Comments on: Don’t Cross the Streams!

By: stephenfleming

stephenfleming — Fri, 22 May 2009 18:00:55 +0000

Looks like Business Week is joining the chorus:

http://www.businessweek.com/magazine/content/09_22/b4133044585602.htm

By: stephenfleming

stephenfleming — Thu, 30 Apr 2009 12:37:00 +0000

I don’t listen to podcasts (not time-efficient), but this one is probably pretty good:

http://www.thefrankpetersshow.com/podcasts/myWimpy.html

Look for the one titled “Basil Peters on Early Exits”… if there’s an obvious way to link to a particular episode, I haven’t found it.

By: Angels, VCs and Homeruns » Michael Ewens

Angels, VCs and Homeruns » Michael Ewens — Wed, 22 Apr 2009 19:14:43 +0000

[...] The average size of a venture fund has grown from $100M to $350M in ten years. That means the home runs have to be bigger… as a rule of thumb, you probably need to exit at $200M to “move the needle.” via academicvc.com [...]

By: Basil Peters

Basil Peters — Wed, 22 Apr 2009 18:13:02 +0000

Stephen – outstanding post! Thanks very much for your coverage of my talk at the ACA event. One small clarification to your summary – the *majority* of private company acquisitions are under $20 million. About 92% of exits don’t work for VCs, but that percentage was based on a minimum exit size of around $100 million. I’m working on a post at AngelBlog to clarify that point.

Knox’ and James’ comments are excellent.

It was a pleasure to meet you in Atlanta. Thanks for all the valuable information in your blog.

By: FN

FN — Wed, 22 Apr 2009 15:39:11 +0000

I completely agree and I think it’s ironic that the thing VCs have been preaching for so long (capital efficiency) is the very thing that threatens their business model. Ultimately, VCs will just have to focus on deals where the company needs $10MM+ like biotech, cleantech and the like and angels, instead of being a feeder for VCs will become an alternate.

By: David Dodds

David Dodds — Tue, 21 Apr 2009 17:31:19 +0000

I am a scientist, not a financial type, and left big pharma for private technical consulting to start-ups about 8 years ago. I have no direct VC or angel experience, but am directly affected by these financial forces and see them operating at reasonably close range. My experience from the past 5 or perhaps 6 years (strictly in biotech/pharma/cleantech start-ups) is that the VC funds are trapped in an unsustainable business model no different than the business model that has trapped the big pharma companies – the spiraling need to produce bigger and bigger winners, requiring ever-larger investments, thus requiring even greater returns, and so on.

I am also struck by the apparent paradox; I hear repeatedly that there is plenty of money to waiting to invest, I see a simultaneous need for investment in small companies, but investments cannot be made because they cannot by big enough to provide the required returns – so nothing happens.

My experience also suggests a direct parallel between the increasing disconnect noted in the article (between smaller and larger investing entities) and the increasing gap between the point where a given piece of technology can be developed with minimal funding, and the point at which anyone will make an investment.

As an outsider with no financial education, my admittedly naive conclusion is that VC funds are simply too big. A question: if things worked better when funds were only $100M, why not go back to funds of $100M, or even smaller ? I suspect the answer is found at the end of the posting by Michael Slater – the “pressure to get big fast…[and]… make markets grow faster than their natural rates.”

And that suggests a further parallel to what I see happening in big pharma (which has become too big) and the investment community generally; the early discover & development is handed over to small companies that are built – and expect – to work only in that early environment, with late development, full-scale production and marketing taken on by corporate entities which are designed to work only in that very different environment.

Thus the division between angel and VC investors would seem a natural event that should be encouraged. Finding benchmarks to set expectations around such a division of risk & return would seem the next step; Knox Massey’s post seems a good start here.

By: Angls vs VCs - Diverging Interests | TNTlog

Angls vs VCs - Diverging Interests | TNTlog — Sun, 19 Apr 2009 18:27:54 +0000

[...] Fleming at Academic VC has an interesting article about the diverging interests of angel investors & VCs. The basic [...]

By: Michael Slater

Michael Slater — Sun, 19 Apr 2009 05:28:07 +0000

I agree entirely with the merits of angel-only funding for web startups. My current startup got the beta to market on $250K in angel funding (and a lot of sweat equity), and will launch 1.0 on less than $400K. We’ll need another $1M to drive growth and get to breakeven. Our goal is to be able to make everyone happy with a $20M exit (though we hope for more).

The challenge I see is that a $1M angel round is at the high end of what’s reasonable, and is likely to require lots of investors. So I’m also looking at small VC funds that are also happy to put in $500K.

Another advantage of this approach is that it forces you to stay lean and mean. That’s a lot harder to do when you have $8 million in the bank. The pressures to “get big fast” lead to a lot of bad decisions and attempts to make markets grow faster than their natural rates.

By: Knox Massey

Knox Massey — Sat, 18 Apr 2009 15:01:39 +0000

Stephen–
Great to see you at the ACA event. Regarding your above comment–much, much more of that discussion was happening in the hallways and outside at the tables–as well as in the more formal sessions. Angel Group syndication is alive and happening. I had conversations with groups in SC, FL, NC, TN, VA, etc about Atlanta companies (not just Internet app companies) during the week. The money is there–believe me–it’s there. Atlanta needs to be better about working together on local deals to bring in the outside capital….

By: stephenfleming

stephenfleming — Fri, 17 Apr 2009 15:21:09 +0000

Commenting on my own post…

Sitting in Friday morning panel at ACA. James Geshwiler of CommonAngels just related an anecdote that fits with this. He led a deal, then brought in Benchmark who eventually invested $8M… and wanted to do more. Hoping for a billion-dollar home run.

Turned out the target market couldn’t support a big company, and they wound up selling the company for $28M. With $22M of liquidation preferences.

Ouch.

Geshwiler went on to say that, had they syndicated with other angels, they could have spent less than $8M, gotten the same $28M exit, had no liquidation preferences, and everyone would have made a lot of money…

Single datapoint, but insightful.