Image via CrunchBaseThe need for early stage funding is not as dire as it used to be. But the need for later stage funding is still dire. I am going to argue that is also going to change in the next wave of innovation. There will be companies like OfferPal Media that will help you monetize early and strong. There will come a time when most startups will need little to no money early stage, and little to no money late stage. Asking a startup to both build a great service and to monetize that service is like asking coders to buy and upkeep servers. Makes no sense.
But this newish development is not just about there being less need for big, early money. This also is about saying investors need to get down and dirty with their investments. They don't need to put in daily involvement like members of the executive team, but showing up once in a while for the Board meeting and getting your fee perhaps does not cut it no more. You need a more hands on approach.
The dot com domain is going to stay fertile for a long, long time. To see saturation in that domain is to suggest the human mind will attain satiation at some point, and I just don't see that happening. The human mind has been programmed to stay permanently hungry. Content creation, content curation, content search: they will stay in play.
There is plenty of room on the cutting edge. But then there is plenty of room if the entire world is your stage. You have to be willing to go wherever there might be opportunities for growth.
And money does not differentiate between one sector and the other. New hot domains will emerge. Clean tech, bio tech, nano tech are the obvious names being bounced around. And there are old names. I believe microfinance could easily digest a few trillion dollars. All that money the Wall Street junkies sunk into real estate the past decade and brought the house down for the rest of us, if they had been innovative, they would have taken some of that money into microfinance.
Summary statement: things are exciting, and are getting heated up. I can't even see five years out, let alone 10.
Fred Wilson: Some Thoughts On The Seed Fund Phenomenon
I blog because it helps me think through a lot of issues we face in our business ...... it still takes on average $20mm to get a web startup to sustainable positive cash flow. But the vast majority of that capital will be required after the business has "traction." ..... What has changed in technology venture capital is not so much the total capital requirements, but when they are required. ..... Dennis and Naveen had built the service all by themselves and had just lured Harry onto their team. They needed no capital to do that. In fact they did not even have a bank account when we went to close our seed investment...... The deals that work get very competitive when it is time to raise real money. ..... First Round Capital, the grandaddy of the web 2.0 super seed funds, has now evolved into a firm that is twice as big as our firm in terms of investors and they have more capital under management than we do. And I've met a couple investors who are talking about creating "seed bridge funds." I think that's a great idea..... We are still figuring out to evolve the VC business to reflect the change in financing needs of entrepreneurs and we aren't done by a long shot.Paul Kedrosky: The Coming Super-Seed Crash
a combination of ease of entry, lower capital requirements, failing incumbent venture capital (VC) firms, and general fervor has driven the emergence of a host of new "super-seed" firms. These small-ish outfits -- usually running less than $20m -- specialize in seeding a bazillion companies, following on in very few, and generally trying to be fast-moving and networked. ..... Nor does it mean that incumbent VCs will once again rule the world with mega funds. Many of them, like the dinosaurs, have turned out to be evolutionary dead-ends that couldn't adapt with a changing financial landscape. ..... Declining average cost of company creation is driving declining average cost of venture firm creation. ...... Incumbent VCs make up shit about the inadequacies of super-angel funds ..... Venture capital is hard, whether practiced by brain-dead VC incumbents, or by smart and nimble super-angels. Most VCs, and most angels, fail -- it's just that its takes 10 years to kill a VC fund ..... as incumbent VCs justifiably vanish en masse, niche overshoot seems almost ecologically inevitable among super-seed funds.Chris Dixon: It’s Not That Seed Investors Are Smarter – It’s That Entrepreneurs Are
was a very common occurrence before the rise of seed funds, due to VCs pressuring entrepreneurs to raise more money than they needed so the VCs could “put more money to work.” ..... I thought the brands of the big VCs would help me and didn’t really understand the dynamics of fund raising. ..... Today, entrepreneurs are much savvier, thanks to the proliferation of good advice on blogs, via mentorship programs, and a generally more active and connected entrepreneur community. ...... prominent seed funds will outperform top-tier VC fundsJohn Boyd: The Rush To Early Seed Stage: Later Stage Implications And Top 7 Mature Themes
every time I turn my head there is another seed incubator popping up. .... Things are not as active in traditional venture capital funds as many struggle to raise super sized funds and maintain the flow of fees. Angels and incubators, on the other hand, are exceedingly active. ...... While some of these early stage deals will be capital efficient even in later stages, many will still need relatively large raises that angels and incubators just can't handle. ..... an early stage deal has to reinvent itself multiple times. ..... Some really famous seed investors use the shotgun approach. ..... Early stage investing requires an ability to go from failure to failure without any measure of diminished hope or exuberance. To me that implies a lot of the ex-corp dev guys and lawyers who are now active seed investors may drop off. ....... My relationships with teams I've invested with early on are like family as you are often in some pretty thick battles with them. ....... Right now we don't have enough competition in broadband and too much spectrum is tied up warehoused in too few hands.Fred Wilson, 2006: Web 2.0 Is A Gift, Not A Threat, To VCs
