golden times for venture capitalists?

For those who are discouraged by decline in academic job market, I would like to propose a theory of mine (very theoretical as many theories go) that the next few years should be pretty good for venture capitals and new technology-based startups, especially energy startups. I think this is the new "bubble", and by bubble I don't mean the negative sense - it may very well be the real deal - just something that will go up exponentially and provide a new source of revenue for economy, similarly to the way IT boom and housing boom did over the past 10-15 years.

I think that Madoff affair is just a tip of the iceberg and that people will not blindly trust Wall Street anymore - not for a while. The old model of investment - here's my money, put it to some good use, I don't care where, as long as I get good steady 10% returns - will not work anymore.

But there are people who want to invest - where should they invest, if not in the toxic financial system? Big giant companies - like IBM, GE or GM? Who knows, maybe they are next to go belly up. Google? Apple? Maybe they are way overhyped already - and they probably are.

If I had a million dollars to invest, I would go to VC - and invest in new startups, with a long-term high-risk, high-return model. The key advantage is that VC boards are actually involved in day-to-day operations of the companies, can oversee and understand their business model on relatively modest scale, and someone can actually explain what they invest in and what progress is being made. The market for various products is not so great right now, but it might be in 5-10 years. So why not invest into a small R&D lab to do research on fuel cells, next generation of batteries, solar panels or other photovoltaics, catalysis and photolysis applications etc.?

What does it actually take - a dozen or so really bright PhDs which can be hired on the cheap in the current market. Some young, driven science-based managers, an IP lawyer if needed, plus some technical/administrative/IT/accounting support, rent some space (very cheap lately) and off you go.

Efficiency of a startup is way better than established large labs or large companies, and with withdrawal of AT&T, IBM and other giants, there's a huge vacuum that opened up, so competition for IP is going to be minimal.
Plus government may pitch in with tax breaks and other incentives for these areas of research (green energy), there may be plenty of opportunities for collaborations with universities and national labs.

So if you like Edisonian approach to research, and enjoy applied science which produces an actual device at the end of the day, Venture Capital is where you should be right now - pitching your ideas to old dudes in suits.

Frankly, I never understood why so many physicists chose Wall Street or consulting as the alternative to academic research. I would think entrepreneurship offers a much more exciting opportunity to use your scientific talents while contributing something meaningful to society (as opposed to toxic securities). In many ways it is very similar to what professors do - pitch your long-term ideas and short-term models and plans to funding agencies (in this case VCs), hire best scientists you can find, execute the research plan - except in the end you get a patent and take a device to the market, instead of writing a paper.

What are the downsides?

You must be there from the very beginning, or else it's useless and frustrating. Many startups tend to quickly develop thick layer of know-nothing management - many of who are charlatans who can fool the investors for years - but mismanage company into the ground. I briefly worked in a company that had 30 employees, 6 of which were managers. It was like bad parody of "Office Space" with too many bosses waiting for you to screw up.

So if you are not there from the beginning, it is difficult to have any control of where things are going, and you might as well not bother. If you want large stable startup - this is a oxymoron - go work for google or ibm or microsoft.

Most startups WILL go belly up and produce zilch. Because IP is confidential, you will not have any publications at the end of the day to add to your CV/resume, to show for all the hard work you did. That could be devastating.

Startups got bought and re-bought by financial behemoths with no intention to utilize IP - as means to kill off competitors and dominate the market. This may happen to your company too, and once again, you will have no control over it and will not be rewarded appropriately for it - but it is better than going belly up.

Finally - I am speaking from a very limited experience, so maybe someone out there can fill us all in on whether I am wrong, or why I am wrong, and if anyone else thinks that VCs will prosper or if they will suffer even worse than the rest of the economy.