a day ago
- Venture capital funds face a squeeze from four directions: too much money chasing too few deals, decreasing startup costs due to open source, Moore's law, the web, and better languages, Sarbanes-Oxley increasing regulatory burdens, and acquirers buying startups early before they need VC funding.
- Startup costs have dropped dramatically—software is free, hardware is cheap, promotion is free via the web, and modern languages like Python or Ruby enable single programmers to build applications.
- Sarbanes-Oxley deters IPOs, making acquisition the primary exit for startups, which shifts the VC role to building companies for acquisition.
- Acquirers like Google are now buying startups at the Series A stage, bypassing VCs and undermining their traditional model.
- Proposed solutions for VCs include lobbying to loosen Sarbanes-Oxley and allowing founders to partially cash out in early funding rounds to align risk incentives.