Durability of Expertise can go beyond the knowledge of one person
In the past, when technology had a generational span of generally twenty years, one’s ability to build expertise was possible. Yet in quickly turning age of modern technology and lifespans of three years or less, the definition of expert becomes much more muddled. How can any group of financiers claim expertise in such a rapidly changing area of knowledge? With that said, what is the advantage of incumbent financiers, without the title of “Expert”? Such questions and their answers point to the changes in venture financing within the past few decades.
In these high turnover industries, ironically, the highest value persons are most likely to be those from the current generation and not their predecessors. Also, there is small to no correlation between an expert’s self-assessment and their actual performance in the field. With the uncertainty technology inherently brings with it and to draw enough value out of any singular expertise, humanity will push the vast majority to the end of a particular technology’s short life and therefore create an inability to establish oneself as an expert in the next rising field. Because of this, it’s more important than ever to draw from the collective crowd to find options.
Market Time Compression
In the past, the industry of Venture Capitalism’s strategy has changed from a slow follower to a fast follower. It used to be able to wait until established markets rose and then fund startups to compete within those markets. But the rate of change increased and venture capitalism had to respond quicker to fund any other plays, turning into a fast follower. Despite their changes, venture capitalism still lack a visionary ability to fund the original movers and this missing skill has been taking them apart. The shortened technology generations forces a compressed market life-time and necessary quicker time to market. When a market lasts twenty years, there’s argument and reason to wait a short amount of time, say two or three years. But when a market lasts only three years, a delay even of a year could be a game ender. As the pace of change increase, the cost of waiting and the loss of opportunity also increases. Too often, by the time venture capitalism is ready to invest, the market has passed. These are the days of the market maker. As more compression within market time occurs, another shift is to be expected. Versatility will be the main factor in going forward within markets and for their financiers as well. For this system to work, those funding the process must be a part of the process. Those funders are best found from the crowd. Admittedly, the venture capital industry is not very innovative, yet constantly push for capital efficiency in their portfolio startups. Such mechanisms are cloud computing, open source tools, crowd sourcing and outsourcing. Venture capital gains its value from providing money for startups, so if less money is needed to begin, then one can believe that Venture Capital has less value. Another trend also taking hold and diminishing the venture capital advantage is the “rolling close”. This funding model has startups taking money from investors one by one until they have enough capital to begin their venture. According to Y-combinator’s Paul Graham, venture capitalism must become excellent at investing at early stages of startups and into enough of them to make good returns and “move the needle”.