Umair Haque / Bubblegeneration
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Friday, September 24, 2010

What You Can Learn From Silicon Valley's Mistakes


So, by now you've heard of Angelgate. Yawn. The real problems in the ventureconomy are bigger, wired into the DNA, hidden in plain sight.

Consider deal "syndication". Yes, venture investors need to manage risk. By parcelling slices of deals out to their pals? Sounds a little 18th century to me. Why not a futures market for venture finance - a real risk transfer mechanism? What's stopping that kind of real, institutional innovation?

The problem's this. The ventureconomy is just about the least efficient mechanism for igniting innovation imaginable: it's an old boys' club. In econ 101, we'd probably call it "crony capitalism" (and that usually tends to stop meaningful investment dead in its tracks, fuelling misallocation and disinvestment instead).

From an economic perspective, it's little different from most industries. An oligopoly that's run by a handful of dudes with preferential access to capital and relationships. Replace "big evil companies" with "sluggish, imaginationless funds", and you get the picture.

A 21st century ventureconomy, just like other 21s century industries, will be built markets, networks, and communities. Ask yourself: why aren't there transparent markets for venture finance? Liquid networks to let resources be shared, pooled, and remixed amongst aspiring entrepreneurs and seasoned investors? Transparent, self-organizing communities to pool, aggregate, and filter knowledge, access, and even investment ideas?

If Angelgate says anything, it's this. The "superangels" are replicating the 20th century ventureconomy, at a slightly smaller scale. The institutions are the same - and hence, a new old boys' club is taking shape. Yawn.

The real question for Silicon Valley 3.0 is: who can think beyond "funds", "product", "revenues", and "scale"? Who can move beyond merely making another old boys' club - and structurally reshape the ventureconomy, with liquid, open, transparent, accessible markets, networks, and communities?

Without it, the Valley's long, steady decline (hi, IPO window that never opens) is sure to continue. Because yesterday's approach to financing, seeding, and managing stuff is too inefficient, unproductive, self-destructive, rife with conflicts of interest, myopic, and simple ineffective to last.

And because that lesson applies to, well, everything, that's what you can learn from Silicon Valley's mistakes.

-- umair // 12:24 PM // 0 comments


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