Shifting Landscape for VCs

Shifting Landscape For VCs

By Dan Morrill
Expert Author
Article Date: 2007-05-09

This is a good question, what happens when you are a VC, you invest in two companies that are doing something completely different from each other, and then one company shifts gears so that both companies are doing the same thing?

What the article doesn't call out, but which is the subtext in the article, is that VCs are in this dilemma precisely because web companies are often somewhat generic. It's like the dot-com bust all over again. Companies are launching to take advantage of the web (filling the Web 2.0 Conference in droves), but about the only thing they understand is the web, not the actual product/service they're delivering. Source: Info World

The whole idea behind investing in a company is that you plan on getting something out of it, and while VC's have the things they need, like huge profits, and a defined business plan. If company A decides that the current business plan is not going to make money, but here is another idea that might the VC finds themselves tethered to a company that is directionless.

That inability to find a direction praying to hit it big enough on some random idea that they can make money then bail. Very web 1.0 dot com boom and bust kind of thinking, and not that I have to advise a VC of anything, it is their money and they are free to throw it after bad investments.

The long term impacts to the IT Industry is a boom bust cycle driven by too much money following too few quality investments, and not wanting to get left behind. Again, all standard litanies "Never do that again" dot com bust kind of mentality. It is almost like they didn't get the concept or clue on the first go around.

The InfoWorld article also raises an interesting idea about conflict of interest while sitting on the boards of two companies that are funded by the Venture Capitalist that are essentially doing the same thing. Ethics in business is a big thing, and no one wants to preside over the next major corporate meltdown, or be involved in deals that from outside observers could be considered shady.

One good way to check out Venture Capitalists is a site called "The Funded" that was featured in Techcrunch and Techwag yesterday. The site is for both companies seeking funding and companies that do funding. It is a place where people can related their experiences with Venture Capitalists, as well as providing a platform for the entrepreneurs and VC's to give their point of view over how the system works. The Funded is a site that is well worth checking out for both sides of the deal.

Companies and VC's need to be sure of what they are investing in, and that the investment is a quality investment not a "Me Too" kind of site. Everyone needs to do his or her homework, and make sure that there is a real commitment to the business, not to a single-minded approach or scheme of build/sell mentality with no other viable exit strategy.

Conflicts of interest are also another issue that everyone needs to be aware of, and have suitable bail out clauses in the system if companies try to find traction with an ill defined business plan, ill defined reason to exist, or are just testing technology to see which one makes money the best.

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About the Author:
Dan Morrill has been in the information security field for 18 years, both civilian and military, and is currently working on his Doctor of Management. Dan shares his insights on the important security issues of today through his blog, Managing Intellectual Property & IT Security, and is an active participant in the ITtoolbox blogging community.