If you don’t regularly read Fred Wilson’s blog, avc.com, you should. Fred is one of the best VC bloggers out there, and the discussions his posts inspire among his readers are stuffed full of valuable insights.
Fred’s firm, Union Square Ventures, invests in the disruption of the global economy caused by the increasing liquidity of information enabled by the internet. Notable investments include Twitter, Etsy, and Zynga. You can see a timeline of Union Square’s investments here.
Fred’s post, “What Has Changed,” is one of the best posts on technology investment trends in a long time. Here’s the summary:
VC funding of consumer web and mobile companies is down 42% in the first nine months of 2012 (vs the first nine months of 2011).
Here’s what changed:
1. The consumer web has matured, We are almost 20 years into the consumer web and we have a lot of platforms that are starting to suck up a lot of the oxygen; i.e. Google, Facebook/Instagram, Amazon, Twitter, eBay, Linkedin, Yahoo, WordPress and Craigslist. It is harder than ever to build a large audience from a standing start.
2. The consumer is moving from desktop/web to mobile/app. This is the single biggest trend in the consumer internet space right now. Most new startups need to build for iOS, Android and web at the same time. It’s making the startup more expensive and time-consuming. Distribution is much harder on mobile than on web, and we see a lot of mobile first startups getting stuck in the transition from successful product to large user base.
3. The momentum/late stage investors have moved from consumer to enterprise.
The wind that has been at our back for 7-8 years in consumer internet is no longer there. It’s tougher sledding and will likely continue for some time. We’re still in the early innings of a more challenging environment for early stage consumer internet companies.
I have found that we typically have a solid 4th quaterr but lose momentum going into 1st quaterr so we suffer in the 1st quaterr. We need to really ramp up in December to make sure we can crush it by maintaining momentum into 2013. October 30, 2012
The key for entrepreneurs, according to Fred, is: “new ideas, novel approaches, and big visions with long roadmaps. We are not drawn to those who seek to knock off another company and execute it better or in a different geographic market.” He notes that copycat ideas can still raise funding, but at the end of the day, Fred will always support revolutionary ideas in the consumer web space. Union Square and Fred are there for companies with disruptive revelations or special solutions and, as a result, will spend the time and money to ensure that those ideas get executed.