Why VCs Hate Science

Georges van Hoegaerden has an interesting comparison between how the venture capital model is supposed to work (the Vinhod Khosla model), and how it actually works (the Subprime VC model) these days – as illustrated by the charts below.

khosla_model

It’s a nice comparison and neatly illustrates how the low risk subprime model forces VCs to invest in technologies where much of the risk can be minimized, such as Web 2.0 businesses rather than anything particularly ground breaking which, if it is science based, will probably need quite a bit of investment beyond half a dozen laptops and a serviced office required for a web business.

subprime_model

Of course if you don’t take risks you can’t expect to participate in the upside, so the subprime model is a self defeating and illustrates why so many funds have had so much trouble returning anything except lame excuses about how tough it is out there at the moment to their investors recently.

I’m almost ready cut out the tongue of the next person who uses the excuse that “it’s tough out there” for sitting on their backside and wringing their hands. Looking out of the window I can see that it’s raining out there, so when I pop out I’ll take an umbrella.

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Comments 4

  1. kurt9

    Of course investors are fearful of science in this context. Technology risk is way more unpredictable and difficult to overcome than business risk.

    1. Post
      Author
      Tim

      Exactly, so that’s why we have banks to deal with (usually relatively) low business risk and venture capital to deal with the high risk technologies. High risk and high reward are inextricably linked.

  2. David Neiman

    I have it! We can raise capital by producing a new musical about nanotechnology enterpreneur/visionary who cuts the tongues out of fearful VCs who then turns the remains over to the Foresight Institute to make nanoassembler sausages: “Sweeney Tim”!

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