Silicon Valley today

In the current era of venture capital in Silicon Valley the only types of businesses getting investment are web enabled disintermediation plays, from e-commerce to corporate services, and new web services such as data mining for the e-commerce sector.

The technology in these businesses is generally fairly trivial and not that expensive to develop, but yet the businesses absorb tens or hundreds of millions of dollars of venture investment.

This is because they need all that money for business development and marketing. Essentially they buy market share ahead of positioning themselves to get acquired by the larger web-focused corporations that are hoovering up emerging companies in every new web sector.

Two observations. First, the music will stop one day and a bunch of VC ‘s will be left with a clutch of worthless companies. Second, there is no point taking investment from outside of Silicon Valley because that money doesn’t have the scale or connections and hence can’t execute the exit, which is the only thing makes this model economically viable as an asset class.