What you are considering are averages, say, macro economic averages.

It may be that more in technology will give venture capital some really big gains no matter what the rest of the economy does, but I won’t try to argue that here.

I will argue: An individual entrepreneur and his investor know so much more about their particular project than the macro economic averages that the averages are for them nearly irrelevant. [LPs foolish enough to read the CAPM -- listen up].

Or if a project has high promise of making money, then what everyone else is doing on average is a bit irrelevant.

The need is basically just to pick good projects, that is, ones that make money or clearly soon will. The rest is for ‘macro economics’.

For people who want to worry about the averages, if the economy is to move ahead on average, then some entrepreneurs will have to have to do the work, whatever it is, to do their part, that is, make their projects move ahead. Uh, we can’t all lose but make it up on the volume! Working hard and smart to get things done is an old story in the US! Some of us will do that whatever the macro averages. So, again, pay attention to the individual projects, one by one, which VCs do anyway, and dumpster the macro averages.

For the ‘due diligence’ (DD), given the rest of what an entrepreneur brings to the table, DD sounds like mostly time wasting: Or, maybe the evaluation is in terms of ‘traction’. Okay, show number of unique users per month, the rate of increase, and the same for revenues. Evaluating these doesn’t take a lot of DD.

But maybe the entrepreneur has crucial, core, unique, powerful, difficult to duplicate or equal ‘secret sauce’ that promises to be of crucial importance all the way to the horizon. GOOD. He SHOULD. For this ‘secret sauce’, what is the best approach? Sure, some high quality original research he has done and will NOT publish, publicize, or submit to the USPTO but just translate to software to run only on a server farm behind a firewall and locked doors. Yes, even in ‘consumer Internet’.

Haven’t seen a lot of examples? Right: Neither has anyone else! So, looks like an opportunity, for those who know how!

Now need DD for this research. The way that is done now is mostly just by a peer-reviewed journal of original research. For that need qualified referees who report to an area editor who reports to an editor in chief. The referees have good Ph.D. degrees and good research records in their fields and have been doing such research for, maybe, 10 years. After maybe 10 years of being a referee, they might become an area editor. After about 10 more years, Elsevier or some such might ask them to become an editor in chief. That’s mostly how DD is done. NSF also draws from essentially this same system.

For this DD work, how is a venture firm going to do it or even direct it?

Don’t ask me; I’m just an entrepreneur who does such research and wants to use it as the core asset in a powerful business and no longer wants to publish such things! What I suspect will happen is that the venture community will draw from A. Markov, conclude that (A) the research and (B) the financial potential of the company are conditionally independent given the present ‘traction’ data. So, to get a handle on (B), look at the traction data and then f’get about (A). This Markov assumption is not really correct, but it is what people do. Or, some research and a dime may just cover a 10 cent cup of coffee. So, given the dime, why waste time on the research DD? I don’t think people will, even if they want to!

For ‘consumer Internet’, there is another issue beyond DD: Already the common requirement for ‘traction’ means that a major fraction of entrepreneurs are close to not needing venture funding by the time they qualify for it. Then just why will a founder, who did the research, typed in the software with his 10 fingers, and did the rest to get the traction suddenly want a term sheet, founder vesting schedule, option pool, liquidity preference, and a Board that doesn’t understand the research or even the company and can too easily go all a-flutter and ruin everything? These are not really advanced considerations; I heard them in the first grade from the Mother Goose story ‘The Little Red Hen’.

However, interest rates are uncorrelated with market direction. That’s what the data shows over the long run.

I do agree that cloud and mobile are huge. What my article is focused on is how the supply/demand of capital is driven by macro forces that are a combination of macro economy, socionomics, etc.