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Abstract
Venture capital has rebounded thanks to a handful of select venture capitalists. The venture capitalists leading this renaissance are returning to the venture capital model in its most traditional form as a real partner to start-ups, as a risk-taker and most importantly as an innovator and disruptor at the fund level. Less than stellar venture capitalists can only hope to replicate these innovative ways in a rapidly changing landscape where they will be forced to adapt or risk being exposed and shepherded out of the ecosystem. The age of easy fundraising has come and gone and with it goes the ability for poor venture capital funds to lurk in the background and ride the coattails of their more innovative counterparts to easy payouts. When taken in conjunction, visibility, disruptive leanings and hyperactivity are game changers, especially for the fittest venture capitalists. These innovators are doing something about the industry’s tarnished reputation. Investors, entrepreneurs and the “other venture capitalists” should take notice. This executive Forum paper introduces them and develops an understanding of what they do and how they do it.
Notes
1. Diane Mulcahy, Bill Weeks, and Harold S. Bradley, “We Have Met the Enemy … And He Is Us”, Lessons from Twenty Years of the Kauffman Foundation’s Investments in Venture Capital Funds and the Triumph of Hope over Experience, the Ewing Marion Kauffman Foundation, 2012. See also Diane Mulcahy, Venture Capitalists Get Paid Well to Lose Money, HBR Blog Network, 5 August 2014.
2. Felix Salmon, How Venture Capital is Broken, Reuters, 7 May 2012.
3. Scott Austin, Majority of VCs in Survey Call Industry “Broken”, Wall Street Journal, 29 June 2009.
4. Matt McCall, VC’s Mathematical Challenge, VC Confidential, Behind the VC Curtain, 28 June 2009; Fred Wilson, The Venture Capital Math Problem, AVC, 29 April 2009.
5. Kim-Mai Cutler, Vinod Khosla: 70–80% of VCs Add Negative Value to Startups, TechCrunch, 11 September 2013.
6. Guy Turner, Venture Capitalists to Venture Capitalists: We Can Do Better, vcwithme, 27 May 2014.
7. Hendrik Brandis and Jason Whitmire, Turning Venture Capital Data into Wisdom: Why Deal Performance in Europe is Now Outpacing the US, July 2011. The report argues that commitments to venture capital funds are decreasing due to the poor quality of venture capital data in Europe.
8. Billy Callagher, How CrunchBase Data Compares to Other Industry Sources, TechCrunch, 23 July 2013.
9. Dan Primack, VCs Suck (But There’s A Way You Could Prove Me Wrong), Fortune, 13 August 2014.
10. Andrew Parker, The Challenge in VC, 17 August 2014.
11. Erick Schonfeld, The Top 10 VC Firms, According to InvestorRank, TechCrunch, 25 May 2011.
12. Mark Fidelman, The Top 30 Most Respected Venture Capitalists (infographic), 2 February 2011.
13. Hunter Walk, To Understand VCs, Founders Should Meet Their LPs, 29 June 2014; Charlie O’Donnell, The Economics of a Small VC Fund, This is Going To Be BIG, 12 May 2014.
14. Fred Wilson, Writing it Down, 19 September 2013.
15. Fred Wilson, Some Thoughts on Convertible Debt, AVC, 31 August 2010; Mark Suster, Is Convertible Debt Preferable to Equity, Both Sides of the Table; Seth Levine, Has Convertible Debt Won? And If It Has, Is That a Good Thing.
16. Kyle Hulten, Equity or Convertible Debt, What is Right for Your Company, the iVLG blog, 20 May 2013; Fred Wilson, Convertible Debt, AVC, 8 September 2012.
17. Russ Garland, Entrepreneurs Want VCs Friendly but Not Too Hands-ON, Study Says, Wall Street Journal, Venture Capital Dispatch, 23 July 2013.
18. Lawrence J. Aragon, No respect for “Most Respected VCs” List, PEHub, 3 February 2011.
19. Fred Wilson, The Three Terms You Must Have in a Venture Investment, AVC, 10 April 2009; Brad Feld, VC Rights: Up, Down, and Know What the Fuck is Going On, FeldThought, 7 May 2012; Brad Feld and Jason Mendelson, Venture Deals, Wiley, 2011.
20. Brad Feld, The Opportunity/Growth Fund Trend, FeldThoughts, 20 June 2014.
24. Mike Butcher, As EarlyBird Closes New €150 m Fund, LPs Warm to European Tech Valuations, 31 July 2013.