No such thing as a free (liquid) lunch

FredWilson has written a heart (and wallet ) felt post on A VC

Here's the problem. The company/web service creation process needs some kind of end game. The entrepreneurs who spend years and risking a ton need a way to get paid for that effort. And those of us who finance their efforts need to get some return on our investment. We can argue about the magnitude of the return we need and a host of other things, but the fact remains that without a path to liquidity, all the innovation that is being created by the entrepreneur/VC equation will stop happening.

Now to an extent you could say that "he would say that wouldn't he", as he is sitting with cash-burning companies like Twitter and Etsy on his books, busy giving away free (ie VC funded) services to gain market share.

Nonetheless, he has a point. A few years ago I was peripherally involved with an early Angel market trading system, the idea being that shareholders who were members could trade in unlisted companies. Sadly, the concept has struggled to gain general recognition. The issues I was told were twofold:

(i) The behaviour of angels, who are very individualistic
(ii) Other, better ways of gaining liquidity

I am told that Angels are increasingly changing their ways (ie diversifying), and those other, better ways are essentially closed for now, as Fred points out.

The other big thing in such an environment is allowing Founders to get some liquidity early, which I note Peter Thiel is pioneering.

Add to that the "Coasian no Brainer" (ie the transcation costs of startups and the funding thereof) which is driving the restructuring of the small cap VC market by Y Combinator et al, and I think we are in "interesting" times.