> ...have left VC's without a place to make large investments?

OK, I've got a gripe about this: I get the sense that VCs have done this to themselves, and it's kinda funny.

My view on it might be -- and probably is -- influenced too much by the kind of slant that the stuff on HN has. There are probably other investment circles out there that concentrate on other things; I just don't know where they are or what they're up to.

But try getting a small team of brilliant young engineers, chemists, scientists, and mechanics together, and then go looking for VC to build a prototype electric sports car. Let's even say you've built most of the drivetrain and software already, and you're looking for VC so that you can afford a designer for it, flesh it out, shop it around to some shows, and make some connections.

Now, let's imagine you take a similar team of brilliant young people, and -- with only a few lines of code written -- you say, "We want to build the next great social media app."

I'd bet you're a lot more likely to see funding for the social media app than for the next electric sports car, and that makes perfect sense: the development of the social media app requires way less up-front expense, which in turn means it carries less risk, and it promises far earlier profitability if it's successful. If the electric sports car beats all expectations and finds a huge demand, you're still going to have to spend millions on a factory and tooling and everything else before money will begin to trickle in.

Here's the catch though: social media whatsits are also much less likely to need VC. Programming methodologies and technology have been developing at a breakneck pace for decades now. What used to take a room full of software engineers months to roll out can now instead be launched by two guys in a couple of weeks. Hell, some people on HN have gone and launched basic startups from scratch over a weekend. Now you can come up with an idea, order a VPS for 20 bucks from Linode, click to run a StackScript that will build your server for you, download a pre-built free PSD template, plug in jQuery and jQuery UI, spend a couple hours writing content, download some graphics, and then open up an AWS account and have your application backed by a massively scalable, highly reliable backend. Ding, done.

Fred Wilson's main concern -- that there isn't enough money to go around for these kinds of things -- is perfectly wrong, I think.

The neat thing about this is that everyone involved has been acting rationally according to their own self-interest, and this has resulted in the VCs self-selecting themselves into a niche that decreasingly needs them in order to be successful. At this point, if a web or software company has burned through a million dollars of investment and still isn't breaking even, then their business model is broken.

We also have to look at the lifecycles of these respective business approaches. Things seem to work out best for VCs if they get into a company that grows for a few years, but as Fred says, they're getting purchased earlier. Others are probably dying out faster. The overall life cycle for these businesses seems to be very short. (Myspace was launched in 2003, just 7 years ago; who here has an account with them?) The life cycle of the successful "hard" business meanwhile hasn't really changed much; the rule still seems to be that you have to work for three years before you'll be profitable (if you're not doing R&D, that is), and then as long as you're careful not to blow it, you can be around and be making fine money for decades.

...But VCs don't seem to be as interested in sending those kids to college.