A Friday series exploring Startups and the people who make them go. Read all If the Shoe Fits posts here
As an entrepreneur, the constant stress around money in vs. money can at times be overwhelming and deeply emotional. Anxiety/angst/anguish/fear-and-loathing, and all synonyms thereof, best describe the feelings swirling in and around the entrepreneurial community these days when the subject of money, AKA funding, comes up — although not so much if you are one of the “chosen”, i.e. connected/entitled.
Bambi Roizen, Vator Founder and Managing Partner of Vator Investment Club, actually sees more money available. (Here is the video and full transcript of her talk at Splash one year ago. The quote is edited for clarity.)
There were about 20 post seed venture funds; now my friend Paul Martino counts probably 200 and there’re going to be a lot more funds. If you think that there’s going to be a crunch, don’t worry about it. I have a feeling there’s going to be a lot more funds coming to fill that void. I think there’s going to be a lot more specialized funds. (…) I think that’s we’re actually going to see local funds. Local funds investing in local businesses.
Because remember, this is the opening up of title 3 to the average investor. (…) It’s so hard sometimes to look at companies, because they’re so good at telling stories these days. I knew that was going to happen — you’re such great storytellers, you have to be, because you have to sell your vision. But it makes it really hard for investors to know what to invest in, so they’re going to invest in everyone, right? Money is available.
I asked KG what he thought from his perch as a serial entrepreneur who has raised funds in very different economies and attitudes over the years.
“What she says is interesting. However, what we’re seeing is the financialization of the startup/entrepreneurship industry, with the consequence that financial investors will get involved earlier, take larger stakes and leave less for the entrepreneur and the team.
One could say that it is good that capital may become easier to access (if this is true), but the cost of that capital is also increasing since there are now two layers of return that has to be provided much earlier than before — that to the VC and also to the VC’s LPs.
In other words, entrepreneurs are coming earlier into the VC model where only a few outsized returns matter and the majority of companies are pushed/allowed to fail.”
Many VCs treat startups the same way commercial agriculture treats seedlings — once they get to a certain size they are thinned in order to concentrate resources on fewer plants that will yield a larger harvest.
“This may actually be negative for a whole host of companies that have no way of maturing before being put under the pressure of the VC return machine.”
However, newly emergent investors may bring change to the game. Kobe Bryant and Jeff Stibel have invested together since 2013 and have started a new fund with their own money.
Dozens of other musicians, actors and athletes are investing directly or through funds they started or joined.
Hopefully, that money will be more patient and come with a different mindset than the typical Silicon Valley focus on the connected and entitled.
It would be good to see at least some of the new funding go to the unconnected — especially people of color.
But no matter how much money is out there, I’m willing to bet that will take a lot more than vision/great story/rapid user growth to access it.
These days investors want a solid business plan focused on generating revenue, and, in many cases, a strong spotlight on social responsibility/giving back.
Image credit: HikingArtist