Results of a night’s torrential rain.
Flickr version here.
Daily Archives: March 1, 2010
The trouble with Venture Capital?
Aw, shucks: the VC industry is in trouble — at least if this Technology Review article is to be believed.
The real problem is not complex: there’s too much venture capital, and there are too many venture capitalists, for the industry to be really profitable. The industry as a whole now has about $200 billion under management, more than twice what it did in 1998, and venture funds invested $20 billion to $30 billion a year for most of the past decade. And on the level of individual funds, huge amounts of capital combined with falling startup costs have, in Anderson’s words, made funds “musclebound”: a $500 million fund can’t make too many small investments, even if that’s what would make economic sense, because the partners don’t have the time to supervise hundreds of companies. (This is one reason, along with the desire to limit risk, that many VCs have started to wait until later rounds to invest.) In the absence of another bubble, there’s no way for new companies to generate profits big enough to provide a reasonable return on $20 billion to $30 billion a year. Kedrosky, for one, argues that for the industry to consistently generate competitive returns, annual investment and money under management need to fall by more than half. And while Wilson describes himself as “very optimistic” about the coming decade, he says that the industry “needs to return to the size and shape it was in the late ’80s and early ’90s.”
The interesting thing is that this diagnosis is not especially controversial. Most people in the industry think there’s too much money. It’s like traffic, though: everyone thinks there’s too much of that, but no one wants to take public transportation. And while in most businesses competition takes care of the problem by forcing the losers out, here winnowing takes much longer, because venture capital isn’t like the stock market: if you get disillusioned, you can’t just pull your money out of it. The limited partners who invest in venture capital funds make long-term, binding commitments to meet the “capital calls” of the general partners who manage the funds and make investments. This is, from the perspective of innovation, venture capital’s great strength: instead of needing a quick return, it can afford to build companies. Nonetheless, it creates what Wilson calls “a huge amount of latency in the system.” So even though the industry has been moving toward a more sensible balance between money under management and potential returns, it takes a long time to push underperformers out.
This suggests that the industry as a whole still has at least a few years of underperformance ahead.
Travellers in East Anglia are often puzzled by place names like “Adventurers’ Fen”. In fact they are throwbacks to the first wave of ‘Adventurer Capitalists’ — i.e. the people who put up the money to pay for the draining of the Fens.
The glossy mag as App
I’ve long thought that publishing on the Web won’t provide a sustainable business model for magazines, for two reasons: (a) the paywall problem; and (b) the fact that the Web can’t provide the ‘immersive’ reading experience that high-end magazines require. (Some interesting research by the Economist suggests that, in may of their markets, subscribers ‘make an appointment’ with themselves to set aside time every week to read the magazine.) One possible inference is that classy publications stand a better chance of flourishing in an online world if they’re Apps rather than sites. Taking this route addresses the paywall problem (Apple collects the dosh via iTunes store); and it may enable designers to create reading experiences that are more immersive than web browsing. This report suggests that Conde Nast, at least, is beginning to think this way too.
Condé Nast’s plans for the iPad tablet computer from Apple are getting firmer.
The first magazines for which it will create iPad versions are Wired, GQ, Vanity Fair, The New Yorker and Glamour, the company plans to announce in an internal memorandum on Monday.
GQ will have a tablet version of its April issue ready. Vanity Fair and Wired will follow with their June issues, and The New Yorker and Glamour will have issues in the summer (the company has not yet determined the exact timing for those).
The company already sells an iPhone application for GQ. That has sold more than 15,000 copies of the January issue and almost 7,000 of the December issue.
Condé Nast plans to test different prices, types of advertising and approaches to digitizing the magazines for several months before wrapping up the experiment in the fall. “We need to know a little bit more about what kind of a product we can make, how consumers will respond to it, what the distribution system will be,” said Thomas J. Wallace, editorial director of Condé Nast.
The magazines were chosen for their range, he said. “They are representative of the company, right? GQ is men. Glamour is women. Vanity Fair is a dual audience. The New Yorker is unique with its periodicity, and therefore it’s also more news- or text-heavy, and it’s a slightly older audience,” Mr. Wallace said. And Wired has already been working on a reader project with Adobe, the software company that provides publishing tools to much of the magazine industry.
Other than Wired, the digital magazines will be developed internally. “We’re taking a two-track approach partly because we want to learn everything that we can,” said Sarah Chubb, president of Condé Nast Digital.
During the test phase, the company will sell the digital magazines through iTunes. Wired will also be available in non-iTunes formats. While that means Condé Nast will not have access to consumer data — a valuable tool for its marketing — Ms. Chubb said there were other ways to get that information.
Of course, the implication that — once again — Apple will be in pole position to profit from the marketing data that comes from iPad APP sales.