There have been a couple of discussions on venturewoods earlier regarding angel funding models, including Ycombinator. An excellent article on Read Write Web outlines the challenges the venture capital is facing. Amongst the salient ones include:
- Lowering cost of doing a startup and taking it to critical level
- Reducing role of distinctive technology in more and more (IT) startups
- Growing openness to acquire companies relatively early by likes of Google
- “IT doesn’t matter” – its hard to build large enterprise IT companies
There seems to be an opportunity for VCs to start investing even earlier in the cycle, and be able to make money not by one or two hits, but by more consistent performance across the portfolio, each exit perhaps being relatively smaller in absolute size than what VCs are used to today.
This calls for a new model of how venture firms are run, and in my view, opens an opportunity for a technology-enabled model. In order that each partner may still run an equivalent amount of money with smaller deals, the number of deals grows. However, given the early stage nature of these deals, the involvement grows. The only way to manage this is to critically examine the process and use technology to make it as efficient as possible. Some examples of such technology intervention would include an extranet platform to keep updated on interesting prospects, regular updates from portfolio companies linked to their own reporting systems, collaboration amongst investment professionals, and perhaps even content feeds relevant to each portfolio company and including its media buzz, competitors etc.
Amongst our own angel funding activities at the Indian Angel Network, I think there are significant opportunities to create a collaboration platform for angel investors to work together and make progress towards making investments. May be something like Angelsoft ++
From entrepreneurs’ perspective, what are the biggest inefficiencies in the venture process, which can be fixed by use of technology? Without compromising their ability to make as much money as they want to make for their investors, how do you think VCs can adapt themselves to suit the new age entrepreneurs better?