VCs need to complement their farming strategies and start hunting again!

In the last couple of months I’ve been meeting lots of smart VC professionals, mostly in the Bay Area, and one of the common weaknesses I saw in big established firms as well as in medium sized “we-do-everything” shops is the lack of creativity to source good deals.
VC funds have been growing their assets under management while new tech startups have been decreasing their capital requirements. By looking at data on PWC’s MoneyTree and focusing on Early Stage investments this trend can be clearly observed.
image If we look at these trends from 2004 to 2009 then we can see average new fund size increasing while average early stage deal investment decreases.
What does this mean for VCs? That they need to strengthen and expand their networks to identify hot startups and be able to add real value. It won’t be easy to deploy large amounts of capital and deliver the returns LPs are expecting. They need to seek new and younger entrepreneurs and build long term relations before their existing networks become obsolete and useless.
VCs need to start hunting again, reaching out and keeping their firms plugged into new emerging business categories. They need to expand and renew their sourcing and diligence practices to be able not only to compete but also to win the trust and respect of entrepreneurs. Some of them are already in this path, but others need to start thinking about this right away, before it is too late.