This post/letter got me thinking. As a young investor who's continuously learning about what's worked in business, I'm fascinated by the narrow approach that many venture investors have to reviewing new investment opportunities. Wait... let me clarify that comment. I think that many VC's are constrained by the story that they had to tell limited partners as they raised their funds. I think these marginally narrow constraints (sector target, geographic focus, & investment bite size) that many funds have will be their long term demise. If focus is a requirement, then FTVentures and ComVentures have it right by being end-client focused (financial services and communications services, as portfolio company customers). Else, I think opportunistic investing is key to long-term success. But, restrictions like 'software' or 'Internet' or 'hardware' are too broad to create any lasting differentiation or expertise and too narrow to invest in killer growth opportunities such as Red Bull or Genentech, should they come through the dealflow network.
Furthermore, I continue to hope & believe that, during the next 25 years, innovation and growth will come from around the world in many different shapes & sizes. Could the next Google be based in the Ukraine, Brazil, New Zealand, Kuwait, or Belgium? Absolutely, SAP and Nokia aren't from the Bay Area. Kansas or Kentucky may even be so lucky in the next decade. Will venture capital be flexible enough to cross these borders?
There are investment opportunities in many industries, in fact much money is to be made in businesses other than software, hardware, or communications. I hate to admit to this, but in this capacity, the Street has it figured out. Banks and hedge funds are effectively vehicles to invest capital with little to no restrictions on structure or industry.
The author of the letter asks the question: "Can you imagine presenting the idea of bottled water to VC?" I would answer yes. But, I wouldn't be traveling to Sand Hill Road to do so. The author of this letter may want to continue his line of introspective questioning, rather than joke about a shift in business model. Google raised money at a time when the search portal business was not so hot, and purportedly already crowded.
So it goes.