Decius wrote:
] ] Our methodology was simple. We examined 1303 electronic
] ] high-tech initial public offerings for a 10-year period
] ] ending in 2002. We limited ourselves to IPOs from the New
] ] York Stock Exchange and Nasdaq, which were ground zero
] ] for the telecom and dot-com explosion of the 1990s. We
] ] sorted out those that were VC-funded and compared them
] ] with those that were not. We rated them on a scale of 1
] ] to 5, with 1 being the most technically innovative. [See
] ] sidebar, "Scoring Innovation."]
] ]
] ] We were shocked by what we found. Overall, the level of
] ] innovation during that decade was surprisingly low. Even
] ] more dismaying, it did not correlate well with VC
] ] funding: the level of innovation actually dropped sharply
] ] after 1996, even as venture funding was going through the
] ] roof.

My first reaction to this was one of excitement. Anyone who's dealt with a VC can tell you simply by intuition that they're not true purveyors of innovation, but rather people who are willing to take more risky investments to hopefully generate more return. It's the cult of VC that has turned it into some sort of papacy and spread all kinds of myths and lies about how the process works and what it truly does for the economy. I figured this article might actually put more than intuition into it and come up with some real facts and figures.

But despite having the look and feel of facts and figures, it really doesn't succeed at proving anything other than intuitive sense. While I appreciate the run down of how funds operate from the inside out, what motivates them, and what parameters are they under, none of this is earth shattering news, and none of it was used to construct or defend the argument that VCs don't support or produce innovation.

The only thing that was even close to making that argument was their case of inPhase technologies, which has required many years of R&D funding to generate a prototype product. Great. Fantastic. Probably truly innovative (that's purely subjective btw, even using the author's methodology of evaluation). What they're not telling you is that I'm sure their fund has taken a disproportionately large cut of equity in exchange for this slow burn. So what's the fucking difference? If a VC wants to take 30%+ of your equity in exchange for a return or liquidity event in 2-4 years, then simply burning longer and taking more equity does not make you a better supporter of innovation. If anything, you're not INNOVATING the process of turning research into commerce by doing this. You're just stretching the parameters a bit.

So while I agree passionately about some of the quotes that come from this article ("True innovation requires patient investing rather than the boom-bust mentality we have been seeing from VCs."; "So, of course, the pendulum has swung too far the other way. Since the 20... [ Read More (0.3k in body) ]