There's been a lot of talk lately about how venture capitalists need to adjust to a changing market for startups. After all, it's much easier for many kinds of startups to get going with very little money. However, it's always seemed that the fear of startups not needing venture money was overblown. As some have noticed, part of the reason things were so cheap was that there was less competition for attention -- and that's now changed. And, of course, there are always certain types of startups that require tremendous capital outlays to get going (witness Joost getting $45 million). The real challenge for venture capitalists may actually be coming from elsewhere. There has been a lot of talk lately about how the hedge funds have been increasingly creeping into the venture capital space, in some cases offering a lot more money with a lot fewer strings (though, that can also mean a lot less knowledge). At the same time, the NY Times is reporting how many of the big limited partners (the folks who actually put the money into venture capital funds) are making a lot of noise about their displeasure with recent returns from the VC world. While the complaints also seem to be a bit overstated (and are part of an always ongoing negotiation) it is interesting to see the arguments go public. After the dot com bubble burst, a few people were surprised that the same VCs were still able to raise hundreds of millions of dollars for new funds -- and the common response was that the limited partners had nothing else to do with that money. That's actually changing these days, and it may be why we're now seeing limited partners start pushing a little harder on the general partners at VC funds. It's unlikely this will impact how much money goes into startups -- but it could change how it's invested and who's doing the investments. For traditional VCs, it may mean they need to start adapting to a changing marketplace.
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