Thanks for the write up Frank.

For a long time we have been hearing even some of the biggest names in VC promoting green tech. I never saw it as a venture worthy investment and said so in previous posts. It's nice to see the industry finally admit it. Another obstacle I now no longer have to overcome as I seek funding.

For someone in my position it is not bad news that fewer funds are available as I could not compete with the hype that the money was being invested in. Now that the hype is eroding, my chances are going up. Overall there is less money now, but the amount of money that might come my way is on the rise.

The "flood of insolvency" cannot come soon enough for me. After they are through crying, they will be ready to hear from me.

The worse case scenario for me right now is that some new hype gets started that I will again have to compete with. After the dotcom crash, instead of learning the obvious lessons, the industry latched on to one new hype after another. My prayer is that they don't do that this time so that I can bend someone's ear and tell them how I can make them rich. GONG XI FA CAI! It's Chinese new year after all. Out with the bad, in with good.

Angels did not and some still don't, follow the advice they gave entrepreneurs. Angels admonish entrepreneurs for thinking that money solves all the problems and thinking that if they raise enough money the venture will be successful.

But then Angels were doing the same thing. Investments were chosen based on their ability to attract money from VCs. It was assumed that interests from VCs meant that you were on your way to a successful exit.

Stop taking shortcuts. Do your own homework. The kid you are copying from is not smarter than you.

VCs and Angels don't follow the golden rule of he who has the gold makes the rules. They figure that because they control the investment money that they should make all the rules on how, what, and if an opportunity is invested in. The problem with that logic is that the money that matters most is from the paying customer, not the money from the investor. That's the money that leads to a successful exit. So it is the rules of those people that should be followed.

In the selection process throughout the industry we see VCs and Angels overemphasize themselves and their role. We don't see that the customer is being put first. Then they wonder why their investments are not paying off.

Now the economy is being made into the scapegoat. The current economy doesn't explain the lack of success over the past ten years.

To be more successful, Angels and VCs are going to have to realize that they need to be more focused on the customer and the customer's money than they are on themselves and the investment money. That's the only way to know if you are using the investment money correctly.

When investors can show how their selection process emphasizes the customer, then they would be really talking. I remember that before the dotcom boom, the books and advice from VCs were very different than what they are now. They did not ask for executive summaries. Some would tell entrepreneurs that if the business plan was not at least "x" number of pages long, they wouldn't even open it. They would say the executive summary is the last thing they read if they read it at all. They would say that they want to see an outline that shows questions a, b, and c, are answered or they will not read pass the outline.

Do you remember those days Frank? Venture investing has changed from a very meticulous approach to everyone shooting from the hip. One had to be fast in order to take advantage of the dotcom bubble. There hasn't been a bubble for a long time. There hasn't been a reason to rush for a long time.

When the number of years of the dotcom boom plus the number of years since the dotcom bust are added together, one can see that there are not enough of the older generation left in the venture industry to remind the current generation how to select opportunities correctly. Today's investors have regulated themselves to evaluating presentation styles over the substance of the opportunity.

The next VC trap that Angels are going to fall into is blaming the economy for the lack of successful exits. VCs have been misguiding Angels for a long time. The latest fiasco was probably saying green tech was going to be hot.

Getting into that blame game means the problem of not properly identifying good opportunities is not being addressed. In blaming the economy, people are going to pretend that they are wise and pretend that they have identified the problem. In truth it is a loser's attitude because it takes the position of being powerless.

If an investment does not survive harsh economic times it means that people don't need the product and therefore it was a poor choice to invest in. Investors have not been identifying opportunities properly; can they really be expected to identify the problem? Will the problems of collegiality continue to rule the roost?

Frank,

In the O'Malia interview you attributed your success to luck, and O'Malia emphasizing his point about the importance of industry knowledge, countered that if you haven't prepared yourself you would not have been able to take advantage of the opportunity when it presented itself.

I've been thinking about your comment in the context of the Forbes article "The Coming Collapse of Venture Capital" which states investors would have been better off invested in bonds, and in the context of the work of Economist Robert J. Shiller. Shiller warned of the real estate bubble years ago and used over 100 years of real estate data to expose the myth that buying a house can pay for one's retirement, it actually only works for a very few, and if it works it is due to circumstances entirely out of the control of the home owner.

Shiller wouldn't say the homeowner was smart to buy the house that paid for his retirement, he would say the homeowner was lucky to be in the right place at the right time. He would say the homeowner has nothing to do with the market forces that cause the value to go up or down. I would have to say that you are more honest in what you said to O'Malia and I believe Shiller would have pointed out the ridiculousness or arrogance in O'Malia's statement.

O'Malia said you prepared yourself. We do not know we are going to be presented with the opportunities or types of opportunities that we are presented with. So we can't claim to be specifically preparing ourselves to strike it rich.

I also thought I was the bee's knees with my invention that allows users of smartphones to make more money for themselves. But let's face it, where would I be without the smartphone? People would not need my invention. I created the invention but I did not create the situation that my invention can capitalize on. My invention creates an opportunity but other people created the opportunity for my invention.

I am not just writing to stroke your ego that you are correct in what you said to O'Malia. I think it is important to acknowledge the role of luck, the role of other people who create the opportunities for our opportunities. This should be acknowledged in the investment selection process.

Instead of searching for a perfect fast pitch, I think time is better spent on searching for not just good opportunities, but also the situations that are being created for opportunities to capitalize on. I think this puts one closer to the mindset of the paying customer of the end product, which would mean one's focus is closer to the what the reality of the exit is likely to be.

This should do more to increase success than judging presentation style or ability. Style is for the people of American Idol to invest in. Let's talk business.