Sunday, November 16, 2008

The More Things Change, the More They Stay the Same

As this discussion about whether the venture capital model is broken gets underway - again - I pulled together a bit of perspective. I call it Things I heard when I first joined the world of venture capital as an intern in 1991. For those more recent to this industry, during that period the business was down and out after the '88-90 debacle. Many funds had stopped investing, there were few IPOs, older guys were retiring, cents-on-the-dollar returns, etc… I remember thinking maybe I should have my head examined for coming into VC just as it was dying. My boss at the time, Bill Hambrecht, wondered the same thing…

So here are a few of the things people were saying in 1991:

• “The VC model is broken”
• “There is too much money chasing too few deals”
• “VC’s are too arrogant and the pitching process is too inefficient”
• “Superfunds with $100 million or more are in trouble and will fail”
• “Software companies are much more capital-efficient and this requires a new way of thinking about VC”
• “Software is over as a category. Just like disc drives, there are too many me-too companies. Only the big ones will survive”
• “LP’s are moving away from VC as an asset class given the return profile and future prospects”
• “The number of firms will decline dramatically” (was about 600 then, depending on what you count)
• “IPO’s are much tougher and will stay that way; exits - and returns - will suffer for a decade or more”
• “Future opportunities are in biotech and ’specialty materials’, not IT".

The above were not just random comments, but in fact the ‘prevailing wisdom’ of the day held by many, including lots of VCs, entrepreneurs, LP’s, etc.

By contrast, here is what I hear today…

• “The VC model is broken”
• “There is too much money chasing too few deals”
• “VC’s are too arrogant and the pitching process is too inefficient”
• “Superfunds with $200 million or more are in trouble and will fail”
• “Internet companies are much more capital-efficient and this requires a new way of thinking about VC”
• “IT is over as a category. Just like web 2.0 companies, there are too many me-too companies. Only the big ones will survive”
• “LP’s are moving away from VC as an asset class given the return profile and future prospects”
• “The number of firms will decline dramatically” (is about 1200 now, depending on what you count)
• “IPO’s are much tougher and will stay that way; exits - and returns - will suffer for a decade or more”
• “Future opportunities are in ET and Nanotech, not IT”

I actually agree with a number of the sentiments above. Of course, I did back then, too. Yeah, I know. This time it’s different. Right? I wonder, in 15 years, what we will say.

Whenever I read these kinds of discussions, it always takes me to a more humble place, where I realize history tends to repeat far more often than not, no matter how much we wish it were not so. It also reminds me of a bunch of my favorite famous quotes from the past…

“640K (of conventional memory) ought to be enough for anybody.” – Bill Gates, CEO and founder of Microsoft, 1981

“There is no reason anyone would want a computer in their home.” — Ken Olson, president, chairman and founder of Digital Equipment Corp. (DEC), maker of big business mainframe computers, arguing against the PC, 1977

“Transmission of documents via telephone wires is possible in principle, but the apparatus required is so expensive that it will never become a practical proposition.” — Dennis Gabor, British physicist and author of Inventing the Future, 1962

“There is practically no chance communications space satellites will be used to provide better telephone, telegraph, television, or radio service inside the United States.” — T. Craven, FCC Commissioner, 1961

“The world potential market for copying machines is 5000 at most.” — IBM , to the eventual founders of Xerox, saying the photocopier had no market large enough to justify production, 1959

“I have traveled the length and breadth of this country and talked with the best people, and I can assure you that data processing is a fad that won’t last out the year.” — The editor in charge of business books for Prentice Hall, 1957

“Computers in the future may weigh no more than 1.5 tons.” — Popular Mechanics, “predicting” the relentless march of technology, 1949

“Television won’t last because people will soon get tired of staring at
a plywood box every night.” — Darryl Zanuck, movie producer, 20th Century Fox, 1946

“I think there is a world market for maybe five computers.” — Thomas Watson, chairman of IBM, 1943

“Who the hell wants to hear actors talk?” — H.M. Warner, Warner Brothers, maker of silent movies, 1927

“The radio craze will die out in time.” — Thomas Edison, American inventor, 1922

“That the automobile has practically reached the limit of its development is suggested by the fact that during the past year no improvements of a radical nature have been introduced.” — Scientific American, Jan. 2 edition, 1909

“Heavier-than-air flying machines are impossible.” — Lord Kelvin, British mathematician and physicist, president of the British Royal Society, 1895

“X-rays will prove to be a hoax.” — Lord Kelvin, British mathematician and physicist, president of the British Royal Society, 1895(?)

“The phonograph has no commercial value at all.” — Thomas Edison, American inventor, 1880s

“Everyone acquainted with the subject will recognize it as a conspicuous failure.” — Henry Morton, president of the Stevens Institute of Technology, on Edison’s light bulb, 1880

“Drill for oil? You mean drill into the ground to try and find oil? You’re crazy.” — Drillers whom Edwin L. Drake tried to enlist to his project to drill for oil, 1859

“Rail travel at high speeds is not possible because passengers, unable to breathe, would die of asphyxia.” — Dionysius Lardner, Professor of Natural Philosophy and Astronomy at University College, London, and author of The Steam Engine Explained and Illustrated, 1830s

“…so many centuries after the ‘Creation’ it is unlikely that anyone could find hitherto unknown lands of any value.” — Committee advising King Ferdinand and Queen Isabella of Spain regarding a proposal to provide venture capital to Christopher Columbus, 1486

“Stock prices have reached what looks like a permanently high plateau.” — Irving Fisher, Yale University Professor of Economics, 1929 (two weeks later, the stock market crashed and the Great Depression started)

And finally, as it relates to predicting the future:

There are many methods for predicting the future. For example, you can read horoscopes, tea leaves, tarot cards, or crystal balls. Collectively, these methods are known as “nutty methods.” Or you can put well-researched facts into sophisticated computer models, more commonly referred to as “a complete waste of time." — Adams, Scott

Predicting the future is easy. It’s trying to figure out what’s going on now that’s hard. — Dressler, Fritz

The more unpredictable the world is the more we rely on predictions. – Rivkin, Steve

It’s tough to make predictions, especially about the future. — Berra, Yogi

http://fiveyearstoolate.wordpress.com/2008/11/15/the-more-things-change-the-more-they-stay-the-same/