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.

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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

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

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