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Mark Peter Davis on the Problem With the VC Industry Mark Peter Davis' journey from venture capitalist back to entrepreneur has given him a unique perspective on the new challenges of start-up fundraising.

By J. Tepper

Opinions expressed by Entrepreneur contributors are their own.

Mark Peter Davis knows a thing or two about venture capital.

When Davis co-founded the groups-management site Kohort just last year, he quickly raised nearly $3 million in seed money from a raft of high-profile investors including IA Ventures, RRE Ventures, along with TechStars' founders David Tisch and David Cohen. While Davis recently stepped down from the role of CEO, users and entrepreneurship groups such as Venwise Visionaries and The Big Plate continue to sign-up for the service that's been billed as a "Meetup killer."

Despite his success, Davis noticed a few fatal flaws that he thinks could carry implications for the entire start-up community. "There are startups getting funded that shouldn't be getting funded," says the 33-year-old New York-based entrepreneur.

The reason is two-fold, he says. Today's speed of technology has largely reduced capital costs -- the fixed, one-time expenses that are often tough to muster when starting up. Though obviously a helpful advance, lower technology costs makes it less expensive and seemingly less risky for an increasing number of novice entrepreneurs to start up -- even if they have half-baked ideas.

Related: Is Your Business Ready for an Incubator? 5 Tips from a "TechStars' Grad

Then, many venture capitalists are also writing an increasing number of smaller checks to more and more companies, many of which Davis believes are unsustainable.

So not only are many funded startups and VCs engaging in potentially risky business, Davis suggests the start-up glut is also triggering a lack of talent. "People who should be joining other companies are now becoming founders, and it creates a talent shortage," he says.

Though Davis notes that he didn't feel the talent pinch when launching Kohort -- in fact, the company is actually reducing its headcount -- he suggests that the problem has become endemic at startups across the U.S.

Related: How Square Earned a $3 Billion Valuation

"In the short term, it means there are more companies in the market, exacerbating the talent shortage," says Davis. But as time goes on, he thinks many early-stage funds risk going out of business if they continue to make weak bets. "The ones that are making bad investments won't last," he adds.

He should know. As a partner at High Peaks Venture Partnersand a former associate at DFJ Gotham Ventures, Davis serves as a mentor for start-up accelerator TechStars. He also launched a series of startups -- from selling computers to his classmates going off to college to Zotspot, an internet search engine.

Davis isn't a start-up curmudgeon, though. He's just concerned. "His entrepreneurial nature makes him a natural mentor," says Lily Liu, the thirty-something founder of a public-works notification app PublicStuff, who worked with Davis at High Peaks. "He's always thinking ten steps ahead."

Related: How to Raise Real Cash for Your Startup

Indeed, until the VC-entrepreneur relationship gets back on track, Davis is determined to use his unique lens as a venture capitalist to help other young companies succeed. In addition to regularly blogging on the subject of raising funding for his own blog mpd.me and publications like Inc.com and Business Insider, Davis has written a series of soon-to-be released self-published books on navigating the startup financing maze: "Fundraising Rules," to be released this fall and "Breaking the Rules," which is expected out sometime next year.

"There are a lot of businesses where you're better off stabbing people in the back, but as a VC you're better off helping people and being honest even if you lose money in the short run," says Davis. "It takes a village to start a company."

What other potentially troubling signs for start-up funding have you seen on the horizon? Let us know in the comments section below.

As a freelance journalist and photographer in New York City, Joseph spends most of his time with camera in one hand and notebook in the other. His writing and photography have appeared in the daily print publications including the New York Daily News and online publications. He is also immersed in the world of underwater photography as the Associate Editor of Scuba Diver Through the Lens, the world's first print underwater-imaging magazine.

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