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Trends in the startup and venture ecosystem

YC’s Paul Graham recently posted an essay on Startup investing trends. These are the killer paragraphs:

There are two big forces driving change in startup funding: it’s becoming cheaper to start a startup, and startups are becoming a more normal thing to do.

When I graduated from college in 1986, there were essentially two options: get a job or go to grad school. Now there’s a third: start your own company. That’s a big change. In principle it was possible to start your own company in 1986 too, but it didn’t seem like a real possibility. It seemed possible to start a consulting company, or a niche product company, but it didn’t seem possible to start a company that would become big.

That kind of change, from 2 paths to 3, is the sort of big social shift that only happens once every few generations. I think we’re still at the beginning of this one. It’s hard to predict how big a deal it will be. As big a deal as the Industrial Revolution? Maybe. Probably not. But it will be a big enough deal that it takes almost everyone by surprise, because those big social shifts always do.

——

The other big driver of change is that startups are becoming cheaper to start. And in fact the two forces are related: the decreasing cost of starting a startup is one of the reasons startups are becoming a more normal thing to do.

I wholeheartedly agree with these observations. They are why I stayed in the venture industry through a difficult decade 2001-2011 and why I’ve now moved to a place where we can make earlier stage investments.

I also agree with many of PG’s later observations, including that the balance of power between investors and entrepreneurs is shifting in favour of the entrepreneur, although I’m not sure that VCs’ businesses will survive if they adopt all of his recommendations. Investors will have to change the way they operate though, that’s for sure, and our aim here at Forward is to be in the vanguard of those changes.

  • https://twitter.com/markstrefford MarkStrefford

    I’d add that the path for people in a job is now changing. I’m seeing more and more of my colleagues and network deciding that corporate life is not what they want and taking that jump into entrepreneurship too. I think the trend will continue though, and I think the lifetime of many of the big corporates is getting shorter by the day.

  • Richard Kelly

    I was going to write a long comment which would exploit my passion for the above paragraphs. But I think the words “I Couldn’t Agree More” work just as well. I’m a believer of the saying “Go Big Or Go Home” and thanks to the 3rd path, we live in a World where going “Big” is possible. I’m just glad there’s an option out there that CAN make your vision a reality.

  • James Penman

    Hi Nic,

    I’d also add a change in attitude captured in this Economist article. ‘The strange rebirth of liberal England':
    http://www.economist.com/news/leaders/21578660-young-britons-have-turned-liberal-both-socially-and-economically-politicians-need-get

    We’re meeting more and more grads/undergrads at Unis to help scale content on our travel sites and this change in attitude is striking.

  • http://www.theequitykicker.com brisbourne

    Big companies used to offer job security, but can’t do that anymore. There will always be big companies, but they will need different resource models.

  • http://www.theequitykicker.com brisbourne

    Thanks Richard

  • http://www.theequitykicker.com brisbourne

    Great article. It gives me hope! Thanks James

  • Richard Kelly

    Your welcome Nic.

    I think a current trend in Startup investing is that most Startups today prefer investment from Angels than VC’s and I think that preferability is down to the amount of input and interest an Angel gives to Startups.

    Most Angel’s have experience in specific fields, thus being able to provide great input.
    VC’s tend to be more interested in the financials. After all, it is their money so why shouldn’t they analyse every move your account makes.

    If the VC’s started offering the ethos of the Angels then we’d have a new breed of VC.

    An idea for VC’s is to provide a network of talent. Startups will always need to expand their team. Offering talent, with no additional fees, makes this particular VC more interesting. This kind of VC shows interest and provides quality options. The same values which are common among Angels.

    Look at Dragons Den – They commonly demand more equity because they know someone, who knows someone’s Uncle, who knows someone else’s cat, who can help them. Offering a free network is the same as giving a Startup access to your LinkedIn connections. It’s a priceless move but it matters.

    Does a VC like this even exist? I’m not familiar with Forward, but the only thing that comes close to this is Angel List. They offer talent. They have access to hundreds of thousands of investors and they aren’t greedy. The entrepreneur has the reins. The biggest quality of this platform is that the entrepreneur is in control and has ACCESS.

    And yes, I’ve just written that long comment I said I wasn’t going to write. Life is too spontaneous to be predictable.

  • http://www.theequitykicker.com brisbourne

    :) I think there are a good number of new breed VCs who have relevant domain knowledge and that leverage their networks to help startups. More in the US, but a few here as well. I like to think that we are one of them.

  • Richard Kelly

    Open to a challenge? Pitch to ME in no more than 140 characters (Tweet size) why a Startup should be more interested in you than anyone other VC?

    I’m going for the “Back Of The Envelope” style pitch once stated by Sir Richard Branson.

  • http://www.theequitykicker.com brisbourne

    Your chances of success are better with Forward

    I make that 51 characters. There’s a lot of reasons why, but in the end this is what it comes down to.

  • Richard Kelly

    It’s amazing how 51 characters has managed to intrigue me.

    What if I told you I was a Startup (quite possibly the most audacious Startup out there today) and I’m taking on Amazon, Net-A-Porter and many others in the online commerce game. Would those 51 characters still apply to me?

    And what if I told you I have a world class team lined up and ready to make this vision real, are my chances still better with Forward?

    My vision has never been done before. But it is technically possible.

    My back of the envelope:

    Augmented Reality Shopping.

    I make that 27 characters. And there’s so much more to us than AR. But this is what WE come down to.

    Open to a challenge?

  • http://www.theequitykicker.com brisbourne

    Those are big promises..

    Bringing inspiration and fun to online shopping is one of the areas we’ve focused on. I’m also a believer in the power of AR, but I don’t think the tech is good enough for shopping. Not yet.

    Why am I wrong?

    Let me know if you’d prefer to move this conversation to email.

  • Richard Kelly

    Email sounds good. I’ll Direct Message you on Twitter my email address.

  • Richard Kelly
  • Richard Kelly

    And to answer your question – AR has its flaws. In fact it has many problematic flaws when it’s applied to shopping. The way we use AR is different to any other way.

    The biggest problem is implementing the AR in the stores. First of all implementing the AR GUI’s is a massive issue because GPS technology (common across User mobile devices) only has a radius of approximately 5m. Which is no good when you need technology that can detect items which are within millimeters of each other.

    But there is a way round this.

    I’m not using the typical gimmick of AR. I’m simply using it as a tool – a keyhole into digital space using reality. Our design doesn’t use object recognition. It doesn’t use GPS as the core location tech. It doesn’t recreate objects into digital form.

    Our design is similar to a prototype from MIT. Our type of AR does NOT exist. Yet.

    If you are interested then tweet me @MrRichardKelly. It’s been a pleasure talking with you. Have a great day Nic.

  • Dan Tomas Ishigaki

    This raises the question of reconciling the 3rd way with the home run. With startups becoming ubiquitous it will be increasingly difficult for A) the entrepreneur to claim originality and competitive edge, and B) for the investor to pick the right horse. My second thought is this situation is mostly related to the web, where IP is notoriously tricky to protect. As pointed out by Richard, the VC model will certainly need to evolve to cope. Discussion and experimentation is underway with variations on the “incubator”. Last thought that this post raised, was to remind me of the Herculean achievements of the great entrepreneurs who built their empires before the emergence of the 3rd way, and before entrepreneurism entered our vocabulary.