VCs stuck in the social networking rut

A panel to predict the future lists more of the same old stuff -- and buries a key insight

I just want to cry after reading Paul Krill's report on a venture capitalist forum at San Francisco's esteemed Churchill Club, whose discussions often make it to public radio nationwide. The VCs are still gaga over social networking, an industry that hasn't yet figured out how to make money, which allegedly is what VCs are good at. They're also into Websites and health technology -- two duhs.

But I'm not surprised. VCs have built a mythology around themselves as technology visionaries. Very few are. Most are mules in a pack, going after the same fodder as everyone else. If VC firm A invests in an online pet food store, so do VC firms B through Z, so you get 26 online pet food stores -- or today, 26 virtual goods firms. Lest we forget, it was this VC mentality that led to the dotcom boom and its devastating crash.

It's an open secret in Silicon Valley that VC firms are bad at making money. In fact, they keep getting worse and worse returns, so a focus by VCs on social networking, "real time" Web, and health initiatives tells me those are passé, obvious, or both.

VCs' prognostications should be taken with a big grain of salt. What the conference did identify was that to make the vision on constant interaction online with other people and with Websites -- which is really what they envisioned -- there needs to be a software stack and an information architecture in place that doesn't exist today.

Maybe the VCs' investment firms will figure that out, though the high focus on their own concerns makes such broad thinking unlikely. But since VCs talk to each other constantly, maybe they can realize there's a broad need that would help all their investments succeed, if only they treated it as an enabling technology they need to jointly develop. That may be hard to justify, given their business models of investing in startups, having those startups buy the services from their previous startups, and then flipping the startups to investors -- but it could create a fabulous return on a whole raft of investments, not just the lucky one who that offers its IPO or gets acquired first.

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