Venture capitalist Roger McNamee has a posting on his blog today that makes a case I've heard before, but more strongly than I've ever heard a VC make it. From 1975 to 2000 companies benefited the most from advances in technology, but since then the biggest advances have been for consumers, he argues. Think iPod, TiVo, digital cameras, Blackberry etc.
McNamee is an admitted gadget-holic. But I think a lot of people would agree with him. Where McNamee surprised me was saying that he expects consumers to be the big beneficiaries of cool technological advances for the next decade, and maybe longer. Perhaps companies like Hewlett-Packard and Dell agree—they are sure jockeying for position in the consumer electronics market.
But what does this mean for venture capitalists? Most have cut their teeth building companies that sell to businesses. That's where their contacts are. That's where their biggest home runs have been too. In the last few years, VCs have been talking a lot about getting a piece of the consumer electronics boom (Witness the record number of VCs at the Consumer Electronics Show this year), but many are stuck when it comes to writing the check.
They don't want to build a piece of hardware or any end product that's going to require a lot of branding. You can certainly understand why: Look no further than TiVo or NetFlix to see how hard it is to build a consumer company from scratch. Just getting the product right and inspiring a rabid user base isn't enough. Even revolutionizing an industry, like NetFlix did for DVD rentals, may not be enough.
Danger Inc, which makes the popular "Sidekick" mobile device toted around by celebrities Ashlee Simpson, Snoop Dogg, and others, is rumored to file an S-1 sometime in the not-too-distant future. It has done well signing up carriers and has finally made good on its long-term business plan of getting an outside company to make its hardware, but it has taken some $120 million to get there. If that S-1 comes out, we'll see how much all that buzz—and money--has translated to revenue and profits.
But VCs that aren't quite that daring are left looking at deals that will be the building blocks for these cool products, like a super fuel efficient chip. How many of those are out there? And if the consumer market will be the place to be—is that enough of a bet? Now that many venture investors are flush with new funds will they start placing more audacious bets? Or will this general feeling of wanting to go "back to basics" keep many trolling for the latest enterprise software or security deal?
Deal Flow wants to hear what your firm is doing. In the mean time, I'll give my humble opinion. I think the consumer bets will continue to be the outliers for most VCs—particularly if we're talking about gadgets. If I'm wrong I may get more gadgets I can't live without, but I bet a lot of money will go down the drain.