The rude awakening is going to be the following, which is that when you look across the venture landscape you have a bunch of people who are, frankly, ill-suited to do what they’re doing. As a result they feed off historical bias, they focus on the things that they know the best, which will result ultimately in a bunch of marginal investments. Most of which will go nowhere.
At the same time, what happens is the public markets provides the investor, in this case the LP, a very reasonable way of actually getting almost the same return, if not in many cases an equivalent and better return. And so now, the LP in these funds have to ask the following question: Well, I can lock up my money for what is effectively 10, 12, years now because these companies take longer to gestate, and get basically the same return I can for being in a highly liquid public market security. So from any sort of logical risk-based assessment for a limited partner, I think what happens is there will be a culling. And any of these folks that can’t have differentiated returns, you are not going to take on the risk of being illiquid, especially if you think about in a world that is probably going to become more complex, more dynamic, less stable, you want to have massive amounts of liquidity because you don’t know when the dislocation is going to happen. In a world like that, I think all of these middling, also-ran, firms go away.
No, I think it’s irrespective of AUM, it’s just folks whose approach is just sort of dated and not current.
You know, we’re nine people, we’re gonna try to raise the next fund, we’re gonna chop it up amongst ourselves, it’s about us and we make the best decisions we can. Which again is okay, but again I think LPs really start to push back. Separately what happens is you’re going to have different folks who have different approaches.
I suspect the most disruptive entrant into the venture landscape could probably be Google, Microsoft, and Amazon. Why? Because most of the businesses are built on top of them. It doesn’t take much logic to view a world where Amazon says, “Well, I’m renting you the computer, I’m renting you the storage, I’m renting you the algorithms, I’m renting you all of this stuff — I might as well give you some money along the way as well.” They do that with credits, but they don’t take it to the next level. This would be a function of AWS, it should be a thing in a marketplace.”