Technology, Venture Capital, Private Equity

Perspectives from an Indian VC

“Investepreneurs” – The new VC model in town

Posted by Arun Uday on June 6, 2007

For some time now, I had intended to write about the tectonic shifts that the VC industry is currently undergoing. These shifts are the consequence of the changes in the base foundation on which the VC superstructure itself stands on, which is – the technology industry itself. Industry pundits, management gurus, entrepreneurs and VCs alike have been writing and debating on whats now come to be known as the “broken VC model”. The discussions particularly reached a frenzy on the blogosphere when one of the revered VC firms – Sevin Rosen, which is credited with funding the likes of Compaq and Lotus amongst others stopped midway through its fund raising exercise and returned the monies to investors citing “fundamental structural problems” in the Venture industry.
The crux of the issue here is what can be termed as the “Commoditization of the technology industry”. This commoditization has been happening at two levels:
a) At the level of infrastructural building blocks of the tech industry viz. h/w, s/w & bandwidth, and
b) Commoditization of skills, referring to a glut of qualified personnel, who understand the technology industry well enough to be able to take on the role of a VC.
The former has led to a dramatic reduction in the costs of launching a startup. Open source s/w, cheap h/w and reduced bandwidth costs all mean that basically it costs next to nothing to get most startups off the ground. As a result, innumerable startups, especially in the area of internet services have mushroomed with little or no institutional money going in. On the other hand, the latter has ensured that the information asymmetry in relation to the technology industry, which had been the cornerstone of VC investing since inception has virtually disappeared. It has resulted in larger and more number of VC funds being raised for deployment into tech ventures, with the inevitable consequence that returns for investments have suffered. All this has led to a squeeze on the VC industry from both sides leading to the “broken model” related discussions especially w.r.t early stage investing.
However, some recent developments w.r.t Guy Kawasaki’s launch of his latest venture, Truemors present an interesting new context to this whole issue. In his own words, it took Guy, $12,108 and 1.5 people to launch this service in 7.5 weeks. Now, Guy is amongst the most well known early stage investors in Silicon Valley and even the name of his firm “Garage Ventures” typifies the space they play in. So, has Guy just invented a new model of early stage investing? Whats important is that this new venture was completely conceived, financed, built and deployed by Guy himself (with mininal external help). No pitching to external investors, no elaborate b-plans, none of that. A quintessential “Do it all by yourself” therapy to the problems plaguing the VC world, or, what I would call “Investepreneurship” (Investor + Entrepreneur). An approach predicated on the old slogan – “If you can’t beat them, join them.”
The shifting loyalties for the “principal” and the “agent” models in the financial services world (think investment versus advisory services) is something most are already familiar with. Will we see some of the same now begin to happen in the VC world as well? What do you think?

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