Why Do Venture Firms Need to Be Giants or Specialists?
Sameer Dholakia says a venture firm has to be a giant global platform or an extreme specialist, because the middle is a hard place to make money.
A seed check in his day was $3 to $5 million on a $20 to $40 million valuation, and seed checks today are factors higher, so a firm has to hope it is a great picker. When he evaluated venture capital as a second career, it looked nothing like the mid to late 90s, when everything was hardware and software in Silicon Valley and principally early stage. The asset class is now global, spans every sector, and runs from a pre-seed check through an IPO, with investors putting in hundreds of millions of dollars. Location, stage, and sector are dramatically broader. In industries that professionalize and reach scale, the survivors are a giant global platform that consolidates the market, or an extreme specialist such as a firm doing AI deals in San Francisco at early stage, optimized on location, stage, and sector. Bessemer is a big global platform. He does not know what happens to the billion dollar funds, and he is glad he is not one of them.
When markets get big, they consolidate and still leave room for specialists. In automotive, the pattern is a big three in the US, Toyota and Honda in Japan, and specialty players such as Porsche and Ferrari. The middle is a tough place to be.
