Wednesday, December 8, 2010

Old Style vs. New Style VC

Wrote a comment over on David Lerner's blog on his "Are Super-Angels Extinct" post. He said

What I am saying is that some of these superangel funds may structurally resemble traditional VC funds, but they are something altogether different- and more akin to an angel group.
My comment was that structure matters.  If you set up the Red Cross just like a bank, with the same incentives, they would have caused the Panic of 2007.

Maybe it's just two different world-views.  I've thought about this and written about it for a long time.  My take is that if you want to create a better venture capital system, you need to change the system, not just the people.  Calling yourself a super-angel and saying you are different does not change the investing world.  Changing the processes and structures of the investing world will change the investing world.  There are firms (and super-angels) doing this.

In the spirit of changing the game, some "old-style" and "new-style" comparisons:

Old-Style New Style
Money managers Company builders
Organized like a law firm Organized like a start-up
Generalists 'T-shaped'
Managing $1bn Managing $25mm
Living on management fees Living on expected future carry
Scaling by hiring more partners Scaling by being more efficient
"Loose lips sink ships" "You should read my blog"
Going to NVCA meetings Going to the R Meetup
Joining Angel Investor groups Writing $25k checks
Starting an owned seed fund/ incubator/ hackathon Supporting a grass roots effort
Sports jackets Kicks
Networkers Community builders
Lawyers Series Seed
Participating preferred Straight preferred
51% 15%
LPs measure success by: IRR LPs measure success by: IRR


Justin Singer said...

Couldn't agree more about keeping a systems mentality. Donella Meadows wrote a great primer on systems thinking that I highly recommend:

Now that I think about, I'm wondering if you actually recommended it to me first. Hmm...

Jerry Neumann said...

No, I haven't read it. I'm going to, though, thanks for the pointer!

I have to admit that, as a systems thinker, I am usually unable to see my own systems-thinking bias. Luckily I have loved ones who are decidedly NOT systems-thinkers and who (lovingly) chide me about it.

For instance, the networks vs. communities point is hard to jibe with systems-thinking. For me it was a pure leap of faith. But it turned out to make me insanely more effective. And I credit the amazing quality of my portfolio to that one change in style.

Matt Harris said...

can you talk more about "T Shaped"?

Jerry Neumann said...


T-shaped, as in broad set of skills and interests, but deep in a specific area. Crucial for interdisciplinary teams, t-shaped people have the ability to learn new things quickly and can add value both from 50,000 feet and--in certain specific areas--at an extremely granular level. You're T-shaped, for certain.

Most entrepreneurs are t-shaped. VCs typically have not been, in my experience, but the ones that add the most value to early-stage companies are.

Dave Lerner said...

The more you elaborate on this, the more I get where you are coming from. You want to see real structural changes to accompany all the behavioral changes that we're already seeing. I am guessing that the current use of a fund structure for the superangel/microVC category is just a bridge to some entirely new structure (legal/corporate/business) that does not yet exist.

Chris Sheehan said...

Interesting post Jerry; it will be fascinating to see how this plays out