[p2p-research] big does not necessarily innovate: the current VC model is broken

[Paul D. Fernhout]

J. Andrew Rogers wrote:
> On Fri, Nov 6, 2009 at 1:00 PM, Michel Bauwens <michelsub2004 at gmail.com> wrote:
>> This goes against the argument that 'big concentrations of capital' are
>> necessarily more innovative
> 
> Not really. Arguably this is only true within the context of typical
> venture capital structures rather than generally. This has been
> well-analyzed in many places.
> 
> It is unclear what 'big concentrations of capital' actually means
> beyond there being enough concentrated capital to take very big risks.
>  Some ventures only require millions (or less), others require
> hundreds of millions *at a minimum*. There is no one-size-fits-all for
> the cost of innovation, so it is useful to have concentrations of
> capital available for every investment that can return innovative
> value.
> 
> What you do not want is a class of innovations that are simply
> impossible to develop because the required 'big concentrations of
> capital' do not exist.  Such a class of innovations will always exist,
> but it makes sense to minimize that where possible.

Here is an example of an innovation requiring big concentrations of capital 
if done conventionally:
http://www.linux-foundation.org/weblogs/press/2008/10/21/linux-foundation-publishes-study-estimating-the-value-of-linux/
"""
SAN FRANCISCO – October 22, 2008 – The Linux Foundation (LF), the nonprofit 
organization dedicated to accelerating the growth of Linux, today announced 
it is publishing a new report written by Amanda McPherson, Brian Proffitt 
and Ron Hale-Evans on the value of Linux development. The paper finds that 
it would take approximately $10.8 billion to build the Linux community 
distribution Fedora 9 in today’s dollars with today’s software development 
costs. It would take $1.4 billion to develop the Linux kernel alone.
   The report, titled “Estimating the Total Development Cost of a Linux 
Distribution,” is available today.
   http://www.linuxfoundation.org/publications/estimatinglinux.php
   This report is an update of a 2002 study done by David A. Wheeler that 
examined the Software Lines of Code (SLOC) present in a typical Linux 
distribution (Red Hat Linux 7.1). At that time, Wheeler found that it would 
cost over $1.2 billion to develop a Linux distribution by conventional 
proprietary means in the U.S.
   The authors examined the Fedora 9 distribution using Wheeler’s tools and 
methods, specifically the SLOCCount tool that estimates value and effort of 
software development based on the COnstructive COst MOdel (COCOMO). The 
report goes into detail on the methods used, how they specifically apply to 
the Fedora distribution and the Linux kernel, and what an estimate of Linux’ 
value really means.
   Highlights of the paper include:
– How Much Does a Full Distribution Cost?
Using 2008 salary figures, the tests published in the paper revealed that if 
developed today, the full set of Fedora 9 distribution packages would cost 
$10.8 billion. The Fedora 9 distribution contains 204.5 million lines of 
code in 5547 application packages. The development effort estimate comes 
close to 60,000 Person-Years.
– How Much Does the Linux Kernel Cost?
Applying this test to the Linux kernel included in Fedora 9 found the value 
to be 6.8 million lines of code worth $1.4 billion. The development effort 
estimate for the kernel alone exceeds 7500 Person-Years.
– How Does This Really Measure the Value of Linux?
This study reveals that collaborative development creates enormous economic 
value. In the past two years alone, over 3,200 developers from 200 companies 
have contributed to the kernel. An even larger number has contributed to 
full Linux distributions. Measuring the economic effort involved is 
imperfect, but this report clarifies why the methodology is the best 
approach and some of the limitations.
"""

So, are you talking about "innovations" bigger than ten billion dollars? :-)

So, it turns out, p2p can do *bigger* projects than VC? Because that's about 
half the annual expenditures in the VC sector. :-)

So, what again does the world need Venture Capitalists for? :-)

What do they even do?
   http://www.investopedia.com/terms/v/vulturecapitalist.asp
   http://www.hermes-press.com/vulture.htm

Oops, wrong links, sorry; these are more appropriate: :-)
   http://en.wikipedia.org/wiki/Venture_capital
   http://www.fundinguniverse.com/
   http://money.howstuffworks.com/question398.htm

--Paul Fernhout
http://www.pdfernhout.net/