Could a Facebook get funded in Dallas?
December 30, 2007
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…
