Union Square Ventures’ Fred Wilson notes that USV owned 14% of Tacoda at the time it was sold to AOL for $275 million, which means USV’s stake was worth $38.5 million.
Fred uses the rest of the post, though, to lay out a big welcome mat for any startups considering working with Union Square Ventures. He argues that while he’d love to own a big stake in any deal USV takes on, he’s quite willing to settle for less than the standard 20-25% benchmark.
One of the things we are doing in the venture capital business by raising ever larger fund sizes and amassing larger pools of capital under management is creating problems and then making them the entrepreneur’s problem.
And so we tell the entrepreneur that we need 20% of his or her company to solve our problem. I don’t think that’s right. I’ve said this before and I am going to say it again. The scarce resource in the venture capital business is great entrepreneurs with cutting edge ideas willing to work 100 hour weeks turning the ideas into businesses. The scarce resource is not capital and yet we are optimising our businesses to be able to manage ever larger sums of capital.
I want to optimise our businesss to be able to back more and better entrepreneurs. And so I think its fine to start with significantly less than 20%. We often start our investments off with 10% or less and build our ownerships over time. We have one company in our portfolio where we started with about 5% ownership and are now close to 20% and if we do our job right, we will end up with close to 25%. But we earned the right to get there by investing early and often and scaling our investment with the entrepreneur’s capital needs.
Related: SAI Tacoda coverage