The Future Of Venture Capital: Trinity Ventures Partner Gus Tai (Part 6)

SM: A third major area in which I would like to see leadership is in education. What do you think needs to happen for that momentum to build up?

GT: We are seeing innovation on education in two fronts. One innovation trend in education is the notion of crowdsourcing education in modules. People could have some sort of expertise, do a video as some sort of precursor to try and solicit students, and have a marketplace for that video tutorial. The experience could then be augmented in technological ways. That is a marketplace capitalism, information society way ahead.

The other area in which we see a lot of innovation, which I really hope works, is the notion of engaging digital media entertainment with education. Edutainment or things that help improve life and lifestyle. There are companies that are trying to do things like virtual worlds, where the virtual world community is used as a way to teach a language better.

I sense that there will be content that will be consumed that will be beneficial for aspects of education. I don’t know which ones will be runners. I do know that there is a lot of focus in these areas among entrepreneurs today.

SM: What is going to happen to the large mass of companies out there right now that need exits, since there is no exit market?

GT: I don’t think the exit issue is necessarily any more acute than it has been for several years. The M&A market has not been in a high enough volume for the number of companies that were started back in the bubble. We are still working through that. It has been and will continue to be an issue.

I think the interesting thing taking place in 2009 is that not only are startups having a harder time getting funded, but venture firms are having a hard time getting funded. That means that 25%-33% of funds you have heard about are interested in raising money in 2009, but the LP community is acutely aware of the issues with ventures, private equity, hedge funds, commodities, stock markets, and such. Venture firms will be distracted and may not have funds to make new investments. That will have an impact on startups trying to raise new money.

SM: Ventures have gone through their cycles, and entrepreneurs have gone through cycles as well. Today’s pool of entrepreneurs has more experience and fluid knowledge. Entrepreneurs can do more with less capital; bootstrapping has become viable. I also see a number of entrepreneurs and executives who have gone through the last [cycle] and made nothing more than salaried money. The venture’s big payoff of equity exit has not panned out for a lot of entrepreneurs. When they do another venture they no longer want venture money, they are tired of it.

GT: I think there are two trends. One trend is that there is much more information flow about how to start and fund a business. There are new entrepreneurs every year, but how do they digest and internalize the information? I think there are still a lot of misconceptions.

SM: Experience is required to internalize information.

GT: Wisdom is good judgment with experience. I do tell entrepreneurs that they should think very carefully about whether or not venture is the right financing for them. It usually isn’t. I think that there is an overreaction for younger entrepreneurs to bootstrap, just as there was an overreaction in the ’90s to get venture capital.

SM: My advice has been to bootstrap up to a point, and then the entrepreneur will have a leveraged option.

GT: I think that is sage advice. You also mentioned that there were entrepreneurs with a decade of experience who are just tired. I believe those entrepreneurs are on the other side of the bubble. Entrepreneurs who are serial entrepreneurs from 1985 to 1995 would say that it is like a salary situation but there is the potential for wealth to come from it. The bubble from 1994 to 1999 created the illusion that everybody needs to win. Now we are going back to more normal times. Entrepreneurship is not easy. You do it because you are passionate about it, because you dream of revolutionizing something. Oftentimes there is no financial upside.

This segment is part 6 in the series : The Future Of Venture Capital: Trinity Ventures Partner Gus Tai
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