Is it Morning or Evening?

June 13, 2012

Is it Morning or Evening?

In the last few weeks, two VCs that I respect have published blog posts with vastly different views of the start-up world. On the optimistic side, Mark Suster, General Partner at GRP Partners, argues that “It’s morning in Venture Capital.” On the pessimistic side, Jo Tango, founder and General Partner at Kepha Partners, points out that we are likely at a market peak given that start-ups are hot among the MBA crowd.

Suster is actually refuting the “VC model is broken” analysis of the venture industry. He argues that conditions over the last 10 years were anomalous, and that returns for the venture industry should be strong again. (Hence, “It’s Morning in Venture Capital”). Suster’s primary arguments are that the number of start-ups, the number of online consumers (20x higher), the improvement in exit environment, the proliferation of wireless and broadband create an incredible environment for startup value creation. Further, he highlights that various digital interactions and apps are “payment ready” and that we’re all socially linked as additional accelerators.

According to Suster, it is the best time in history for innovation and technology venture capital.

Jo Tango, on the other hand, takes the contrarian point of view regarding start-ups. Although he does not provide much data, he points to the ebbs and flows of MBA interest in start-ups that can occur, most specifically during the last boom and bust of 1999 and 2000. Basically, because start-ups are cool, and MBA interest is sky-high, it must be a bad time. “When MBAs find a space ‘hot,’ you’re near a market peak.” He warns prospective founders to be prepared to take drastic measures.

These two VCs are not arguing the exact same point and counterpoint, but the positions are not hard to juxtapose. After all, if it’s a great time to be a VC, it should be a great time to be an entrepreneur.

There is certainly an element of truth in both blogs. The market forces that Suster cites are very powerful, and he didn’t even touch on the drive to modernize enterprise systems with more user friendly technology (Salesforce, Box, Google, iPads, BYO mobile, etc.). Then again, the proliferation of start-ups, the rise in valuations, and the mediocre performance of many Internet IPOs should provide a dampening effect and could even portend a peak.

I think we should push for an online debate…