Venture capital did pretty badly in the first decade of the century but I wouldn’t say it’s in the doldrums. From an interested outsider’s perspective it seems to be changing pretty significantly and probably for the better. Here are three types venture-capital-like types of institution that have developed over the past 5 years:
Leaving aside whether the invention of the accelerator itself was a major innovation in investing (I think it was), some programmes have become pretty phenomenal investment outfits and compete with VC firms directly. It feels a little bit like a classic Innovator’s Dilemma strategy to come in where the big VC firms thought there was no point operating and now they’re creeping up the value chain. Y Combinator is the most obvious but Techstars too now has a follow on fund which means that they can avoid dilution.
John Borthwick explains Betaworks as being modelled on the movie studios like Miramax. They make a lot of their own productions but they’ll also back other peoples’ provided they fit into their philosophy. Anthemis has a similar feel but is focussed on financial services rather than the real-time web. Ev Williams and Biz Stone’s Obvious Corporation is also doing it. Interestingly, they’re all structured as companies rather than as funds – making them more like Berkshire Hathaway than VC partnerships.
The full service investor
Traditionally venture capital firms had very small teams relative to the amount of money they managed. They expected the startups they backed to do all the work but would give them the money to hire the right people and advisers. A16Z seem to have changed all that. They become part of the startups they back and have a team of very talented people of their own. They can do recruitment, design and marketing as well as the traditional VC stuff. At the earlier stage I’ve also noticed it at Greenstart and 500 Startups where the core services available to startups mean that they can stay smaller for longer and don’t have to battle quite so hard in the talent war.