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Monday, November 07, 2005

The Flattening of the Capital Hierarchy

Although I certainly don't think the world is currently as flat as some in the blogging hierarchy assume, there is ample evidence that the deflating of various hierarchies is making it flatter.

In the Venture Capital Squeeze, Paul Graham illuminates the current deflation of the VC hierarchy due to the lessening need for money by startups due to four factors: source, which makes software free; Moore's law, which makes hardware geometrically closer to free; the Web, which makes promotion free if you're good; and better languages, which make development a lot cheaper.

Graham points out the companies such as Google are buying companies earlier because:
What they really want is the software and the developers, and that's what the startup is in the early phase: concentrated software and developers.

Graham suggests that VCs allow founders to cash out for their first million (which is the most important to the founders) in the first round of financing to make the VC value proposition more attractive to the startup company.

It's a short and easy read and it might convince you that a good idea and a some serious elbow grease can lead to nice rewards. It might make sense to take your ideas to the next step in the current tech environment.