Moritz’s Provocative Claim: Silicon Valley Needs Just $400M a Year

A lot of venture capitalists are concerned about how their industry is shrinking, but Michael Moritz isn’t one of them.

A partner at Sequoia Capital, Moritz was one of several VCs at yesterday’s DLA Piper Global Technology Leaders Summit who claimed the industry might be better off contracting.

“I don’t think Silicon Valley needs all that money,” Moritz said. Innovation can be funded for $300 million to $400 million a year, he said.

To put that into perspective, venture capitalists invested $7.3 billion in 761 Silicon Valley-based companies last year, according to the MoneyTree report by PricewaterhouseCoopers and NVCA, based on data from Thomson Reuters (publisher of this blog). Since 1990, the median amount invested annually in Silicon Valley has been $6.4 billion, while the average amount has been $7.3 billion, according to peHUB’s analysis of the MoneyTree data.

Moritz’s extreme view might be selling the Valley short. (If VCs put $400 million or less into Silicon Valley annually, that would put the region on par with the amount of money that flows into Dallas and Philadelphia annually.) Clearly he set out to raise eyebrows and spark debate. It is hard to take him literally. Nevertheless, VCs have to look for a new “efficiency of innovation,” says Promod Haque, managing partner at Norwest Venture Partners. It’s a discipline that might be good for the business.

To begin with, there is no doubt startups — particularly Internet startups — are coming together for a lot less. With cheap Intel-based servers and open source software, entrepreneurs can test their ideas for about $500,000 in funding, points out SV Angel investor Ron Conway.

That means an average angel round can be $100,000, and a good sized angel fund $10 million to $20 million in size, says Conway.

If money goes further and startups survive longer on the same dime, then innovation efficiency becomes a new measure of performance. The theory is this new efficiency (perhaps calculated as a ratio of sales to dollars invested) will lead to better returns.

Of course, one barrier exists. Engineers. It is hard to find them, says Haque. The majority of engineers graduating from U.S. universities with master’s degrees or Ph.D.s are not U.S. citizens — and it is not always easy for them to stay in the country.

The solution: Perhaps they should be naturalized upon graduation, suggests Moritz, tongue in cheek.

Well, maybe not so tongue in cheek.

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4 Comments

  • What a dumb thing to say of Moritz, it is like Usain Bolt saying the olympics should allow only the medal winners to run.

    Of course Mike wants to protect Venture so it can remain the anti-american financial cartel it is today. No wonder he doesn’t want it to change, but it will because Venture’s market model is simply not sustainable.

    Venture needs to become more competitive and rely less on 13 levels of bottom-heavy diversification to identify the new outliers of innovation that are discarded by the VC cartel as false negatives today.

    To suggest that $400M would be able to accurately pinpoint a still 80% greenfield of technology adoption is a foolish suggestion, especially since the performance of many a Venture firm (including Sequoia) is still not able to make a dent in tapping into that greenfield.

    Silicon Valley centric nonsense at its best.

    Best,

    Georges

  • google has an annual R&D budget of $3B/year.. things are defniitely cheaper with the web, but this seems kind of off

  • [...] Mike Moritz says that Silicon Valley could thrive on just $400 million in VC funding per year. For context, Valley companies last year raised over $7 [...]

  • [...] though not as small as Michael Moritz, the Sequoia Capital partner, would like to see, according to his remarks at a conference this week. He said that all Silicon Valley start-ups could get by on just $400 million in total [...]

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