May 17 2005

Howard Anderson’s “Good-Bye to Venture Capital”

My friend Dave Jilk just put a copy of Howard Anderson’s MIT Technology Review article “Good-Bye to Venture Capital” on my chair (I thought it was quaint that he put a xerox copy of the magazine article on my chair instead of emailing me the web page – maybe he was trying to tell me something.)

Howard was a founder of Battery Ventures and then YankeeTek Ventures.  I met him for the first time in the early 1990’s when my first company (Feld Technologies) did some back office network / software work for Battery.  I met him again recently at the MIT Sloan School Dean’s Advisory Council meeting (I’m on the MIT Sloan DAC – among other things Howard is the William Porter Distinguished Lecturer at MIT’s Sloan School of Management.)  It was great to catch up – albeit it briefly – and his mindset during our conversation was very similar to what he talks about in the article.

Howard is saying something that a number of veteran VCs are saying – there are too many VCs in the market, too much VC money trying to invest, and a completely lack of irrational expectations, which are a requirement for the long term success of VC investments.  Howard asserts that a structural change has taken place, rather than a cyclical chance – VC’s thrive on cyclical changes (e.g. buy low, sell high), but structural changes (e.g. the rules are different) causes a real problem.

Yeah – the markets are rational again – but isn’t that just a cycle (I smiled as a wrote that – at least they aren’t irrationally horrifying anymore like they were in 2002.)  While I don’t agree with everything that Howard says, the article is definitely provocative for anyone that is a student of, participant in, or investor in the VC business.