Rethinking Venture Capital
So I’ve been pitch on a pile of “new” incubator type models for building companies lately. This led me to think through the venture process and my conclusion, though i may very well be wrong and I just thought of this so it’s not fully fleshed out, but i think that the general structure of venture funds today is wrong - at least for web tech. I mean the costs of building these companies are very low and the values to get from selling them are pretty low so I think it needs a new approach.
Yes, people are doing this now but it should be formalized.
I think the following are the stages of a company life cycle:
1) Choose the flower (plan the idea) = Limited to no cash required
2) Plant the seeds (get a product launched) = under 50k
3) Water The Plants (supporting cash for marketing, tweaking, 1 full time employee)
4) Sprouting (founders come on board full time and it takes the shape of a real company) = 250-750k
5) Flowers Grow (growth phase) = 500k - 2MM
6) Bloom (combination of Series A/B/C leading to an exit) = $X
There really isn’t a need for Series A, B & C anymore. Yes you can do it but there isn’t a need. The Bloom phase is essentially when you build a real sales force and get bit with the giant hosting bill but what more do you really need cash for in most internet plays today? Not much.
If I was starting a fund I would be in one of two places
1) Incubation Phase: Help people build a business model and get live. Up to 50k investments.
2) Development Phase: 50-500k - building the official team = you are a company now
3) Secondary Financing: 500k+ = most money goes to marketing and strategic deals
That’s my new 3 phases of VC.
Curious what everyone thinks…
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