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.