By Jeff Bussgang

When I first entered the venture capital business 10 years ago after being an entrepereneur, my partners warned me that “my bar” for new investments would get higher over time.  In other words, the criteria to make a new investment – clearing “the bar” – would get more strict with time as I developed more experience and saw more things.  I found this to be very true, and the notion that investors get wiser and more selective over time has become common wisdom in the industry.

But there’s something very new going on in the last few years – something very striking.  Simply put, the collective bar of the investment community to fund young companies has recently gotten higher – much higher.

The entrepreneurs I speak to are feeling it every day.  When they pitch their new idea to investors, they are told to build a prototype first.  When they build the prototype, they go get customers.  When they get customers, they are told to show engagement metrics.  When they show engagement metrics, they are told to run some monetization experiments.  When they run monetization experiments, they are challenged to prove scalability.  Maybe I have Passover on the brain this week, but it’s like investors are putting entrepreneurs through a nightmarish version of Dayeinu, where no matter what they achieve, it’s never enough (speaking of Passover, if you haven’t seen this Jon Stewart clip of Passover vs. Easter, it’s a must.  I’ll wait.).

Why is the new investment bar so high today?  Isn’t there plenty of euphoria and “animal spirits” to go around with the IPO market returning, marquee acquisitions (e.g., Instagram at $1 billion) and the impending, earth-shattering Facebook IPO?

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