Archive for the ‘Blog’ Category
Revenue-Based Finance & The Cost of Capital
How much does revenue capital cost? In other words, how expensive is revenue-based financing (RBF) as a source of venture funding compared to equity and traditional loans?
Rather than vaulting into financial engineering, Greek equations and Modigliani-Miller debates, consider the following first-hand account:[i] More
Venture Capital Update for US & BRIC Nations: Train Wreck Ahead?
Is the grass, indeed, greener somewhere else?
The United States has a problem: entrepreneurs and venture capitalists are having trouble getting funded. Less than 1% of startups attract venture capital in the US. Making matters worse, the US venture capital industry posted negative 10-year returns as of 2010, with a 31% decline in first quarter dollars raised by VC firms (compared with the first quarter of 2009). Times are hard.
What about other countries? Does the US have it better? Worse? Whether relevant for innovation, portfolio management or old fashioned schadenfreude, the following compares venture capital in the US, Brazil, Russia, India and China. More
Robot Uprising in Venture Capital?
Like it or not, we live in a quantitative world; and it gets more so every day. Manufacturing defects are measured with 99.99966% accuracy. Automated trading algorithms evaluate businesses, prices, alphas, betas, libraries of ratios and make trades based on picoseconds of marginal arbitrage. In 2006, an estimated 40% of trades on the London Stock exchange were done by robotic intelligence. United States estimates are closer to 80%, as anyone paying attention on May 6th got a sense for.
In this world of empiricism, data and calculation, the job of a venture investor seems an anomaly indeed. While there are some exceptions, the majority of venture investors allocate billions of dollars every year based on little more than experience and gut intuition.
This is not to, in any way, detract from successful investors; the ability to pick winners, wrestle out a deal and drive others towards a central direction can require tremendous talent and skill. Rather, the point here is merely to pose a question. Given the dollars at stake and lives in the balance, will venture investing inevitably evolve in a more empirical direction? Will there be a robot uprising? More
Exit Junkies: When Equity Stifles Innovation
Startups and venture investors share a problem; “exit dependence.” Equity investors can’t sustainably invest in startups without exits, because exits are how those investors get paid. They must be able to sell their equity (i.e. stock) at a higher value through a merger/acquisition or IPO. No exit, no returns. There must be a “liquidation event.” Startup funding is hooked on exits.
The Funding Black Hole: A Call for Innovation
There is a funding black hole. It sucks in and destroys the gross majority of startups worldwide. It may have even frustrated more innovation, economic development and human progress than all of history’s wars, diseases and natural disasters combined. This “black hole” is the global gap in startup funding. More
3 Top Trends in Angel Investing
1. Industry as a whole: Despite a global recession the average amount that Angel groups invested in startups in 2008 was nearly identical to the level in 2006 (however 2008 witnessed an 8% drop from 2007). Meanwhile average dollars invested per funding round grew by 14% over the same period. Overall, 2008 US Angel investment represented an estimated $19 billion in 55,000 deals.[i]
Bottom line – Total Angel investment was flat between 2006 – 2008, but the average funding round grew by 14%. Angels began doing fewer, larger deals. More
4 Top Trends in Venture Capital Today
For those wanting a quick update on the US venture capital industry, here are 4 Top Trends:
Marquee Customers: a blueprint for failure?
A MICRO-EXPERIMENT
Framework in Question: Startups should focus on pursuing “marquee” customers. More
Profit from the Core; or not. The myth of adjacencies
A MICRO-EXPERIMENT
Framework in Question: Pursuing “adjacent” markets increases the likelihood of new business success. More