Basil Peters wrote an excellent blog post today on why VC firms have got too big.
He argues that the VC model is broken, one of the main causes being that the focus is on ever-larger investments. (I believe it’s possible that with the current Great Deleverage happening before our eyes, that the trend could reverse.)
His bottom line:
This necessity for venture capital firms to invest more and more in each company has profound implications for entrepreneurs and angel investors.
For most startups it means that venture capital firms probably aren’t the best source of funding – or that they aren’t even a desirable source of funding.
Do you know many NZ startups (as opposed to early stage) that are delighted that are delighted with their VC experience?
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I’ve recently returned from attending an ANZA Summit (Australia New Zealand America Technology Network) followed by a two week capital raising roadshow in the US where I met with both VCs and Angel Groups. ‘From the field’ I can concur with everything Basil says in his post.
I’m looking for between $1.5m and $5.6m (depending on the rollout strategy we undertake and in which countries) in expansion capital for an internet health software business. I thought this would be suited to VCs but as it turns out (and Basil points this out), few VCs want to only invest in a Series A raising and leave it at that. They then also want to invest a few more times before exit. We won’t need to raise further funds as we go cash flow positive very quickly and so we didn’t get a lot of traction from VCs.
As a side point, VCs are still actively investing, but they are also using the state of the economy as an excuse to really drive down valuations.
On the other hand, the Angel Groups I met were not put off by the higher end of our range. One such group has committed to investing $1.4m subject to us getting another co-investor which is what we are now actively doing….. with Angel Groups.
I thought I’d share my findings which supported Basil’s post. Remembering of course, there are always exceptions to the rule.
Regards, Marshall
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