greg & lewis – my 2 cents from a usa based strategic vc technologist perspective…

i constantly meet w/ early startups seeking advice prior to seed or series a (normally to early for a strategic) & i’m glad to do it – allows me to understand the most emerging trends, provide valued recommendations to a startup that may be very appropriate to us somewhere down the line and increase networking both for the company and our group…

then once a company joins our portfolio, i tend to offer guidance as requested – some mature mgmt teams don’t need that much if any and some folks new to scaling a newco need a ton, i think the key is letting the company decide what they need and being prepared as an investor to jump in as requested from time to time (though not augmenting their operational staff – that’s going to far)…

Lewis, the question we were debating is whether the working model for VCs going forward requires a very hands-on approach and the bundling of money+sweat. My answer is that there is a room for it, but the traditional VC model will not disappear either.

In that context, your point that many start-ups don’t want this bundling seconds my opinion.

As for your detailed interpretation of my website, you are right that I should qualify the statement to apply to post-revenue ventures (which constitute the bulk of what I do as I do not have the benefit of having raised a fund), and you will note that in my new website, coming up this month, this statement was already removed.

However it strikes me as odd that programmers often will spend 6 months coding and then not invest a few days of someone’s time in figuring out how they will actually reach an audience and make money, pretending they don’t have the resources to do so. You don’t know how much I charge for those startups so I don’t understand how you can come to such a rapid judgment. Having said that, you’ll be glad to know I regularly help early-stage start-ups for equity.

From our perspective, as a company who is actively looking for funds for an early stage start-up relying on a process for webhosting -that we foresee with stronger reliability, reduced bandwidth cost, better pricing, higher ROI- we do not seek external “hands-on” forced upon us. Priding ourselves on a seldom deep solid knowledge of programming languages and a large amount of sweat equity, It’s important for us to choose the operator(s) of our liking as well as the VC(s) of our liking, assuming that a VC is principally limited on providing funds in exchange for some equity. We do not wish to mix apples and oranges.

In addition, I do not see how operators who “ generally do not accept equity payments for the opening review phase of a project” “understand the financial reality of early-stage ventures and their concurrent requirement for market excellence”. (quoting Greg Boutin website). We cannot realistically afford an operator at this stage of our business, when revenues are virtually nonexistent.

Indeed, I feel you are characterizing my thoughts not as they are, but as you’d like them to be. The moderate view you try to express differs significantly (and cleverly) from that of Robin, whose antagonistic comment, unlike mine, directly supported the notion that there is one good way to do Venture Capital – “hands-on investing” (his way, not surprisingly) – and that all the others are the key reason the industry is in crisis…
In that respect, I find it really quite ironical to be accused of a “very homogeneous view of VC”. But I wouldn’t expect you to disagree with Robin in a public forum. Have you ever?

This will be a side note looking like an unstable diggression to focused minds, but apparently loyalty is what matters most in business, something I have difficulty with when it involves having to embrace arguments just for the purposes of displaying loyalty and not biting the hands that feed me.

In any case, you just confirmed to me that this model of investing does not scale and that other models are needed if we are to truly support an innovation economy in Canada that’s more than a handful of startups. As far as I can see, that was the main question Robin and I were discussing. You did not really address the question of whether someone like you (I mean, mostly an investor) is better placed to support the operations of a startup than someone like me (mostly an operator), but I indeed will be happy to compare results over time for what it’s worth (to be statistically significant, as you know, we’d need more than a sample of two.)

As for the performance of your current portfolio, it is difficult for me to comment given that you just raised your fund and that, as far as I understand, one VC tradition you have not broken away with is the non-disclosure of financial results (let me know if you will disclose the results of all your investments and ROI of your fund, including management fees). But if this new VC model includes the ability of claiming success on a portfolio even before it’s been realized, then you certainly have got my attention.

In any case, I wish you good luck with your investments.

Is Paul Graham’s version of hands-on the same as yours? If so, he personally has less than a day per month to devote to each of his startup…

This is not your granddad industrial economy anymore, we have entered the age of the innovation economy. Unless you support dropping start-up investing all together as an asset class for institutional investors, and telling limited partners that their money should go instead to later-stage investments… capturing some of that money for start-up investing require organizations that are rapidly able to deploy large amounts of capital.

If former VCs don’t play that role anymore because they are individually involved in helping operate a much small number of companies like you propose, then I can guarantee you that some other professional finance manager role will be created to make the investment pool decisions that those VCs used to make. And you will become more of a consultant to them.

They certainly may let you directly handle a small pool of money to spend on supporting your handful of startups, but don’t fool yourself into thinking you’re creating a new VC model all together, and that you can scale the investment you manage beyond a few millions while devoting more than a few hours per week to each startup in your portfolio (I think you’ll agree that’s the minimum required to qualify for the “hands-on” label).

That is, unless you enroll other professionals to do the operational support role you were initially planning to do yourself. Or change your definition of “hands-on” to mean a few relevant introductions and some business model advice, incidentally the same contribution as traditional VCs.