I had the pleasure of meeting Paul Graham in person at MIT when I was invited to speak about Titan Key’s technology. He’s a good guy.
He raises some interesting questions in this essay, “The Venture Capital Squeeze“. His main point is that there is too much VC money chasing too many deals and this is further exacerbated due to a dramatically lowered cost of developing web-based technology.
Paul may be correct on this points, in the realm of Web 2.0 startups, but I’m not sure if I would make that kind of a blanket statement that applies to the VC industry in general. Biotech companies need tons of money to get started, so I’m sure that once VC’s figure out that software startups need 1/10 the cash they used to, the other 9/10ths will go to different kinds of companies (or, perhaps China and India) that needs the money.