How Amazon Changed Venture Capital

This article argues that the Venture Capital industry has undergone significant changes in the past five years, driven by advancements in the software industry, particularly due to Amazon's impact. The author believes that Amazon's Amazon Web Services (AWS) has fundamentally altered the venture capital landscape in ways often underestimated.

The author details how the rise of open-source software and horizontal computing lowered software infrastructure costs, enabling startups to launch with significantly less capital. Amazon, through AWS, further reduced total operating costs by offering affordable cloud storage, processing capabilities, and other services. This has resulted in a paradigm shift where startups could launch without needing substantial initial funding.

Amazon's AWS: A Game-Changer for Startups

The author emphasizes that Amazon's AWS has been a game-changer for startups, enabling them to operate with minimal upfront investment. This has accelerated innovation as founders can focus on building their products and services without waiting for infrastructure to be set up. The author highlights that AWS has created a level playing field, empowering even young developers to launch companies, leading to a boom in startup innovation.

• Amazon's "stack ’em high and sell ’em cheap" approach to AWS has made cloud services accessible to businesses of all sizes, including startups with limited resources.
• The author expresses surprise and frustration at the lack of media attention given to Amazon's transformative role in the software and venture capital industries.
• Amazon's AWS has significantly reduced the need for traditional venture capital funding, as startups can launch and scale quickly with minimal investment.

The Rise of Micro VCs and Early-Stage Investment

The article discusses the emergence of "micro VCs" as a direct result of Amazon's influence. Micro VCs, like True Ventures and First Round Capital, have focused on early-stage investments, recognizing the shift in startup funding needs. They understand that smaller investments can yield high returns with the right companies.

• Micro VCs are actively investing in early-stage startups, providing seed funding for companies that can launch and scale quickly with the help of AWS.
• These funds have embraced a more agile and founder-friendly approach to investment, adapting to the changing landscape of startup funding.

Impact on Traditional Venture Capital

The author believes that the changes driven by Amazon and micro VCs have blurred the lines between traditional venture capital stages. This has led to increased valuations for private companies, as investors are willing to pay higher premiums for companies with strong growth potential.

The article suggests that the venture capital industry is undergoing its own "creative destruction," with new market entrants and innovative models reshaping the landscape.

• The author predicts that the venture capital landscape will consolidate, with fewer firms but greater focus on specific stages of investment.
• Limited partners (LPs) who invest in VC funds will also need to adapt to the changing dynamics of the venture capital market.

Amazon's Impact on Innovation and Investment

The author concludes that Amazon's influence on the software industry and venture capital is profound. The author praises Jeff Bezos for his vision and leadership, comparing him to Steve Jobs for his ability to drive innovation in computing.

• Amazon's AWS has democratized technology, allowing anyone with a good idea to launch a company without needing significant capital.
• The author believes that the venture capital industry will continue to evolve, with Amazon playing a central role in shaping the future of innovation and investment.