Any start-up needs backers which almost always means venture capital investment. Sure you can start off in your garage and get the basics done on your own dime, but once you are on your way to becoming known to the public you need to grow fast. If you don’t take the money then someone else will clone your idea, team up with a VC firm, and beat you to market. There are lots of down sides to dealing with VC cash, but its the way the system works, and the VCs like it that way – a stable model capitalizing on the churn of innovations.

This entire model is about to change.

All start-ups fear the patent trolls. Once they debut their entire model and exit plan are threatened by a cadre of companies specializing in extortion, forcing start-ups to pay out large sums to “clean” their balance sheet of unspecified and unlimited liabilities. The VC firm is generally no help. They can give advice on how to lay low and can recommend a good lawyer and when to just pay them off, but they are no help preventing the attack. Actually being associated with a VC makes your company more likely to be a target.

The only ones who can stand up to the patent trolls are those with a substantial patent portfolio themselves and incredibly deep pockets. Often there is some prior art or older patent that can scare off a patent troll from suing the likes of IBM, who has more quality patents than anyone. The patent trolls are well healed, but don’t stand a chance next to a war chest like those of Apple, Microsoft or Google.

In the future, the most important VC service – even more important than cash or expertise – will be patent indemnification.

Indemnification is a well known aspect of the computer world. Back in the day, IBM and Intel would be sued over the technology in their chips, but they would protect the companies who used computers with IBM / Intel chips from patent infringement cases. By taking on all the liability themselves, IBM and Intel made their clients feel safe buying their chips. The issue even came up last year in a public way where Apple app developers were being sued for using a patented process that was used in the Apple app store, and Apple finally stepped up and indemnified their app developers.

In this scenario the only viable VC firms in the world are Microsoft, Google, Apple, and IBM. There may be a few other players in specific industries, but this is the group that will make future innovation happen.

Such an oligopoly is extremely dangerous. It will lead to a much higher percentage of the start-up’s value going the VC master, but its the other controls that are worrisome. Without competition the terms could become extremely bad for the people in the start-up. Most importantly, established corporations controlling the innovation pipeline can quash competitive or disruptive business plans.

Although I don’t mind seeing true disruption in the VC business space, this certainly is not the outcome I would have chosen.

I should end by saying that I have no inside knowledge of this happening anywhere. Without patent reform, which I now believe is a pipe dream, I firmly believe this will eventually come to pass. It could happen this year or it could take 10 years for them to figure it out, but it is the inevitable consolidation for a broken system that was supposed to protect and foster innovation.