[p2p-research] big does not necessarily innovate: the current VC model is broken

Ryan Lanham rlanham1963 at gmail.com
Sat Nov 7 00:31:29 CET 2009


What is the desired end for this VC argument?  I simply don't see the point
being made on either side.  Is it me being thick?  What do we want the
answer to be?

What measure is there of innovation that doesn't tie to some economic score
or social value?  Whatever it might be, we must be moving faster than ever
before.  I know of no business persons, economists, scientists or even
artists who do not believe we are in an Age of incredible change.  Most want
to slow it down.  I personally have had several discussions with
scientists--easily had on the web--who say it is moving so fast no one can
be certain of the current.  Whole sets of institutions including academia
seem plausibly in doubt by smart people--Stephen Downes, for example, who we
both respect.  There is obviously a crisis in government...in the arts, in
political and economic philosophy.  Heck, economics is completely in
disarray from the perspective of its own deans.

If innovation is productivity, the economy is again growing in GDP terms.
If it is employment, we would agree there is a great crisis...but employment
has never been much of a measure of innovation, change or transformation.

What outcome do you or J. Andrew want?  Most argue against research
investment by government because it is not economic...which I take to me a
driver of GDP growth.  At some point, there must be a point.  What is it?

I have become confused by what you hope for from VCs.  At some level there
must be a point...get more X or less Y.   The measures and goals tie to
those values.  Without some value parameter at bottom, what is the point?


On Fri, Nov 6, 2009 at 4:00 PM, Michel Bauwens <michelsub2004 at gmail.com>wrote:

> This goes against the argument that 'big concentrations of capital' are
> necessarily more innovative
> research points to the absolute opposite: the growth of vc sizes has been
> detrimental to innovation:
> see http://redeye.firstround.com/2009/10/company-math-vs-vc-math.html
> note that this research and debates come from within the vc community
> itself, not from some wild-eyed social-democratic economist:
> in fact, research shows the exact opposite of what was argued here
> recently:
> These "requirements" are a direct result of the mathematical model that
> venture funds are optimized for.  And as fund's have gotten larger, their
> math has gotten more difficult.  We're now witnessing the conclusion of a
> "10 year experiment" where money invested in venture funds has exploded and
> fund sizes have more than tripled in size.  A decade ago, 75% of all venture
> funds raised were under $100 million.  In 2007, fewer than 25% of all
> venture funds raised were under $100M.  And I don't think it's a
> co-incidence that *VC performance has fallen off a cliff during this time
> period*.  Indeed, we're approaching a point where *the 10-year return in
> venture capital is negative*.  Paul Kedrosky recently authored a paper<http://www.pehub.com/wordpress/wp-content/uploads//usventcap061009202.pdf>for the Kauffman Foundation which discusses this in great detail and
> proposes that the venture industry needs to be "rightsized" -- and suggests
> a 50% reduction<http://paul.kedrosky.com/archives/2009/06/right-sizing_ve.html>.
> --
> Work: http://en.wikipedia.org/wiki/Dhurakij_Pundit_University - Research:
> http://www.dpu.ac.th/dpuic/info/Research.html - Think thank:
> http://www.asianforesightinstitute.org/index.php/eng/The-AFI
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Ryan Lanham
rlanham1963 at gmail.com
Facebook: Ryan_Lanham
P.O. Box 633
Grand Cayman, KY1-1303
Cayman Islands
(345) 916-1712
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