Venture Capital is a new software industry. I do not only mean that it’s a new market for smart tools like Visible for running VC funds, but that VC companies themselves are becoming tech startups. Please let me highlight five points why.
AngelList is the granddaddy of connecting startups and investors through a network or platform (i.e. software), matching supply and demand. And the reason why it makes sense to channel VC and angel investments through new smart systems is that the underlying market has changed.
Naval Ravikant, the co-founder of AngelList, gave his views on the future of VC to This Week in Startups, a great podcast. (If you missed this episode, you can get it here).
Online markets today are larger (one billion Android phones sold this year, for example), distribution is cheaper (think Facebook and App Store), people are used to paying for things (like $0.99 songs) – and it is much cheaper to start a company, mainly because software is cheaper. What used to cost $500.000 now cost $50.000. So, barriers are lower.
It is still a winner-takes it all economy and and it’s still expensive to scale a company to global success. But the point remains: It’s cheap to start a company, Naval argues. That means startups do not require traditional amounts of VC money. Series A-B is now increasingly done by angels and Series C is VC money. “If there are a 100 times more startups we need a 100 times more investors”, as Naval puts it. The new volumes of startups and investors require software to mange the interactions.
These platforms also syndicate angels and micro VCs. It will just be a matter of time before bigger deals by big VCs and investment companies get done on these platforms too. “Raise money in the cloud. Make it simple, move it online. Start backing with one click. Get a dashboard, broker style”, Naval says. And adds: “Now dealflow is public, but investor access is proprietary.” Your investor brand is probably getting more important.
FundersClub is a new type of venture capital platform, built around an online marketplace that allows accredited investors to become equity holders in FundersClub’s funds, funding pre-screened, unlisted companies. So what is unique about this, and new similar online VC startups? You get the answer if you look at the team. Out of FundersClub’s 12 people, 5 are engineers – almost half the team. Actually, they look more like a tech startup.
Hundreds of crowdfunding platforms globally form an innovative software movement creating a new liquid market for investments, while disrupting the old one.The world’s largest crowdfunding platform is getting bigger. In 2013 Kickstarter had some 3 million people pledging $480 million to projects being pitched on its website. There is an astonishing almost $1 billion pledged sine the start. You can check their cool stats here. This is not possible without powerful software to manage operations. Kickstarter is technology. Oh, by the way, the company is run by a team of around 70 people – half of them working with developing the platform (designing and coding). The other half works with the community of entrepreneurs and backers. Imagine that VC profile: Half are engineers, half are network managers. Quite different from the traditional VC organisation.
#4. Dragnet and Grove
But, traditional VCs are also building their own platforms. Kleiner Perkins developed a system called “Dragnet” that tracks a number of sources like App Store, Google and Twitter to spot raising startup stars. Sequoia Capital has launched Grove to build a community of entrepreneurs sharing advice, and First Round Capital have also built a social platform for connecting its portfolio companies and entrepreneurs.
#5. Dealflow, social marketing and databases
Take a look at Mattermark and Dashboard. Here entreprenurs and investors get a wealth of data. Most portfolio companies in the VC world are unlisted and their market values are somewhat theoretical. But there is still sooo much data, and this data is getting increasingly accessible. Meanwhile, VCs are also getting much better at blogging, tweeting and using social networks to build brands and reach out to entrepreneurs potential investments. This online marketing is naturally being integrated into systems platforms, pretty much the way that ecommerce companies integrate Google Adwords campaigns into their trading platforms. This is also why Standard Ventures’s website looks more like a simple app made for easy interaction, than a traditional information website.
In all, I think VC is a software industry, increasingly building its business on software and integrating it into other platforms and automating processes. Still, you got to balance all that data with your gut feeling.