In this video by Bambi Francisco (also below), she talks to Highland Capital founder Paul Maeder about “VC model being broken”. It is very interesting to see that while majority of the top names in VC industry now understands that the current model is not working at least for web/mobile sectors (smaller capital need, no IPO’s in sight etc.), still no real innovation is happening.
It seems that the only “innovation” they see, is just to try and get the excess money out of VC industry… It’s kinda similar as Newspaper industry would argue that all we need is less Newspapers and we’ll be fine. More about this subject in this earlier post.
It shares some great and simple to understand tips for new start-up entrepreneurs:
Get to revenue quickly
Raise as little capital as possible
Learn to be lucky (increase your opportunities to be lucky)
The one extra tip was, it’s OK to fail. European entrepreneurs seem to have VERY different viewpoint to failure. European failed entrepreneurs rarely continue as entrepreneurs and start something new, when in US. the most successful entrepreneurs have failed in past. I think this is a VERY important lesson. Europeans should understand to value their biggest lesson that they get from their failure!
Again this post in Funding post continues from the topic of serious bootstrapping trend. More start-ups being capital efficient (good thing for entrepreneurs) etc. This comment below highlights the current trend very well:
“I see a lot more capital entering the lower level of the ecosystem probably because… the opportunities for being capital efficient are actually more available now than they were before,” said Owen Davis, managing director of NYC Seed.”
More about the subject in the video below:
There is a reason why this is also looking more appealing for VC’s. The VC’s problem is well outlined in this post: The Venture Capital Match Problem, by Fred in Ask VC.
Below is my dialog with Fred (in comments):
Me:
I think this just shows that money does not solve problems. The problem here is not too much money, but how it’s now distributed.
VC industry is starting to look like the newspaper industry – better to wake up, the blogs are coming…
Fred:
What are the blogs of the VC business?Things like Y Combinator are great but they are feeding us even more opportunities so I see them as additive, Although I also see blogs as additive for the newspaper business if they’d just see themselves as curators and aggregators instead of content creators
Me:
I guess the closest thing to “blogs of VC industry” today are angel investors. But that’s for today. Also Y-combinator and the likes are great too and could be considered as “blogs of VC industry”. However their “next step” need to change away from just VC’s.
The fundamental change will become, when there are “platforms” for anyone to start a “blog for VC industry” and that’s what we are doing in www.growvc.com.
Overall, we feel that in long term the money will be spread to more potential start-ups and more of them will not go via IPO but just buy back of shares, mergers etc. with lower ROI. But that’s OK if the time for ROI is shorter and cost of management is lower.
So – be more direct, spread wider, lower the management cost, speed up the ROI cycle and you can accept lower ROI.
If you think about the structure of today, from where the VC money really comes from, you start to see the “big picture”. – basically it means that individuals like you and me pay for pensions funds etc. and these funds then invest to VC funds. VC’s then make investment decisions and “manage” the investments, all the way to take it public (hopefully). Basically just to sell it back to us…
When more people will start to understand this cycle because of more info and transparency online (if they are interested), people will not accept this structure. Because in the long run what matter is, if the companies in question sell what matters. And that is not a question of size.
The New York Times asks today “Do Web Entrepreneurs Still Need Venture Capitalists”. Robert Hendershott, a professor of private equity and entrepreneurship at the Leavey School of Business at Santa Clara University, says that venture capital is becoming obsolete, because the cost of starting a Web company decreases, thanks to cloud computing services and technology that entrepreneurs can rent instead of buy, many founders can finance a new company without the help of venture capitalists, using their savings, money from family and friends and credit card debt.
paidContent.org listed some opposite opinions. Boring to say, but I think both of them are right. Web companies can be started with small money. They still might need VC money in later phases, but we have now a problem in early phase funding from VC’s. Private investors or angels can also be professional and help company as VC’s. And it is not guaranteed that all VC’s can really help start-ups. There are some top level VC’s and a lot of totally useless. We must also remember that companies can get professional help from other sources than VC’s, you don’t necessary need VC to make an exit. I think we see changes in the whole ecosystem. And it is not only one solution that fits to all companies.
Ron Convey, angel investor and partner at Baseline Ventures, said VC industry must change because costs to start a company are now so much smaller than 10 years ago. Ron is very respected character in Silicon Valley, his firm’s investments include Google, Ask Jeeves, and Paypal, and he also serves on the advisory boards of Facebook, Twitter, and Digg.
In this morning I had a morning coffee with my good friend who is a venture capitalist in Sand Hill Road. He asked, what is this Grow VC. I explained. He answered that he feels this is really the right time for this kind of solution. He continued that if we can create a model where people can with $200 to $2,000 invest in early phase firms, it will change the whole VC business. And it will also change start-up business. And finally he asked, what he could do for Grow VC, because this is something he wants to be involved.
Very positive messages. It is less than two months to the beta launch. Then we really start to change the world of early phase funding…
I was today in EconSM Social Meets Mobile event in San Francisco. The event tried to find out answers to the future of social networking business and especially, how important role it has in mobile. Of course, one key question is, how to monetize the services and communities. But also how to build successful services and get funding. As we know this kind of services are difficult for investors, how to find success stories.
Twitter is an interesting case example. It has started in 2006. But how many people knew it in 2006 or 2007. The last year was really the breakthrough. Why. Kevin Thau from Twitter tried to give some answers, like changes in media, Obama’s election campaign etc. But we must agree that it is difficult to predict these things. But Kevin made very important point: “you can do so much with less people and small money.” Twitter has only 45 people. And there are interesting companies that have only 1 or 2 people and they have launched interesting services. You can really start a business with small money, see how it flies, and then think next steps and more money.
Ron Convey, angel investor and partner at Baseline Ventures, commented Twitter: “I believe it will make money. We have seen many cases, starting from Google, here in Silicon Valley that a company first must collect a critical mass of users and then start to think, how to really monetize this.”
I think these were important messages to people who want
Kevin Thau, Twitter
to start mobile or web business, or make small investments. You can start with small money. And smart people can build interesting services and get users with very limited resources.
The best value of any business plan is the process of creating it, not the ending result. It’s valuable for you and your team, not for investor. The value to your team comes from building your mutual understanding and understanding the overall structure & details the same way.
So you don’t need a business plan, then what do you need?
access to pitch the right investor, right type of introduction is best
really short few words quick pitch
elevator pitch
deck of selected details
several pitching opportunities
Below is a great presentation by Nivi at venturehacks that every entrepreneur should be listening right about…. now!
As I’m doing my research on Venture Capital etc. stuff, I came across this great video at BeyondVC, that I also shared via Twitter. However I think this was so good that I also wanted to post in our blog
All entrepreneurs around the globe – enjoy!
Also here’s few more.
The Don’t Quit Poem
Classic by Al Pacino, from a Movie – any given sunday (could well be a VC talking to team of entrepreneurs)
Forbes’ article is a good summary of VC’s dilemma: VC’s want to be larger and avoid risks. Forbes says: “Venture firms raising ever-larger investment funds–which produce ever-larger fees, of course, and rich lifestyles for the VCs getting them–have simply backed too many crummy companies over the last 10 years.” And it continues: “Geoff Love, whose U.K.-based Wellcome Trust is an investor in many top VC brands, said onstage at the conference that he thinks larger funds and fees have made many venture capitalists more risk-averse.”
I think this is nothing new for people who are working in start-up and VC business. But it once again highlights many relevant issues. And especially this is a problem for early phase web and mobile companies. They need smaller money to prove that they can launch a beta version and start to get users and market feedback. During the last six months I have talked with several people who are launching their new web or mobile service and they have been interested to get investors. My advice is to find smart business angels and/or try to make it with so small money as possible, get users, and learn how the business model works. But of course all entrepreneurs haven’t enough money to do it without external investors. Hopefully Grow VC can help them soon.
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– better to wake up, the blogs are coming…
The New York Times
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Forbes’ article
