A few months ago (actually back in April) Fred Wilson took a look at how much money can be in the VC world and still allow for profitability. He ended up concluding, “I think ‘back to the future’ is the answer to most of the venture capital asset class problems. Less capital in the asset class, smaller fund sizes, smaller partnerships, smaller deals, and smaller exits.” Of course he believes that though, he’s an established VC. The fewer VCs he competes with, the higher his margins and the better his business.
Yesterday, while delivering the Keynote address at the Future of Funding event in San Mateo, Chris Dixon commented (as quoted by @Fin4Founders on Twitter), “The venture world is the R&D for the United States, it’s not a good idea to shrink it.” Of course he believes that though, he’s an established entrepreneur. The more VC money that exists, the easier it is to get his company funded, the more competition there is to fund it and the better valuation he gets.
The question is, where’s the middle ground? Is there room for growth in the venture world? Will it shrink? I’m not involved in the VC world enough to responsibly speculate on the answers to the questions of what will happen. I can tell you what I think should happen.
Having a little too much money in the venture world is a good thing. It means there are too many “buyers” of good ideas. Hopefully that leads to a market correction in the form of more and better “sellers” of good ideas to fulfill that demand.