Technology, Venture Capital, Private Equity

Perspectives from an Indian VC

Archive for October, 2007

Is the current VC model ripe for disruption?

Posted by Arun Uday on October 19, 2007

Have been irregular for the past few days in posting, mainly on account of a heightened deal activity here. Expect things to clear up in a couple of weeks and resume regular blogging. Meanwhile, happened to visit the site of a SV based early stage investor – First Round Capital. Their investment thesis had an interesting point, which had me thinking. To quote from the site – “We love investing in technologies and business models that are able to shrink existing markets. If your company can take $5 of revenue from a competitor for every $1 you earn – let’s talk!”
I think what this effectively means is that they are looking at industries which have huge inefficiencies and/or players who could do the same thing (profitably) that competition is now doing but at a much lower cost. Examples that come to mind readily are the outsourcing industry (India for IT and China for manufacturing) and internet advertising industry (Google in particular), which had lots of wasteful expenditure, which new entrants were able to eradicate. Thats all fine. But, here’s the interesting bit – the other large industry that I can see where also there is a huge degree of “inefficiency” is the VC industry itself. Consider all the billions of dollars that are poured every year on startups that never go anywhere. Could there be disruptive models in the VC industry as well, which would reduce if not eliminate inefficiency? Paul Graham, who runs a popular incubation project called Y Combinator discusses this in an essay. He basically argues that given all the changes in the technology landscape, starting up has become so easy, that the VC industry also needs to move towards an assembly line style “standardization model” rather than the old fashioned “customization model” that the VC industry has been employing so far. As one would imagine, Y Combinator does just that. Is this a disruption that could change the VC landscape? Wonder how our friends at First Round Capital would react to this idea.

Posted in Uncategorized | Tagged: , | 2 Comments »

A corporate finance conundrum (Part 2)

Posted by Arun Uday on October 1, 2007

The valuation question posed in my last post had three responses. Two readers suggested that the cash needs to be added back and one said that it needs to be left alone. And now for the right answer – neither is correct. It in fact needs to be subtracted. Let me “prove” that to you.
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Posted in corporate finance, valuation | 7 Comments »