The VC industry in Silicon Valley is entrenched in the past. Hell, even the name, "Silicon Valley" is a throwback. How much bonafide silicon fabrication takes place there vs. Taiwan now?
VCs want to hit a home run, e.g., "the next Google" but as the software industry has continued to mature, consolidation is what has been happening more than the creation of new large companies.
Maturity can lead to commoditization which Nicholas Carr wrote about it with his "Why IT Doesn't Matter":
http://www.nicholasgcarr.com/articles/matter.html
And that was years ago. Since then we've seen Sun Microsystems has fallen by the wayside (a member of the old guard passing).
Once there were dozens of automotive companies in the US, they ultimately consolidated to the big three we know of in Detroit. Going back to the 19th century, railroads were "the next big thing".
What the software industry has going for it is that it is a bit more dynamic than industries that require massive infusions of capital for physical materials since software is only an abstraction after all.
Back before the World Wide Web took off there was a consistent theme of "What's the next killer app?" among tech journalists. Their frame of reference was Lotus 1-2-3 sold IBM's PC, Aldus' PageMaker sold Macintoshes so therefore "what's next?"
The World Wide Web is an artifact of many technologies and its effect on society has been the "next killer app". At this point, we're going to see a continued evolution of this platform. I would say the next great leap on the Internet will be because of increasing bandwidth, i.e. a company born as a side affect of the web. Like it or not, TV in 20 years isn't likely to look like TV today. So if a company can shimy itself in that switch, there's a potentially huge upside. But this isn't news, Google is very aware of the possibilities (which is why it is working on Google TV).
My point being that it will be a while before we see another Google or Microsoft but more specifically there needs to be another paradigm shift before before VCs see an exponential gain with their investments within the software space. Shifts can happen, e.g., Apple managed to shake up the phone industry. A bit of serrendipidity and someone with tremendous vision (Steve Jobs) fueled that, however Apple is an established and its recent success has nothing to do with VCs.
So if the software industry isn't going to be exciting for the foreseeable, that is, it won't support dozens of VC firms, what's next?
This leaves ventures that require more hard science - biotech, energy, etc. Only problem is, those industries require much higher levels of capital investment over a longer period of time for something to come to fruition. A notion that the spoiled (from software) VC people aren't likely to be keen on.
Just my 2 cents,
-M
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