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Rise of the Micro VC
 

Rise of the Micro VC

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My presentation from the BVCA (British Venture Capital Association) conference talking about why we have seen the rise of the Micro VC. It's a natural outcome from a changing startup world.

My presentation from the BVCA (British Venture Capital Association) conference talking about why we have seen the rise of the Micro VC. It's a natural outcome from a changing startup world.

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  • PRODUCT now typically means a website or service, run on low-/no-cost open source software, hosted in the cloud on low-cost servers, developed in a few months (or a WEEKEND!) by a small team of 1-5 developers, who continuously test & iterate in real-time with online customersMARKETING now typically means using a variety of online distribution channels via paid & organic search (SEM/SEO) on Google, PLATFORMS viral/social amplification on new media platforms & social networks like Facebook, Twitter & YouTube, and the quickly-growing mobile platforms of Apple iPhone & Google Android. With the exception of search, most of these distribution channels didn't exist 5 years ago, yet they now easily reach over 100M-500M+ users, with very low cost and measurable marketing campaigns such that even a small team can reach billions of people globally.REVENUE can now be collected easily via a variety of online payment, transactional e-commerce, digital goods, subscription billing, lead generation,CPM/CPC/CPA advertising. Many people buy things online now, and many companies are even bought for usage & users ahead of revenue.
  • It was designed for the stair-step world, and we are now in the curve-y world.Our entire industry was designed for raise capital, spend capital, raise more capital, spend more capital.What does it mean for us?
  • In fact, over the last year, we have seen the industry change – change from below (with the formation of new funds) and change from within (self correction).We have seen a new class of investor come out – you can call it the super-angel or the micro-vc…it means the same thing.What are the characteristics? Less than $50m, average investment around $500k to $1m, very frugal, test and learn, Also – will have to cut companies off sooner than before…horrible, but the right thing to do.

Rise of the Micro VC Rise of the Micro VC Presentation Transcript

  • “Strange Case of Dr. VC and Mr. Entrepreneur”
  • What We Do
    • A new kind of venture fund: “for entrepreneurs, powered by entrepreneurs
    • Investors are successful entrepreneurs who give their time and money
    • Based in London, with European-wide focus
    • Focus on the equity gap; investing between £0.5m and £2m per deal
    • Targeting capital efficient, Internet/mobile companies
  • VCs and Entrepreneurs …two sides of the
    same coin…
  • Some Perspective
    Non Equity Finance
    Equity Financing
    Angel Financing
    Self Finance /
    Bootstrapping
    Venture Capital
    Debt /
    Bank Finance
    Private Equity
    Customers!!!
    Public Stock Markets
  • VC is a Marriage of Convenience…
  • VC wants
    Entrepreneur Wants
    • Passionate team
    • Large market
    • Amazing technology
    • Fast growing
    • Easily monetisable
    • A chance to make “outsized returns”
    • Cash
    • Strategic Advice
    • Mentoring
    • Recruiting
    • Introductions / biz dev
    • A chance to build a great company (and “outsized returns”)
  • Traditional VC Model
  • Old-School Fundraising
    $ Invested
    Success
  • Old-School Fundraising
    $ Invested
    Success
  • Old-School Fundraising
    $ Invested
    Success
  • Old-School Fundraising
    $ Invested
    Success
  • Old-School Fundraising
    Private Equity /
    Public Markets
    VCs
    FF&F
    Angels
    $ Invested
    Success
  • Everything has Changed
  • What has Changed for the Startup?
    • Product
    • Marketing
    • Platforms
    • Revenue
    • The ENTIRE Cost Structure
  • Moore’s Law of Lean Startups
    • Lean startups are predicated on generating more output on less input; i.e., more power from a less expensive box
    • It is miniaturization – the Moore’s Law of Lean Startups
  • Capital Needs
    $ Invested
    Success
  • Capital Needs of Lean Startups
    $ Invested
    Success
  • Fit?
    Private Equity /
    Public Markets
    VCs
    FF&F
    Angels
    $ Invested
    Success
  • Dilemma
    VCs
    FF&F
    Angels
    $ Invested
    Success
  • Is the Traditional VC Model Broken?
  • In Need of an Overhaul - Symptoms
    • Less capital needed = hard to put large fund to work
    • Earlier, smaller acquisitions of VC-backed companies = hard to generate required returns
    • Active v passive investment = need fast read on company progression
    • Great for angel and entrepreneurs, not so great for big VCs?
  • Diagnosis: Misalignment of Interests?
    • Large funds = pressure to put more money to work
    • Too much cash in = wrong pre-money valuation
    • Push for larger exits above natural range = divergent view of success....
    • All shareholders SHOULD have the same goals
  • Ch-Ch-Changes?
  • Industry Response
    • Rise of smaller, entrepreneur funds
    • Super-Angels / Micro-VC
    • In Europe, we now have critical mass to make this happen:
    • Index Seed, PROfounders Capital (Lastminute.com, Bebo), Atomico (Skype)
    • Notion Capital (MessageLabs), WhiteBearYear (Last.fm, QXL)
    • Kima Ventures (Iliad), ISAI, Jaina Capital (Meetic.com)
    • European Founders Fund (Jamba, Alando), TeamEurope Ventures (Spreadshirt)
    • HackFWD (Xing)
    • LifeLine Ventures (Jaiku)
  • Concerns about this new paradigm?
  • Aspiration?
    “An entire generation of entrepreneurs are building dipshit companies and hoping that they sell to Google for $25 million.”
    Unnamed venture capitalist
  • Europe
  • Let’s Remember
    • Great platform
    • Strong technical skills
    • Great role models
    • Good areas of expertise - (ecommerce in France, mobile in Scandinavia, digital media in London)
    • Know how to build for multi-countries at first launch
    • Not Silicon Valley, so what?
    • An entrepreneur is and entrepreneur!
  • Questions?
    • sean@profounderscapital.com
    • twitter.com/setonrog