 strikeouts) and time horizon constraints of VC funds which translates into VC are looking to make 10x their investment over 4-6 years. The second post is on comparing firms and firms partners. The third post on the emergence of VC’s as an asset class for big institutional investors is not a surprise, but the statistics are mind numbing. There is more money invested by VC’s today than in the 90’s bubble.
There is a ton to digest here. My first thoughts on all this information centers around the choices between “organic” vs. “acquisitive” growth strategies for technology companies. Today the standard choice for incumbents is “organic” incremental innovation in areas of expertise coupled with “acquistion” for new areas.
Sadly, at an incumbent’s lunch-table this strategy translates to comments like “we do maintenance and none of our new ideas get financed. It would only cost x to have done what we paid 10x for.”
In light of the information presented in the highlighted posts the current strategy makes a ton of sense. (Sorry “organic” developers 😦 ) New ideas, developed “organically” or “externally” all share the same “batting average”, thus the “organic” investment costs a lot more than its unique budget. Couple that with the fact that an incumbent can’t cover all “10” permutations. The “organic” development could easily be one of the 7 strikeouts. This is why most high level “cto/mkt/dev” staff spend more time surveying acquisitions than developing organic ideas.
As long as there continues to be loads of VC money to fund all the permutations of new areas then “organic” developments in these areas will get short shrift. “Organic” developments will continue to be focussed on incremental improvements.
- The Final Days of Google – Cringely
- The truth about venture capitalists, Part 1 – Marc Andreessen
- The truth about venture capitalists, Part 2 – Marc Andreessen
- The truth about venture capitalists, Part 3 – Marc Andreessen
- Why VC Funds Aren’t Shrinking – Kedrosky
- Andreessen on VCs – Fred Wilson
- Is Venture Capital An Efficient and Transparent Market? – Fred Wilson – added June 12