We still are in a business which is at significant over-capacity, both in terms of dollars and people. Something has to give. And the manifestation is that there are simply too many businesses being funded per segment. Back in the old days when Geoff and I worked together on deals like Foundry, we would do a new deal and we would have a year or 18 months to build some defensibility, get product to market. Maybe one or perhaps two competitive deals.
Today in similar areas, whether it's storage management [or] wireless 802.11, I would guess that there are 15 to 20 deals per segment being funded by venture capitalists, and while all venture capitalists think their deals are pretty good and they'll make money, the math obviously doesn't work out, and that's where I think the real issue is, both for Silicon Valley and for the technology investment business in general. It is simply an area where there are too many me-too projects in areas that are quite interesting, but where the negotiation with either exit partners—Cisco, HP, Intel, or others—will have completely different dynamic from what it was 10 years ago.
Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.