Photo: deborah lam via Flickr
I accept blame for the current endless debate among super-angels, micro-VCs and institutional venture sorts.I wrote a paper for Kauffman a year ago calling for a major contraction in the venture market, one that stood a chance of shrinking the business to some semblance of health and performance
And then, a few months ago I wrote a piece calling the current fervor for super-angels and micro-VCs a kind of bubble, albeit a welcome one in the reformation of risk capital, but a bubble nevertheless.
Both pieces seem to have got people going. They sparked debates, most of which seems to have devolved into a cross between? Manichaeism and inside baseball — convertible notes! Portfolio theory! You’re evil! No, you’re evil!. As I said recently in a talk, only partly tongue in cheek, I find myself increasingly wanting to throw my sympathies somewhere else altogether, if only I could find an alternative.
A pox on me for forgetting that I had someone whose views resonate with me on this subject. My friend Bill Stensrud, former institutional VC and member of the Forbes Midas List of top VCs, is here in San Diego, and he is a thoughtful and creative critic of the venture industry’s foibles. More importantly, however, rather than just throwing stones, or hopping on the latest bandwagon, he is the sort of person who tries things out — with his own money.
Bill has a new blog post up explaining his views. While rightly pointing out that “super-angel” is a meaningless term if you’re running other people’s money, and micro-VC is really just an overdue return to the roots of venture (as I’ve said many times), Bill goes on to argue, like me, that traditional VC will likely shrink by 50% (in assets). And, he argues, it’s time we rethought what role risk capital plays, and what it should get in return in early-stage investing. After all, both kinds of VCs are really just in the business of buying and selling equities.
His take? Stop buying and selling equities and return to the idea of running businesses for revenues and profits. Rather than following the path of offering employees options that incent them to hold for an exit, whether sale or IPO (remember those?), Bill’s idea is that we need less of an emphasis on stock options, and more of an emphasis on sharing in company successes, i.e., profits.
Before there was venture capital and before there were EXITS, people built businesses to make money so they could pay their bills. I will argue that re-discovering this model drives a corporate culture which is much healthier, more robust and more survivable than the EXIT-focused culture created by the venture capital model. I will also argue that the cash flow model can engage the employees, the critical human capital asset of every business, to significantly greater efficacy than equity models. Lastly, I will argue that we can modestly scale this model to the point that it can become a significant factor in new business creation.
Cash flow? Whoa. Bill is promising a series of posts on this portfolio/holding model of venture, and it will, I’m sure, be good stuff. [-]
This article originally appeared at Infectious Greed and is republished here with permission.
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