One topic that kept coming up yesterday is how do VCs spot the next big thing to invest in.
If there are only going to be 15 big companies spawned in every generation, how does the VC spot them?
I kept thinking of our experience trying to convince VCs in the late 90s that there would be a market for self-edited websites, the category that would eventually become blogging and lead to the market leaders of today.
I would demo our software to VCs, showing them how they could update their own websites. They asked why would they want to do that? I thought it was self-evident. We were turned down. So I tried again with the idea being that their assistants, without any technical knowledge could edit their websites. Again, they didn't see the need. I came back with RSS, again -- why would anyone want that? The theory was that there would be three main websites, and they thought they would be Excite, Yahoo and maybe Google. Amazon and eBay in commerce. And that was about it.
I think if the VCs look at what they actually do vs what they say they do, they'll see they're more like the movie industry. Funding a lot of ideas, without any clue which ones will be big hits. That suggests that the YCombinator approach is more viable. And I gotta say I argued for that in the 90s, and was told (again) that I was hallucinating. I should have taken that as a compliment. :-)
And I'd look for more creative people making the decisions about what gets funded. Trying to get breakthrough ideas through the finanical guys who have been the gatekeepers, is a very inefficient process.