Over the past 20 years, Venture Capital has slowly shifted to the right (becoming more conservative). The primary driver has been the exponential increase of density and volume of venture capital in the 90's. Venture Capital firms went from raising 250M to raising 2B in funds to invest (so now they are forced to invest more money per deal - thus later stage is the only option). The number of Venture Capital firms has grown exponentially, but the footprint of their location didn't change much. Most of the VC's are still in California and Boston. This shift to the right has widened the "GAP".
In the late '90's due to the widened GAP - Angel Investors (individuals that invest in early-stage ventures) started to fill the void that Venture Capital left behind. Over the past few years, Angel Investors have formalized their activity into Angel Funds, and now act and invest like early-stage VC's. Although Angel Investors have helped entrepreneurs survive the GAP and ultimately position for institutional investment from a VC - they have limited capacity in both time and money to really make qualified decisions and also assist their portfolio in operations and extended funding requirements. Angel Funds are typically run by one administrator or a volunteer angel investor who orchestrates the meetings.
On the other side of the GAP, Universities are struggling to get their technologies to market, and entrepreneurs are lacking guidance on how to get their idea to market. In order to help bridge the GAP, Universities formed Licensing Departments to help organize their IP and enable the professors to streamline licensing their IP to 3rd parties. Some Universities invested capital into building "incubators" and had dedicated staff to help qualify technologies, write business plans and offer some basic infrastructure for companies to hand their hat.
As you can see in the diagram above, the GAP has some awkward holes even with angel capital and incubation. The bottom line, is that money and infrastructure support companies, they do not create companies.
Thus, you need Venture Creation.
Venture Creation is a process. Much like a manufacturing process, Venture Creation turns raw material (e.g. technology) into finished product (e.g. fundable venture).
The value of Venture Creation is not just creating ventures, but more importantly qualifying ventures through a process that will determine whether a venture has a viable product, growing market and a plan that is achievable with existing resources and capital.
In order for the billions of dollars in research and development to bridge into the billions of dollars in institutional Venture Capital - there needs to a be a strong bridge in the form of a Venture Creation company to accelerate ideas into ventures, and build value.
The most important aspect of a Venture Creation company is the management. The people that work day-to-day with the portfolio of companies needs to be highly qualified, entrepreneurial people. The core principal is based on finding very valuable resources and sharing them across multiple ventures being launched.
The second most important aspect is the ability to invest capital. A Venture Creation company can have a small seed fund, or an affiliation with an Angel Group. Either way, having funds available from seed investors is needed.
The final component of a Venture Creation company is that is must have equity in ventures it helps build. Most of the motivation for helping businesses start and become successful is having an equity stake in the venture.
When looking at the funding cycles of any new venture, you need to be creative on how the funding will occur from Seed to 1st Stage.
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4 comments:
Where do venture firms like YCombinator, Techstars, YEurope and HitForge fit? Are they pre-GAP? Do you think a YCombinator-like model would work in Sarasota?
These models are definately variations of venture creation. YCombinator has been very successful. I think YCombonator model requires a large influx of deals, for it to work. They filter through 100's of deals to find the match. Also, I think their model favors Web 2.0 business models - which are far and few between in Florida. However, I think the model is not too dissimilair to what Startup Florida does - we just don't have the masses of entrepreneurs to tap into.
Rich,
I just stumbled upon your blog and I have to say that I agree with you wholeheartedly from the perspective that there is not enough support for the entrepreneurial/startup community in FL and especially in the Sarasota area.
As a serial entrepreneur myself I have to tell you that raising money for early stage ventures is just about the hardest thing I have encountered, and I am talking about revenue generating sound business models where I have significant 'skin in the game'.
That being said I don't know if the underlying problem is that there aren't enough entrepreneurs... it seems to me a bit like the chicken and egg challenge...
If there was more funding and support opportunities then maybe there would be more entrepreneurial innovation; how can his issue be resolved?
TH
what is the diffrence netween this simple venture creation model and an entrepreneurial venture creation process model??
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