DISQUS

Dynamic centrality is the term for these sorts of networks.

http://papers.ssrn.com/sol3/papers.cfm?abstract...

Well then we need an IPO market.

I appreciate the perspective.

You are unusually articulate for such a young baby.

Since the IPO market is now closed, I believe the limits to the scale of VC investment will over the next few years at least be set by the money that flows to startups from public company buyers.

My question about this is why do VCs emphasize their relationships to entrepreneurs to LPs? Are their VCs that emphasize their relationship to large companies?

http://brokensymmetry.typepad.com/broken_symmet...

In general, I think most VC funds could do more for the public company acquirers of their startups. For example, how many VCs have spent much time visiting with the engineers at Google, Cisco, and so on, figuring out exactly what they are most interested in seeing developed?

I think part of the answer to this is that Google and Cisco don't like people to know too much. But a VC with a good reputation should be able to negotiate confidentiality.

Patent rights together with know-how from a small group of engineers with one or two business people is all that are necessary to develop a product or service idea enough to justify acquisition in many cases. The traditional model is on steroids.

Yeah, I was just going to say. It can be hard to distinguish between a Poisson distribution and a power law. In most cases where people say "power law," I think they mean "power law to a good approximation within this range of the domain." True scalability is rare. If it's a poisson distribution, then it could be approximated as gaussian pretty well in the limit of exits at very low frequency. So maybe exits this year might be well approximated by a gaussian. But averaging over long time periods, probably a poisson distribution is a better fit.

Another thing to bear in mind is that the fit for a power law approximation is going to depend on whether you include the set of exits in the late 1990s early 2000s in your set.

My guess is that VC investment scales better than you'd expect looking at the distribution of exits over the past few years, but worse than you'd expect from looking at the late 1990s and early 2000s. The margin for error in that guess is wide enough to easily capture the numbers that Fred projects above.

Any comment on how F is different from FF?

A great sign of life in the valley. Let's hope this is the first of many more deals to come this year.

Is there any additional information about how the outage occurred? There so much editorial commentary here and so little fact.

I'm no respecter of persons, and neither a degree nor the name of a school by itself is going to impress me. But people have to learn a field before they can make a creative contribution to it, and there are some fields that are hard to learn without at least some formal education. Add to that the fact that the youngest successes tend to attract our attention, and I believe there's some bias in our perception of these things. To wit, the Kauffman Foundation published statistics months ago showing how the average successful entrepreneur actually did have a formal education and is older than most people would guess. Sorry I don't have a link.

If you really want to get the inventors' point of view, you should invite Nathan Myhrvold to guest blog. I bet he'd be up for it.

Sounds like we agree. Software isn't so capital intensive either. Besides that any industry for which trade secrets are a viable alternative to patent protection is going to find patents a burden.

It's worth pointing out for non-specialists, however, that the Courts severely restricted the scope of software patenting last year in Bilski. As that decision works its way through the system and begins to show up in district court decisions, at least some of the patent troll problem for software and consumer Internet companies is going to go away. I would guess that the lawyers for nearly all of your portfolio companies defending suits brought by patent trolls are looking into Bilski defenses right now.

Valuing patents at the cost of litigation is an abuse of the system. But if tuned up properly, a patent system can actually promote innovation by keeping independent inventors in the game with established incumbents. Maybe they're unnecessary in the consumer Internet industry because capital expenditures are so low now on an absolute scale. That doesn't make them unnecessary in other industries, and new medical treatments, in particular, will be much harder to finance without patent protection for new entrants.

You may enjoy Michael A. Gollin's book on Driving Innovation, which he guest blogged about at Broken Symmetry:

http://brokensymmetry.typepad.com/broken_symmet...

The simple fact of the matter is that the economics of consumer Internet startups are quite different from the economics of more capital intensive markets, including biotech, pharmaceutical, and even semiconductor equipment. So long as everybody is yoked together, nobody is likely to be happy.

But thanks for taking a slightly more nuanced look at the issue than most consumer internet VCs.

Buy puts one year out at 330. You make money by not losing money.

I'm starting to like these rants. :-)

I was flabbergasted when I first learned about FAS 157 back in 2007. I kept asking the accountants who were teaching me about it, "Why should my valuation be so closely tied to what's happening in the market right now when I might have bought a long time ago, and might not be selling for a long time in the future?" In fact, the mark-to-market rule is pro-cyclial, turning one good exit into a market-wide rally -- or one bad writeoff into a market crash.

But the accountants shouldn't be faulted too much for the rule. Accountants are not theorists, even if accounting rules require a good understanding of theory.

The fault lies with the financial services industry, which wanted rules that would promote more buying and selling. Buy and hold is good for everybody but the croupiers.

Good companies, but not as cheap as some other good ones right now.

The thaw began when the excessive optimism turned into excessive pessimism, about six weeks ago.

If you don't know of him already, I would read a little about Gouverneur Morris. He's up there with Franklin in my mind. But of course he wasn't a president either. It's hard for me to count that against him. I wish that the cultural norm of their generation, which made power something to be accepted rather than grasped, were still the norm in ours.

There is some irony in your comparison of Jefferson to Obama, as Jefferson famously got the most important and divisive issue facing the founders wrong.

All the airlines are cutting capacity for 2009. Unfortunately, something like this scenario is going to get more common.

I know that netted out, investors have lost money on airlines since they were invented. But at this point, the difference in quality of service between commercial and low-end private (XO Jet, NetJets) is so great, that there is plenty of money to be made by the team that gets this right. The ability to hedge against oil is there. The ability to handle the logistics of scheduling is there (engineers are more available). I bet some airline startup is going to make a fortune coming out of this market downturn.

Right on. The unintended consequence of SOX is that it favors incumbents.

All true, but there are other good companies out there that can be had at prices less than half their annual revenue.

Ressi has some good points. Although it's never been cheaper to communicate with a large audience, private investment is still confined to a relatively tiny set of networks.

The problem is that these networks are protected from competition with any real alternative means of financing by... the SEC. The rules for private placements effectively prevent entrepreneurs from leveraging new technology to their advantage in reaching out to potential investors. Until the SEC rules change, not much is going to disrupt the power structure within VC and PE.

On the other hand, I think the serious mismatch between the supply of new product ideas and the supply of business teams to execute good ones is going to get corrected by investors with a renewed focus on IP.

"You have to describe the invention, but you don’t need all of the supporting materials, illustrations or other documents. "

Um. This is simply incorrect. If your provisional application doesn't provide proper 112 support, then you won't get the benefit of its filing date. Period.

It is simply bad advice to advise a company or inventor that they can save costs by filing provisionals. Provisionals will never mature into patents without being refiled as nonprovisionals. You cannot save the time and money required to get a patent by filing a provisional. Filing provisionals should be done only to preserve rights, for example, when trade secrets have been or will be disclosed accidentally and there is no other way to avoid loss of (usually foreign) rights.

First sign of a bottom I've seen.