Leave it to droll microprocessor designer Nick Tredennick to give us the final word on venture capital. In an IEEE Spectrum column last month that purportedly discussed how engineers should deal with VC firms, Tredennick elucidated the bad influence VCs have had on technology companies in the past decade. He ended the column with a call to arms, urging engineers to create their own angel investing coalitions to climb out of the downturn.
The music industry calls it the do-it-yourself movement, wherein large companies and distribution chains are rejected in favor of self-production and self-distribution via the Internet and personal networking. The do-it-yourself model might not work to rebuild a communications infrastructure industry for the 21st century, but we may not have a choice. The VC industry for communications technology is a thing of the past.
Granted, there are exceptions, like the unprecedented third round of funding that tunable-laser company Agility Communications won this fall. But that Series C round stands out for its uniqueness as a very bad year winds down. Far more common are incidents like the shuttering of Geyser Networks after the company finally demonstrated a working prototype of its multiservice switch, or the sale of Broadband Gateways' assets to Uniden after the startup declared bankruptcy.
This is not entirely the fault of the venture firms themselves. The large institutional and private investors who once wanted to park their money in communications funds have moved on to fast-moving financial instruments outside technology, like hedge funds. The irony is that interest in broadband access continues to grow among the public, and consumers could still provide the ticket that takes us out of this recession. Meanwhile, new restrictions on corporate travel are spurring interest in videoconferencing.
But how can a new breed of access specialist arise with no money to fund product development? I told a panel at the Sept. 10 Network Processing Summit that "there's no FEMA after this flood," and that's certainly the case in forming new companies from the ashes of the old.
Tredennick is on the right track. We need to revive the old model of the 1980s fabless chip boutique, formed with a minimum base of angel investing, focused on fast prototype development and relying on first-generation product sales to grow business.
The do-it-yourself company will be healthier than its 1990s predecessor. It's hard to kick the VC high, but it feels so good to get the monkey off your back.
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