Mark Evans

A New VC Model?

Web 2.0 may not be a bubble yet but there are intriguing, if not troubling, signs that the inmates want to take over the prison. Dave Winer's call to remove VCs from the formula has some merit but it assumes investors in a publicly-traded venture company will have faith that the people running it are smarter than VCs. So, Dave, who are these people and what makes them more insightful than VCs? Before anyone gets carried away about turfing VCs from the equation, let's concede there is a role for VCs within Web 2.0 but it will have to evolve because many start-ups don't need much of what the biggest thing VCs bring to the table: money. Given development and distribution costs are modest, and the best services will market themselves virally, where is the VC's value that will get them a piece of the action? Rick Segal is among many people trying to figure that out. It may be that VCs “invest” in start-ups in different ways by offering services such as networking, headhunting, technical, marketing etc. as well as a small amount of capital ($1-million to $5-million). Rather than getting a 30% equity stake out of the gate, they would get 5%. And rather than investing in four or five start-ups a year, they would invest in 10 to 20 companies. As a result, the name of the game would be deal-flow. This new landscape would make competition for deals extremely competitive, which would be good news for start-ups who could choose their potential partners carefully. In other words, it could totally reverse the courting rules. The big question is which VC steps up first to seize the opportunity? Maybe it won't be a VC because it's too dramatic of a shift to do quickly. Maybe it will be Rick Segal - backed by some institutional or high net-worth money. What about Mark Cuban? He's got enough cash, energy, ideas and an appetite for start-ups (Ice Rocket, etc.) to pull it off. Maybe Dave Winer will walk the walk, rather than talking the talk by tapping some of the money sloshing around Silicon Valley these days. Or maybe it will be someone such Niklas Zennstrom, who has the required rebel DNA and oodles of eBay cash/stock to finance something disruptive (I assume Tim Draper would throw in a few bucks and ideas.) So who's game?
For more thoughts, check out CrunchNotes and Robert Scoble.
Update: If you're at all interested in this New VC dialogue, a must-read is Rick Segal's lengthy post, which clarifies his cryptic post of a few days ago. Rick has obviously been doing some deep thinking and talking with plenty of people recently as he works through his New VC theory.