Disrupting the VC Business and Exploring the Because Effect
I keep running into Rick Segal. Doesn't matter how remote or large the event might be, there's Rick. It happened last summer in Copenhagen, when Rick was the first guy I recognized in Denmark — sitting in a steetside cafe on the evening before Reboot started. And it happened again earlier this month at CES in Las Vegas, when I ran into Rick somewhere in the bowells of the monstrous South Hall, which is possibly the largest single conference space in the world.
Rick is a VC: a venture capitalist. He's also a rebel. So, every time we meet up, we naturally find ourselves talking about how venture funding is ripe for disruption (in the manner of Clayton Christensen's Innovator's Dilemma, which describes how old slow-innovating industries are disrupted by small, original and inventive newcomers). While the technologies and markets funded by VCs continue to change, Rick says, the VC business itself has changed very little. Partners rotate through, but the dance stays the same. And it's getting as old as disco.
So this past weekend, in the midst of a many-city junket, Rick came by our house in Santa Barbara (a nice warm Winter break from Rick's native habitat), and we brainstormed all kinds of fun stuff. Which was an education for me, because I've generally avoided the detail side of the Venture business. Sure, I've sat in on pitches, and advised VCs and their funded companies at various times and in various ways (more often informally than formally). But my eyes usually glaze over when talks turn to term sheets and angels and burn rates and A-, B- and mezz rounds of funding. But Rick wasn't talking about that stuff. He was talking about speeding up and otherwise improving the simple act of getting good ideas off the ground.
But rather than share his ideas (which maybe oughta be his job anyway), I thought I'd ask the rest of ya'll what you'd do to improve the venture business — especially in the earliest stages, when you've got a good idea that needs a bit of funding to help get started.
I'm especially interested in exploring what I've been calling the because effect. This is what you get when your new business isn't just about inventing and controlling technologies and standards, but about taking advantage of the new opportunities opened up by fresh new technologies and standards. For example, making money because of blogging, or RSS, or desktop Linux, or whatever — rather than just with those things.
The because effect is a kind of jujitsu. While other people look to make money with something, you're finding ways of making money because of something.
Prime example, because of search, Google and Yahoo make money with advertising. Another: because of Rivendell, Salem Communications saves money with its core buisness, which is broadcasting. Because of his blogging, Thomas Mahon makes more money with his tailoring business.
Thoughts? Ideas? Stories?
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London
When they gonna stop blow everything?
London
When they gonna stop blow everything?
London
Police have carried out a controlled explosion on a vehicle at the hospital treating a suspect in the attack on Scotland's busiest airport. Officers also made a fifth arrest in the airport attack and a foiled car bomb plot in London.
Maximo Park
Maximo Park muse mp3 download - Books from Boxes, Sandblasted and Set Free, Your Urge...
WTF
These comments are like rubbish
Sometimes
Sometimes I can't understand...
Disrupting The VC
You long for a different model and you are correct in your sense that many good ideas do not serve soon enough, or wide enough. The root of this is that society is not meant to change every day but through gradual accumulation of evidence and stepping forward. The key is to understand these processes - get ahead of them and let the natural flow take over (this yield the large successes that you sense are out there). Interestingly, one should be able to study it to the point of binary decisions that can be followed but the underlying condition (society) is also always morphing due to its needs and discovery’s. This changing input to the model makes all the true successes something of a non linear hit (society is somewhat efficient in meeting its actual needs) The guy who tagged it bullshit is in the short game of grab maybe even successfully.
CarlG
Bullshit
Sorry but you are discussing bullshit
As one clever
As one clever person said the judgement transforms tragical hedonism.
Bespoke Suits
http://www.eurotailors.com/
Have you ever realized that when you buy readymade suits you get a choice of only a few colors & styles, also finding the perfect fit are quite difficult? Wouldn’t it be better to choose from over 2000 different British & Italian fabrics and get a tailor made suit at a similar price that you pay for readymade suits?
We are a company based in Hong Kong and have been providing custom made suits & shirts since 1997. With representatives in major cities around the globe we can arrange to show you the fabric samples and take your measurements, or you can also place your orders online with the help of our measuring guide. There are over 2000 fabrics to choose from along with all the latest styles.
All our suits and shirts are produced by highly skilled Shanghainese tailors in Hong Kong and delivered in about 4 weeks, express delivery can be made in 2 weeks at a minor extra cost. In case you are not able to find what you are looking for then please let us know your requirement may it be in words or by a photograph and we could arrange it for you.
We also have an outlet at the Hotel Intercontinental Budapest where you are most welcome to visit us. Though we are not located in streets like Savile Row (London), we have still been able to offer made to measure suits to many VIP’s from around the world.
Experience an easier way of shopping for bespoke suits & shirts at Euro Tailors
Interesting
Interesting opinion. But IMHO it's just an opinion.
My experience
I have great experience in that. So I can understand...
Anyway
Anyway I think that the author is right.
Linguistic
The autor has very good linguistic skills
You seem confused
You seem confused. Anything wrong?
I have other point of view.
I have other point of view. Try to think about this post.
norco
strip mall yesterday in this small western suburb after employees at a Bank
lortab
been born at a major hospital with
diflucan
Excellent site. It was pleasant to me.
clomid
Very nice site!
No comments
Are you sure? You must be joking. I can't believe in that
Sorry again
Sorry. Post that you have deleted was mine.
I love the way you write
I love the way you write. It's no wonder you have so many people reading your blog.
Re:
Don't pay any attention at these stupid people.
Re: De-ja-vu
U must be reading my mind! :) I also saw somewhere this text.
Santa Barbara - New to VC
Hello Doc,
Noticed from your recent post you are in SB. Love the weather here now that the fires seem to have departed. Thanks for your information on VC funding. As people new to the entrepeneur realm and in potential need of funding at some point in the future I appreciate your efforts to educate and share information. We may something further to talk about and share with a few people you might know. You can find us at www.thinking-forward.com
Regards, Joe Bruzzese
VC Improvements
I think VC's should be able to demonstrate entrepreneurship. Why should a founder accept someone who's not done what he/she has done? Or is trying to do...
Transparent VC?
What if a VC firm kept a list of ALL the projects it funded, along with the amount spent, success and failures, all out in the open? Prospective clients could then see just how well they actually do. This could open up the door to evaluating what really works for VC, as opposed to marketing theory de jure.
--Mike--
Looking for Disruption or Value?
I'd been stewing on this all week, but finally put thought to words. Hope it helps push the conversation a bit. Here's the relevent link.
In short, though, if you're going to approach the VC business anew, there needs to be a focus on a solid list of things to be fixed, and there needs to be a focus on who the beneficiary of this is. After all, I think "money" is to broad of a service. Anyone can offer money. A new style of VC firm needs to go above and beyond that for the sake of entrepreneurs, investors and the firm.
Ensight - Business & Tech Blog
Alpha
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Quantum Theory
I've got a new theory (new to me at least) about innovation. Any system has a minimum theshold an idea must reach before it becomes useful. This is a quanta... a hard minimum.
In Silicon Valley, the Quanta happens to be a company.
Unfortunately, this is far to big a bite. We need to make the threshold smaller.
Alpha
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Rick Segal's 12 steps to VC funding.
Rick Segal is an unusual VC. I wrote a post about Rick today http://dondodge.typepad.com/the_next_big_thing/2006/01/rick_segal_an_u.html
and an earlier post on Rick's "12 steps to VC funding success" that explain how he approaches the process. It is quite different, and more open, than most VCs.
http://dondodge.typepad.com/the_next_big_thing/2005/12/the_vc_funding_.html
If you are a new entrepreneur looking for VC funding Rick is a good guy to call.
Alpha
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Other responses...
Hugh MacLeod writes (flatteringly),
Fraser Kelton writes Fixing the VC Industry: An Industry Ready to be Disrupted — a long and very thoughtful piece. He begins,
I'm skeptical
I'm all for innovation, but typically the biggest benefits of innovation flow to buyers, not sellers. As an example, Wal-Mart customers are much happier than Wal-Mart suppliers.
While Rick and other VCs may like to think of their portfolio companies as customers, I have to call bullshit on that. VC's are buyers, not sellers. Yeah, occasionally a hot deal comes along and they're competing with other investors, so they have to dress up and sell themseleves to the entrepreneur. But more typically it's the other way around.
(The doesn't mean I think these guys would treat me badly if they invested in my company, but they have to acknowledge that it's much easier to sell and service their "product" than in 99% of other competitive markets. That dynamic has an effect on the relationship. For example, how many salespeople do you know you have the power to fire their customer's CEO?)
What's the point? The point is that if there's innovation in VC, it will most likely help the VCs - the buyers - not the companies. That means more equity at a lower price or, best case for the companies, broader reach that allows them to invest in more companies, which in turn spreads their risk, which in turn allows them (theoretically) not to take such a big bite of equity and also allows more companies to get funded.
There have been several attempts to innovate VC around the entrepreneur - Garage.com is one of many similar examples - but most of them failed or at least didn't make a serious impact.
On the other hand, VCs now manage a larger portfolio now than they did 20-25 years ago (measured both in dollars and number of companies), so clearly they have benefitted from innovation, which I would argue is mostly in the form of better communications technologies and information.
The single biggest innovation that has benefitted entrepreneurs is, ironically, blogging by VCs. It's now much easier to understand a blogging VC's perspective before you ever talk to him or her. And entrepreneurs can now learn a lot more about term sheets, valuations etc. just by reading what Brad Feld and Fred Wilson have to say about it. Ten years ago that stuff was unknowable except in really generic case studies.
VC Customers
I can understand taking issue with the word "customer" but you might want to consider moving to a broader view of the word. In my view, the customer of my services, money, is the start up. It really is as simple as that. The first step is, as you say, getting more information out there, aka the blogs.
But there is a larger problem at work and that is Google/AOL/Microsoft, etc, buying companies when they are pure ideas and basically thinking of that buyout as an HR action, i.e., get smart people and call the purchase price a signon bonus.
In addition, there is the reality of getting a company started. To do that and get some customers requires, way less then it did before which means, again, a lowering of capital requirements.
So, there needs to be a re-think on how we, the VC community, works within this new world. We will always have Chip companies, drug companies, etc, to fund but it would be a shame if we couldn't get a structure/process, etc, that fit the world that is our new web services world.
Garage and other incubators have failed for a whole mix of reasons. None of which change the basics that, for much of the software/software services industry, the old ways of getting capital simply don't apply or work.
Every industry goes through a process whereby it needs to be shaken up a bit to get some new ideas into the flow. I believe the web services or web 2.0 (to use an overworked phrase) provides that opportunity.
>R<
Rick Segal, Partner
JL Albright Venture Partners
rick@jlaventures.com
Should we bother?
Seems to me you're saying A) innovation in venture capital can only benefit VCs and cannot benefit the companies they invest in, and B) blogging by VCs and a general increase in transparency is the one good thing to come about in the VC business in the last 25 years.
That right?
If so, are we just wasting our time and energy here?
I don't think so, but I'm just trying to get straight what you're suggesting.
By the way, if "the biggest benefits of innovation flow to buyers, not sellers," why are there so many more ways to sell stuff, as well as buy stuff, on the Net? Seems to me we have many more ways to supply than ever before.
Alpha
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You're calling bullshit on what needs to be fixed
"While Rick and other VCs may like to think of their portfolio companies as customers, I have to call bullshit on that. VC's are buyers, not sellers."
That's what he's getting at when he says that the VC industry should be disrupted --- that the current process is bullshit, and there are gains a VC can make changing their ways.
In a weird twist of fate, I wrote a long piece today on disrupting the venture capital industry. You can find it here.
Timing is, as they say, everything.
Why I started PodTech.net
Because
Alpha
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Rethinking VC
Here's the relevant clip from my blog entry about this today...
--Mike--
0.0384615384615385
a bad job
Alpha
Hi, nice site! HTML http://www.justurl.com/it-is-to-page-which-very-long.html