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Could a Facebook get funded in Dallas?

December 30, 2007

Poster Boy for ADEA Class Action Suit? Can you say age discrimination?More and more investors on the East and West coasts are taking lots of small risks on lots of startups. In the not to distant past, venture capitalists were hesitant to make small investments. They argue they would rather invest $5,000,000 than $500,000. Why? Easy, there are only so many hours in the day and the traditional VC model of hands on involvement meant a partner could only invest in ten or so companies at a time. Investors like Peter Thiel of the Founders Fund has started a trend among venture capitalists on either coast: small investments, limited involvement.

Rebecca Buckman details this new trend in her Wall Street Journal piece titled, “VC’s New Math: Does Less = More?” She explained how Thiel’s $500,000 investment in Facebook is indicative of this new math.

The ‘new VC model’:

  • Small Investment ($500,000 or less)
  • Small Stake (5-10%)
  • Special Founders Shares (allows founders to sell limited amounts of stock immediately)
  • Limited VC involvement
  • Bias toward founder retention

VCs taking part in the new model: Founders Fund, First Round Capital, True Ventures, Baseline Ventures, Trinity Ventures, Accel, and Charles River Ventures. Peter explains, “The venture-capital world definitely needs to be shaken up.” He goes on to explain, “Venture capitalists often can be too quick to fire start-up founders and replace them with professional managers. Many VCs “have these very cushy jobs, they get paid a lot and often can’t relate to founders. With so much money chasing deals in Silicon Valley these days, start-ups can afford to be choosy in picking their financial backers.”

Most of the ‘hot’ new startups can trace their foundation to this new model. Facebook is only one example, just look at Jeff Clavier’s SoftTechVC list of small investments: Truveo (sold to AOL), Userplace (sold to AOL), MyBlogLog (sold to Yahoo), Kaboodle (sold to Hearst Interactive), and Maya’s Mom (sold to J&J BabyCenter). Each of these resulted in significant returns for both Jeff’s fund and the founders. VCs on both coasts are rethinking the way they are investing in startups, the time has come for investors in Dallas to re-examine their own methods. There is no dearth of good ideas in North Texas, but there is a vacuum when it comes to progressive investors.

If you are an investor located in North Texas please contact me. I would love to profile you for the blog and find out what sort of deals you are looking for. Startups contact me daily looking for funding advice, I would love to have some advice…

Written by Alexander Muse · Filed Under Blog, Venture Capital 

Comments

2 Responses to “Could a Facebook get funded in Dallas?”

  1. Al Ramirez Says:
    January 2nd, 2008 at 7:04 pm

    Facebook could have been funded if it was located in Dallas as could any start-up on one fundamental basis. It would have or should have a major contract with a Fortune 500 Company HQ’d in DFW that could incubate the service and set it up for acquisiton as the basis of the exit plan. DFW and Texas in general doesn’t have the organized Angel network or Venture talent and never may but it has historically had excellent small business development outreach programs especially for MWBEs. These Corporate Partners should extend that legacy to help Tech Start-Ups regardless of gender or race based on opportunity to advance financially viable ideas.
    How many Fortune 500 companies are there in DFW and how many have their own VC arm? Samsung Telecommunications America (based in the Richardson Telecom Corridor) for one has a VC arm and they just did a pitch event in San Diego in December, why not Dallas?

  2. Sam Hyatt Says:
    March 20th, 2008 at 2:55 pm

    I think you are right…Startup used to mean, big money to create due to expensive software, hardware, and labor pools. Now people are desperate for jobs, top quality programmers in India can build your application for you for $7/hr and alot of tech departments have figured out how to use dinosaured computer equipment to daisy chain into powerful servers…So tremendously more can be done with far less these days…Take my company, for instance, with $250k that I am pursuing, I can create and distribute to the public a mobile/desktop application that allows them to establish a locality, and once that is done, view on a map, in real time, the closest taxis, shuttles, and tow trucks to their location. They click on the icon and up pops a profile for the driver including name, contact information, friendliness rating, a link to a merchant application to pay by CC, and the ability to log that driver as a favorite so that you may search for him/her at a later date…The drivers pay a subscription fee to the service to their dispatch company along with their taxi fees to be a part of the system and the application is a multilayer portal design that will allow the introduction of trial basis, premium games, coupons, etc…before using the app…or pay a subscription fee on the premise of “you never know when you will need it” as people pay much more for far less functional apps all the time and never use them again…How many business stories do you have to listen to, that are the equivalent of “The one that got away” as an investor before you really stop throwing business plans in the trash…Take the ugliest and worst mess that has been delivered to your office and see what it is…What can be done to foster this mess into and functional idea and can it be sold. VCs are so quick to judge saying “My partners would never invest in such an offering at this stage” And he/she hasn’t even discussed it with his/her partners to know WHAT their interest would be. Two heads are better than one always comes to mind for me. Thank you for a great article. Have a great day.

    Sam Hyatt
    Founder
    BluCast
    978.201.2356

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