End of VC firms?

A very good opinion published on Financial Times:

A difficult pivot looms for venture capital | Financial Times

In truth, the wall of cash in recent years led many VC funds to rely less on discrimination and judgment and more on playing a numbers game, investing in an array of start-ups in the hope that one delivered a vertiginous return. This has always been part of the VC playbook but it became more gamified, descending into an undisciplined play on the momentum of industry and market trends. The standards of due diligence deteriorated.

The reason why this is happening:

These sentiments are delusional. The real problems are broader. We are living in a world of deglobalisation, geopolitical competition and the elevation of resilience over efficiency. These conditions demand rapid advances in science and technology, for markets that are sub-global in scale. For many US VC firms, executing a pivot is not so simple.

As more; the “hard sectors”:

Second, VC firms wishing to reorientate towards critical sectors such as agriculture, computation, energy and life sciences are likely to fail. Many eschewed such sectors: only 12 per cent of the deals completed in the US over the past decade were in the “hard” sectors of energy, hardware, biotech, and pharmaceuticals. Ironically, analysis from In-Q-Tel reveals that two-thirds of the funders for US growth-stage hardware companies between 2015 and 2017 were foreign.

So, in effect, they failed to account for “long-term”; simple. Manufacturing requires considerable effort. Software isn’t eating the world; stupidity is. The firms push through hype cycles, and the dominant ones have their own ecosystems. That’s why it wasn’t surprising that some decided to cut the middleman out of the process and structured the publishing process from scratch. Manufacturing is the key to stable economic returns, not a gamble. It provides real employment. Not the service layer and the “SaaS” flotsam. It is easier to disrupt the business by another well funded “competitor”, and that’s why you have a multitude of players in the market chasing a small pool of clients.

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