Mister, Can You Spare $200K?

Paul Graham’s latest thoughts on the state of venture capital are a must-read for anyone interested in how start-ups should be nurtured.

Graham argues that investments of about $200,000 are a sweet spot for startups because it’s the happy middle ground between giving money to people who have nothing but an idea, and investing in something that has already become hot.

“There are companies that will give $20k to a startup that has nothing more than the founders, and there are companies that will give $2 million to a startup that’s already taking off, but there aren’t enough investors who will give $200k to a startup that seems very promising but still has some things to figure out. This territory is occupied mostly by individual angel investors—people like Andy Bechtolsheim, who gave Google $100k when they seemed promising but still had some things to figure out. I like angels, but there just aren’t enough of them, and investing is for most of them a part time job.”

Graham’s description of the investment landscape, specifically the lack of investors willing to write a check for $100,000 to $250,000, describes Canada to a tee. Across the country, there are entrepreneurs with great ideas who need just a little bit of capital to make their ideas happen. Unfortunately, they scratch and claw with little success before retreating into the security of a corporate IT job when the reality of having to pay the bills really hits home.

While it’s certainly not the most inspiring environment for aspiring entrepreneurs, the silver lining is it seems to have done little to tame peoples’ enthusiasm. It’s encouraging to see so many people excited about what’s happening on the Web, and looking for ways to get involved – be it as entrepreneurs, employees, event organizers (Camps, conferences, etc.)

In an ideal world, there would be investors looking to tap this enthusiasm. And on a positive note, there are some signs it could be happening. Montreal Start Up, for example, was recently launched with $3-million on venture capital focused on “deploying seed and advisory capital into early stage opportunities” in the Internet, wireless and multi-media sectors.

Of course, $3-million isn’t a lot of money in the scheme of things but it’s a start, and if it sparks other investors to put $100,000 here or $250,000 there into promising startups, that can only be a good thing.

For more thoughts on Graham’s ideas, check out Why Does Everything Suck (aka Hank Williams), who suggests that it’s not just VCs who are conservative but all of us. “VCs should be bolder,” he suggests. “I just don’t think that message should be limited to VCs. Most of us drive through life with all the windows closed. That’s great in the winter. But there is nothing like a morning ride through the scent of spring. I suggest we should all try a bit more of life with the windows down.”

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