Howard Anderson’s “Good-Bye to Venture Capital”

My friend Dave Jilk just put a copy of Howard Anderson’s MIT Technology Review article “Good-Bye to Venture Capital” on my chair (I thought it was quaint that he put a xerox copy of the magazine article on my chair instead of emailing me the web page – maybe he was trying to tell me something.)

Howard was a founder of Battery Ventures and then YankeeTek Ventures.  I met him for the first time in the early 1990’s when my first company (Feld Technologies) did some back office network / software work for Battery.  I met him again recently at the MIT Sloan School Dean’s Advisory Council meeting (I’m on the MIT Sloan DAC – among other things Howard is the William Porter Distinguished Lecturer at MIT’s Sloan School of Management.)  It was great to catch up – albeit it briefly – and his mindset during our conversation was very similar to what he talks about in the article.

Howard is saying something that a number of veteran VCs are saying – there are too many VCs in the market, too much VC money trying to invest, and a completely lack of irrational expectations, which are a requirement for the long term success of VC investments.  Howard asserts that a structural change has taken place, rather than a cyclical chance – VC’s thrive on cyclical changes (e.g. buy low, sell high), but structural changes (e.g. the rules are different) causes a real problem.

Yeah – the markets are rational again – but isn’t that just a cycle (I smiled as a wrote that – at least they aren’t irrationally horrifying anymore like they were in 2002.)  While I don’t agree with everything that Howard says, the article is definitely provocative for anyone that is a student of, participant in, or investor in the VC business.

  • Good article by Howard Anderson and definitely food for thought.

    But a little short-sighted I believe. If you believe Ray Kurzweil, there is going to be 20,000 years worth of innovation in the next 100 years. Read his Law of Accelerating Returns if you haven’t already.

    Innovation is accelerating at a double exponential rate. Howard makes great points but he is extrapolating based on conditions today. That is often a recipe for making bad conclusions.

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  • Come on Brad, you’ve got to expand on your areas of disagreement. I’ll cut you some slack and assume you’ll address them soon. Or maybe it’s proprietary info!

    Nivi, I couldn’t agree more re: extrapolation. When I read “…but demand for new technologies is moribund and will continue to be weak for at least the next five years…” I shuddered.

  • Andy – I acknowledge my woosiness in not commenting more aggressively on what I disagree with Howard on – I just didn’t have time yesterday to write a thoughtful rebuttal. Fred Wilson said it well in hs blog today – take a look at

  • Dave Jilk

    No hidden meaning in the photocopy… for whatever reason I assumed that I would need a login to get to the Technology Review site. And I had the paper copy in my hand…

    I have a lot to say about the Kurzweil comments, but briefly:

    – In his book, he conflates the idea of hardware/processor speed & size progress and software progress. He assumes that by making computers smaller and faster, we automatically make them smarter. Just plain wrong.
    – Software, in the current paradigm, has reached a plateau. There is room for innovation, certainly room for a few great new businesses, but the ratios no longer work — for every idea that can spawn one great business, fifty get funded.
    – What is needed to get out of the plateau is not a new “killer app” or a new application of a 30-year-old idea to the Internet, or a CRM tool with even more features. What is needed is a leap in the level of intelligence software has. This is hard — the AI guys have been at it for 40 years or so now — and they still don’t really have a clue. There are glimmers of progress, but until the computer actually gets pissed off when its applications crash, and can figure out where to look for slow network problems without being told, and can go get the information you need before you ask for it, then software progress is just moving buttons around on the screen.

  • Kenn Goldberg

    Howard Anderson is correct BUT only as to the information industry. VC is waiting for oppurtunity, not in IT but in actual technological advancemants where the markets will only get stale if we revisit 1929. We need to look beyond and around the obvious and look for “new” tecnology in the sense of quantum leaps in useful technology for the masses. IT had it’s VC day and with market rationality there is little edge or incentive to take the money out of the mattress. Look for new safety products or something so new that you don’t know how you lived without it. In the interim learn about dealing with adversity and survive.
    Kenn Goldberg (Inventor and generally an outside observer) [email protected] (c) May 19, 2005.

  • There’s an Opportunity in there Somewhere

    I just read Good-Bye to Venture Capital (link via Brad Feld) and the whole thing seems to stand in stark contrast to what I’ve been seeing. I tend to agree more with Fred Wilson. A couple of odd things have happened directly to me over the last few wee…

  • Here

    Howard Anderson at Technology Review: Good-Bye to Venture Capital .

  • So Long, and Thanks for All the Carried Interest

    Howard Anderson, co-founder of Boston VC firms Battery Ventures and YankeeTek Ventures, has decided to leave the VC business and has written about the reasons why. In brief:

    First, technology supply is bloated. Innovation is not dead, but demand f…

  • This is half-empty thinking! Look at it another way and you can certainly see how it’s never been a better time to be an entrepreneur!

  • SVE

    Hard to feel sorry for mourning the end of the irrational VC model with its outlandish payouts. Concerning benefits to society, realizing that the BS pump-and-dump schemes no longer work are only good news. As to Anderson’s taking his marbles and going home: goodbye and good riddance.

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