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Is Venture Capital Dead? ... Long Live The Virtual Incubator?
Colleagues,
Provocative interview with Founder of "TheFunded.com", Adeo Ressi , on the future of venture capital. TheFunded.com is an online community of 13,000 entrepreneurs who research, rate, and review funding sources worldwide, and allows members to view and share term sheets, to assist one another finding good investors, and to discuss the many facets of operating a business.
... Adeo has started a new organization, "The Founder Institute", designed to address the gap created by the seeming collapse of the classic venture capital model ...
... In these excerpts from John Cook's interview in the Puget Sound Business Journal "Tech Flash", Adeo declares that the "venture capital bubble has burst", and that something very different will replace it...
Read on:
What will the venture capital landscape look like in five years?
"Right now, I advise all founders ... to avoid raising capital until they really have something substantive to show because I believe that the venture capital bubble has burst. You are seeing, really, a historical level of consolidation, and so I think within five years there is going to be dramatic substantive change of the venture capital model.
What's wrong with the venture capital business?
"The LPs, the limited partners, are pulling out of venture investing at a staggering rate... The faith is shaken for good reason because the underlying model has been abused and is flawed ... they are making tens of millions of dollars a year to run these funds with absolutely no correlation to whether those funds make returns. That just seems irrational."
Why did you create The Founder Institute? "
... we felt the best way to help CEOs that don't have a lot of experience would be to put them through a training program. And when we looked at that, the best way to run a training program was to have other founders -- and other CEOs -- show them the ropes."
Could The Founder's Institute be viewed as competition to some of the other venture models out there?
"I am not competitive because I don't take an investment position with cash. I am not competing, in fact I defer to their valuation by using a warrant vehicle."
Why training programs and why are you setting them up in certain geographies?
... if you want to help people build relevant and meaningful companies, they need relevant and meaningful mentoring from people who are succeeding in the current market at the current time. And then, not only that, really it is location specific as well because a successful person today in San Diego or Seattle or Washington D.C. is probably operating in a different way than -- let's say someone in San Francisco -- because the markets are inherently different."
Talk a little bit of the economic incentive in this program and how that works with the common pool of equity split amongst people in the group?
"I've looked at incubators very carefully since 1999 ... and what generally happens ... with incubators and accelerators is that they make an investment, and that immediately troubles the waters.... By not directly investing at first it attracts a wide range of companies, and what we do is we introduce those companies to the appropriate investors to make sure they get fair market value for their idea.... Obviously, when you try to create a training program, you want to incentive all of the stakeholders to success... So, we thought long and hard on how to do this, and what we ultimately decided to do was to allow everyone -- all of the stakeholders -- to share in the success of the companies created. This is classically called an exchange program where a group of people contribute stock into a pool and then the success of one benefits them all."
What's the structure of that look like?
"So, we give 30 percent to the founders, 30 percent to the mentors, 25 percent to the person who operates the local chapter and the Institute keeps 15 percent. The Institute runs the warrants pool, which we refer to as a bonus pool, for many years and we send checks as these companies grow and achieve liquidity to the various parties."
How do you pick companies to get into the program?
"We don't pick companies. We pick people. We don't ask applicants for a business idea. We only ask them for what they are passionate about.... We put the applicants through a combined personality and aptitude test and based on the caliber of their application and the results of the test we admit people into the program...
Read the full blog at: http://www.techflash.com/seattle/2009/11/thefundeds_adeo_ressi_the_...
ENJOY!
CC
Provocative interview with Founder of "TheFunded.com", Adeo Ressi , on the future of venture capital. TheFunded.com is an online community of 13,000 entrepreneurs who research, rate, and review funding sources worldwide, and allows members to view and share term sheets, to assist one another finding good investors, and to discuss the many facets of operating a business.
... Adeo has started a new organization, "The Founder Institute", designed to address the gap created by the seeming collapse of the classic venture capital model ...
... In these excerpts from John Cook's interview in the Puget Sound Business Journal "Tech Flash", Adeo declares that the "venture capital bubble has burst", and that something very different will replace it...
Read on:
What will the venture capital landscape look like in five years?
"Right now, I advise all founders ... to avoid raising capital until they really have something substantive to show because I believe that the venture capital bubble has burst. You are seeing, really, a historical level of consolidation, and so I think within five years there is going to be dramatic substantive change of the venture capital model.
What's wrong with the venture capital business?
"The LPs, the limited partners, are pulling out of venture investing at a staggering rate... The faith is shaken for good reason because the underlying model has been abused and is flawed ... they are making tens of millions of dollars a year to run these funds with absolutely no correlation to whether those funds make returns. That just seems irrational."
Why did you create The Founder Institute? "
... we felt the best way to help CEOs that don't have a lot of experience would be to put them through a training program. And when we looked at that, the best way to run a training program was to have other founders -- and other CEOs -- show them the ropes."
Could The Founder's Institute be viewed as competition to some of the other venture models out there?
"I am not competitive because I don't take an investment position with cash. I am not competing, in fact I defer to their valuation by using a warrant vehicle."
Why training programs and why are you setting them up in certain geographies?
... if you want to help people build relevant and meaningful companies, they need relevant and meaningful mentoring from people who are succeeding in the current market at the current time. And then, not only that, really it is location specific as well because a successful person today in San Diego or Seattle or Washington D.C. is probably operating in a different way than -- let's say someone in San Francisco -- because the markets are inherently different."
Talk a little bit of the economic incentive in this program and how that works with the common pool of equity split amongst people in the group?
"I've looked at incubators very carefully since 1999 ... and what generally happens ... with incubators and accelerators is that they make an investment, and that immediately troubles the waters.... By not directly investing at first it attracts a wide range of companies, and what we do is we introduce those companies to the appropriate investors to make sure they get fair market value for their idea.... Obviously, when you try to create a training program, you want to incentive all of the stakeholders to success... So, we thought long and hard on how to do this, and what we ultimately decided to do was to allow everyone -- all of the stakeholders -- to share in the success of the companies created. This is classically called an exchange program where a group of people contribute stock into a pool and then the success of one benefits them all."
What's the structure of that look like?
"So, we give 30 percent to the founders, 30 percent to the mentors, 25 percent to the person who operates the local chapter and the Institute keeps 15 percent. The Institute runs the warrants pool, which we refer to as a bonus pool, for many years and we send checks as these companies grow and achieve liquidity to the various parties."
How do you pick companies to get into the program?
"We don't pick companies. We pick people. We don't ask applicants for a business idea. We only ask them for what they are passionate about.... We put the applicants through a combined personality and aptitude test and based on the caliber of their application and the results of the test we admit people into the program...
Read the full blog at: http://www.techflash.com/seattle/2009/11/thefundeds_adeo_ressi_the_...
ENJOY!
CC
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