How has the VC industry shifted over the past two decades, and where is it heading in the future? originally appeared on Quora: the place to gain and share knowledge, empowering people to learn from others and better understand the world.

Answer by Scott Kupor, Managing Partner, Quora:

There have been a few very fundamental shifts in the VC business over the last 20 years that have had tremendous impact on the business.

First, the unit costs of all of the major technology inputs required for starting a tech business have all dropped by 10-100x+ over the last 20 years - servers, networking, storage, infrastructure, etc.

Second, the method of acquiring these technologies has shifted from capital expenditures to operating/pay-as-you-go expenditures. For instance, the growth of AWS represents a foundational change in how companies access tech infrastructure.

So, if you combine these two things - lower costs + pay-as-you-go consumption - it is now way cheaper to start a company today than it was 20 years ago. To give you an example, when I was at Loudcloud, we raised a lot of venture money because we had to write checks to Sun, Oracle, BEA, EMC, Cisco, Exodus, etc., to buy all of the infrastructure we would need to run our business upfront. And that was just to allow us to get into the market - we still needed money to hire people to build out the business!

That simply doesn't exist today and, by the way, explains why we've seen the massive growth of seed funds (~800 new firms formed) in the last 10+ years. Seed firms exist because it's easier to start a company for much smaller amounts of capital than was the case previously.

Third - on the complete other end of the spectrum - companies are staying private longer today than they ever have. Roughly 2x longer - a shift from about 6 years to 12 years. There are lots of reasons behind this, but we don't have enough space to write about it here! Regardless, of how we got here, the implication is significant.

First, it means that growth that would have happened previously in the public markets is now happening in the private markets. Microsoft went public in 1986 at a $350M market cap; Amazon did the same in 1997 at a $438M market cap. You would be hard pressed to find any venture-backed tech companies (biotech is different) going public today anywhere near these levels.

Second, as a result, we've now seen a whole new host of investors coming into the private markets to capture this appreciation - mutual funds, hedge funds, sovereign wealth funds, buyout funds, family offices, Softbank, etc. This changes the total amount of money companies will raise privately and also provides them additional capital to expand their businesses more quickly and in more geographies sooner than they would have before.

Finally, the net effect of both of these trends - way more seed capital and way more expansion stage capital - is that capital is no longer a differentiating factor for VCs. There will always be someone else out there with more money and a lower cost of capital, so VCs have begun to evolve in other areas to provide differentiation. Simply put, entrepreneurs have choices and VCs need to find new ways to influence those choices.

So, where is it heading in the future?

First, capital will continue to be a commodity and thus VCs who compete on capital alone are unlikely to be able to be successful.

Second, the lines between seed/early-stage/later-stage venture capital will become increasingly blurred. Some VCs will choose deep specialization in one area as their core differentiation, but many others will find that being a full service provider of capital is the way to go. The industry will continue to "barbell" out - niche vs. full service, with the undifferentiated middle finding it harder to compete.

Third, the lines between private and public markets will increasingly blur. I suspect we will see a more liquid secondary market in the private markets where VCs and employees might seek partial or full liquidity in advance of an IPO. There are shades of this already today, but not in the form of a well-functioning, liquid marketplace. I suspect that will change.

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