This is a follow up post to “How to fix any business“. I am a big fan of VCs – Value Creators. I have been following, reading and absorbing everything successful VCs do for the past 3 years. I have learnt a lot and I continue to learn a lot from this very smart, hyper networked, visionary group. I am not that smart or have the track record or success to call my self a Venture Capitalist but I call myself a Value Creator (do you see the trend I keep repeating Value Creator until it becomes the definition of a VC :)). There is a lot of perspectives and reactions in the blogsphere to what Fred Wilson said, Fred is a very very smart guy… in case you did not know and I have taken him as my virtual mentor since I started on this journey to make mission in life is to help and serve Entrepreneurs, I am continuing the figure out the economic business model for myself part that is for another post. Fred suggested alternatives to the traditional growth of Venture Capital Fund is nicely summarized here:
Fred’s view of where VC is going are:
- Given all the new pools of funding, he said, it doesn’t make sense for VCs to continue aggregating capital. And considering the industry’s inability to generate returns on more than half of the current investment in venture capital, he added that the allocation aspect is another area ripe for rethinking.
- Still, he continued, VCs, can keep on adding value as board members, advisors and resources on exits and governance.
- Going forward, VCs have a few options on the table, including becoming more selective, shrinking, halting investment of instutional capital or taking more equity for the governance and advisor services they provide, Wilson said.
- But one of the more compelling ideas he floated was building a business on top of crowdfunding.
“If these crowdfunding markets really do develop into these vibrant markets… maybe the answer is to leverage that capital and do something interesting there as opposed to going out and raising money from the institutions,” he said….And, as a last resort? Quipped Wilson, “We can just retire.”
Successful VCs will tell you that, they are really lucky but one needs to be smart and in the right field to be lucky. IMHO, the biggest Value Add VCs bring to their portfolio companies besides negotiating a value for the company by buying shares in the company with real money is their wisdom, network relationships and connections. They open doors for them in terms of business deals, customers, exits and as being mentors they provide the coaching the team needs. As fiduciaries and Board members they ensure that proper governance frameworks are in place to build sustainable companies. In addition to all that they have an opinion on the direction of where the market is going so they try to ensure their companies have aligned their sails to make the winds of change work for them. Crowd funding solves only one of those problems i.e the value determining and money part, it is an important part but all the other things that follow are far more important and still needs to be done. I am not sure who leads a crowdfunding round for a company using a crowdfunding platform, hypothetically it should not matter but for those of us who have raised money, gone through funding rounds it is a process and it takes time and it is not that simple. I don’t believe we know all the challenges in front of us in terms of Crowdfunding but VCs should play a very major role in doing the Value Add to CrowdFunding. My suspicion is that they most definitely will do. Here is a good talk by Mark Suster about Entrepreneurship and Venture Capital, I like his disruption story and making it happen.
- To VC or Not to VC? (growthology.org)
- Can there really be 452 crowd funding platforms? (sciencetoprofitsblog.com)