Connect with us

News

Venture Capital Admits It’s Obsolete. Now What?

Published

on

Venture Capital Admits It’s Obsolete. Now What?
VC has cancelled itself. IJ

In Part I of this series, readers met Geoff Chapin, the founder of C-Combinator, a climate-tech startup that removes rotting, methane-emitting seaweed from Caribbean beaches and turns it into sustainable products. Chapin considered funding his company through traditional venture capital, but ultimately took other routes.

“Mostly, we’ve done convertible notes from family offices and angel investors, doing checks between $50,000 and $250,000,” Chapin told me. “We’ve raised almost $4 million in that way.”

The rationale for bypassing traditional VC was twofold. One, he didn’t think there were many VCs who were well-positioned to intelligently back C-Combinator’s mission. But perhaps more important, why should a founder surrender the substantial equity that VCs seize if she doesn’t have to?

Chapin’s funding dilemma illuminates the crisis moment that traditional VC is undergoing. On October 26, Sequoia Capital, one of the oldest and most blindingly successful VC firms in the world (and my former employer), announced that it is making fundamental changes to how its business is structured. Instead of creating a series of funds that open, invest and close after 7-10 years, Sequoia will now put everything it owns—private and public investments—into a single fund that will never close (some call it a “rolling fund.”) Its limited partners will have the freedom to cash out whenever they want.

Roelof Botha, the biggest cheese in Sequoia’s US office, said: “We think the VC model is outdated,” echoing the point made in the first part of this Observer series.

So what has made the historic VC model obsolete, and what will replace it?

A mysterious green cloud enters the scene
Will VC investing and funding always be out of reach for most people? IJ

Everybody Wants to be Part of the Act

Arguably, the first fissure in the titanium-reinforced 20th century VC model occurred in 2005, with the founding of Y Combinator. Paul Graham’s incubator/accelerator gave money to entrepreneurs in smaller amounts than “Big VC” typically had—often four-figure checks as opposed to seven or eight. But it wrote those checks to more people and also provided founders with services—office space, pitch advice, hiring help—that weren’t usually offered by traditional VCs. (Even then, though, big VCs were in the picture, making sure that they would have an early hand in any potential disruption; Sequoia Capital was an early investor in Y Combinator.)

Since that time, thousands of companies have passed through the Y Combinator gauntlet, and thus begun a democratization of the startup-industrial complex. (Although democratization does not necessarily equal diversification; most of the companies funded by Y Combinator still have white male founders.) That boost of the “supply side” of early startup capital broadened its reach, and helped spread the word about the outsized returns it could yield. In response, the “demand side” of VC has also exploded; as Shark Tank became a monster TV hit, millions of Americans convinced themselves that they knew as well as any VC how to assess the risk and reward of investing in an early-stage company.

Even if they couldn’t. For most of the half-century during which modern VC has existed, there was no easy, systematic way for anyone but the heaviest of hitters—pension funds, university endowments—to get in the startup game without becoming a limited partner in a traditional VC fund. It’s tempting, and not entirely wrong, to attribute that exclusion to “elitism,” but more fundamentally, the hurdle was legal: until quite recently, financial regulators looked at early-stage investing as far too risky to allow the vast majority of Americans to participate.

That exclusion changed profoundly with the JOBS Act, which became law in phases beginning in 2012. Today, millions of individuals and organizations can invest in startups and it’s logistically not much harder than buying shares of Tesla. If you’re a qualified investor, EquityZen will sell you a piece of a hot company (like Zipline) that has yet to go public, although typically you will need at least $10,000 to invest. Yieldstreet, an alternative investment platform, has recently created a channel that allows retail investors to buy chunks of the heavily coveted venture funds run by Greenspring Associates and others.

Milind Mehere, Yieldstreet’s founder and CEO, told me: “It’s impossible to get into their funds, they are incredibly fully subscribed.” When the company announced this in early October, it hailed “yet another advance that we are making to break the exclusive grip that the ultra-wealthy and institutions have.” Others take the social goals further. Another firm called A100x, which focuses on blockchain properties, is reserving a certain number of limited partner seats for women and minority investors.

People flying in silly aircraft
Crowdfunding has potential, but it’s not there yet. IJ

How Can I Move the Crowd?

Even people with as little as $100 to invest can now easily find their way into startup investing through crowdfunding. Do you want to support the Chilean bakery that just opened up a few blocks from you? Browse through Mainvest and there’s a decent chance you can buy a piece of it.

There are several caveats here. Crowdfunding is unlikely to deliver the kind of 5x returns that draw institutional investors to traditional VC firms. It’s also no simple replacement for VC funding—the logistics of having dozens or hundreds of investors will be daunting to most entrepreneurs.

And of course equity crowdfunding is extremely nascent; for all of 2021, perhaps $500 million will go into US startups through this channel. By contrast, on average, VC firms invest more than twice that amount every single day. Still, the growth is remarkable—70% annually for the last couple of years.

More and more founders are turning to crowdfunding—less, perhaps, as a financial lifeline than as a buy-in marketing method that doesn’t depend on getting press coverage—a benefit that traditional VC firms are not always expert in. C-Combinator’s Chapin told me that crowdfunding is “a real minority of what we’re doing, literally about 5% of our funding. But it allows us to importantly create champions around the world who care about our company. It democratizes investments in solutions. That’s what we really care about.”

Goodbye to the Middleman

One way to read Sequoia’s recent reorganization is that limited partners–the big institutional investors who put money into VC firms–have not always been crazy about having their money tied up in funds for seven or ten years, even when the ultimate payoffs could be phenomenal. In the future, it seems like Sequoia’s LPs will be able to cash out on an annual basis.

Outside Sequoia, an increasing number of would-be limited partners are questioning whether they need traditional VC at all (and lots of non-VC financial players are trying to hone in on the venture space, to tell them they don’t). From the investor’s point of view, if you’re not paying the 2/20 fees, you don’t need the spectacular returns.

Big investors, including little-sung heroes of venture capital like insurance companies and family offices, can invest directly in startups without going through the VC middleman—or paying the fees to do so. One of C-Combinator’s largest investors, for example, is the venture arm of a family office, Baruch Future Ventures. The firm’s Jason Holt told me that he believes BFV’s specific focus on climate projects gives the founders it invests in an advantage they are unlikely to find at most traditional VC firms.

And matching founders and funders has never been easier. Blair Silverberg has created Hum Capital, an AI-driven investment platform that he compares to KAYAK, the travel search engine.

Silverberg, a veteran of legendary VC firm Draper Fisher Jurvetson, emphasizes that while there will always be startups for whom venture capital is the best route, most companies can find more efficient funding—usually in the form of debt/loans—that doesn’t dilute their holdings. Hum Capital takes a cut of the transaction but doesn’t as a rule take equity in the companies.

“We work with some insurance companies that are literally direct investors in over 200 venture capital funds, all the ones that you’ve heard of,” Silverberg told me. “So why don’t they invest directly in those companies? It’s not that they don’t have the interest or capital. They just don’t have the manpower. As it’s become easier to quantify what’s happening in businesses, by connecting into the SaaS systems they use, you don’t need as much manpower.”

Can all these developments overturn traditional VC, force it to change, or transcend its historic blind spots discussed in Part I? Sequoia’s dramatic announcement suggests that the answer is at least maybe.

“I remember being a man and an old school venture capitalist; ‘Does this product for women resonate with me? I don’t know. Maybe I’ll ask my wife’,” Silverberg told me. “It’s really hard to assess that. Now we can just say: the data shows this product is resonating and it’s completely irrelevant what we think about it. ’Cause we’re not the target customer.”

In a recent LinkedIn post, Silverberg contends that Hum’s insistent focus on performance data could remove much or all of the bias that has guided VC investment to date. “46% of companies signed up on our Intelligent Capital Market are outside Silicon Valley and the “coasts,” signifying how there are plenty of opportunities in the US outside of the traditional tech hubs where entrepreneurs with innovative, forward-thinking companies are looking to scale. Removing bias is a huge part of our mission to connect great companies with the right capital.”


James Ledbetter is the Chief Content Officer of Clarim Media, and the editor and publisher of FIN, a newsletter about the fintech revolution. He is the former Head of Content at Sequoia Capital.

Venture Capital Admits It’s Obsolete. Now What?

google news

News

Giants on verge of hiring next GM: Joe Schoen, Ryan Poles or Adam Peters

Published

on

Giants on verge of hiring next GM: Joe Schoen, Ryan Poles or Adam Peters

The Giants are on the verge of naming their fifth GM since 1979.

Friday should be the day.

San Francisco 49ers assistant GM Adam Peters’ Thursday trip to the Giants’ facility in East Rutherford, N.J., wrapped up the second and final round of interviews.

The Giants have narrowed the field to three: Buffalo Bills assistant GM Joe Schoen, Kansas City Chiefs executive director of player personnel Ryan Poles, and Peters.

The Bills, Chiefs and 49ers all are still playing in this postseason, three of the eight teams still alive for this weekend’s Divisional playoff round.

The Giants, who have played and lost one playoff game in the last decade, are looking for a blueprint for modern relevance.

Schoen, 42, and Poles, 36, were the first two candidates to interview in both rounds: first via Zoom on Jan. 12, then with in-person visits this Tuesday and Wednesday, respectively. Peters, 42, turned around quickly from Monday’s virtual interview to Thursday’s visit.

The Giants started with nine candidates, whittled the list down to three, and now will pick their man to hopefully lead the franchise out of the darkness.

Schoen presents as the most obvious hire for what the Giants need: a respected and experienced talent evaluator who has helped build a winner and pick a great quarterback before. He also has interviewed with the Chicago Bears.

“We are looking for a person who demonstrates exceptional leadership and communication abilities, somebody who will oversee all aspects of our football operations, including player personnel, college scouting and coaching,” co-owner John Mara said in a statement on Jan. 10.

Poles is an impressive candidate from a self-sustaining league powerhouse and Super Bowl championship team that drafted a great quarterback within the last five years.

Peters has pedigree from his work building the Denver Broncos’ Super Bowl 50 roster and contributing to the 49ers’ enviable recent success – though he did help draft Trey Lance, a raw developmental QB selected No. 3 overall last spring following a trade up.

All three candidates would be first-time GMs. But so far, the two coaches ticketed to likely interview for the head coaching job – Cowboys defensive coordinator Dan Quinn and ex-Dolphins coach Brian Flores – would not be first-time head coaches.

Buffalo Bills offensive coordinator Brian Daboll would seem to be the ideal and most likely fit at head coach if Schoen lands the job. Daboll’s work helping Bills QB Josh Allen harness his raw talent to dominant levels is the envy of the entire league.

He is a New England Patriots product just like Joe Judge. In fact, he would have been Judge’s pick as Giants offensive coordinator two years ago if he’d been available.

But he would come with an offense and an experience with quarterbacks that the offensively-challenged Giants desperately need.

Former Eagles Super Bowl winning coach Doug Pederson, 49ers offensive coordinator Mike McDaniel, and Giants defensive coordinator Pat Graham all seem like candidates who could get a look, as well, based on connections to the GM candidates, the Giants’ needs or what might create a favorable match.

But a full list really won’t come together until the GM hire occurs. Wednesday’s request for Quinn only went out early because multiple candidates had him on their list, and the Giants didn’t want to see Quinn hired before talking to him, a source said.

The Giants were the last of eight teams with full-time head coaching vacancies to submit for a head coaching interview.

Now it’s time to hire the right man for the job and let him lead the search for the next coach who Mara and Steve Tisch will charge with turning their lost ship around.

“There are no package deals,” Mara said last week. “We want to get the general manager ideally done first and, obviously, we’ll talk about the candidates for head coach, but it’s not going to be a package deal. I want to go through a complete process here, interview as many people as possible. I don’t want to rush into anything – we made that mistake in the past.”

2022 OPPONENTS SET

The Giants’ home and away opponents for next season are locked in.

Home: Dallas Cowboys, Philadelphia Eagles, Washington Football Team, Baltimore Ravens, Carolina Panthers, Chicago Bears, Detroit Lions, Houston Texans, Indianapolis Colts

Away: Dallas Cowboys, Philadelphia Eagles, Washington Football Team, Green Bay Packers, Jacksonville Jaguars, Minnesota Vikings, Seattle Seahawks, Tennessee Titans

google news
Continue Reading

News

Northern Colorado men’s golf picked No. 3, women picked No. 5 in Big Sky poll

Published

on

Northern Colorado men’s golf picked No. 3, women picked No. 5 in Big Sky poll

Both University of Northern Colorado golf teams are expected to finish in the top half of the Big Sky this season, according to the league coaches poll released on Thursday.

The UNC men were picked to finish third out of seven teams, behind Sacramento State (33 points) and Weber State (32), with 27 points. The Hornets and Wildcats each received three first place votes, while the Bears received one.

Northern Colorado’s roster includes senior Jack Castiglia and junior TJ Shehee, both of whom have already earned Big Sky Player of the Week honors in the first half of the season and picked up individual wins.

The UNC women were picked to finish fifth out of 11 teams. They received 63 points and were ranked behind Sac State, Northern Arizona, Idaho and Weber State. Sac State is heavily favored on the women’s side.

Northern Colorado finished second at the Kelsey Chugg Invitational and earned a top 10 finish at the Hobble Creek Fall Classic. Senior Jenna Chun and juniors Amy Chitkoksoong and Abbi Fleiner.

Both programs are led by first-year coach Clayton Sikorski and assistant David Tottori. Previously, the men were coached by Roger Prenzlow, who retired last season. The women were coached by Ben Portie, who left for a job closer to his family.

Sikorski said he believes the men have an opportunity to contend for the Big Sky title this season, while he hopes the women can surprise the rest of the conference and break into the top three.

The men’s team will begin the second half of the season on Feb. 17-19 when it plays at the John Burns Invitations, hosted by the University of Hawaii. This is the first of five tournaments the team will play before the Big Sky Championship is held from April 25-27.

The women will start their spring season at the Pizza Hut Lady Thunderbird Invitational, hosted by Southern Utah, from March 10-12. Their season consists of four tournaments before the league championship on April 18-20.

Both tournaments will be held at Talking Stick Golf Club in Scottsdale, Arizona.


Full Big Sky preseason rankings

Men

1 – Sacramento State2 – Weber State3 – Northern Colorado4 – HartfordT5 – BinghamtonT5 – Idaho7 – Southern Utah

Women

1 – Sacramento State2 – Northern Arizona3 – Idaho4 – Weber State5 – Northern Colorado6 – Southern Utah7 – Idaho State8 – Portland State9 – Eastern Washington10 – Montana State11 – Montana

google news
Continue Reading

News

Adam Thielen’s foundation to provide grant for new Humboldt fitness center

Published

on

Adam Thielen’s foundation to provide grant for new Humboldt fitness center

The Thielen Foundation, headed up by Vikings wide receiver Adam Thielen, took a keen interest in the Harding-Humboldt football co-op that formed last year in St. Paul. The foundation reached out to head coach Otto Kraus, now the athletic director at Harding, because it knew of the increased costs that come with forming a new co-op, from uniforms to equipment.

The foundation also informed Kraus it was looking for an athletic facility it could help improve in the city.

Kraus suggested Humboldt’s fitness center.

“Because we are in desperate need of updating this facility,” Humboldt athletic director Matthew Osborne said at this week’s board of education meeting, “and they are prepared to come through with a grant to help us do that.”

The meeting agenda said the fitness center “has been deteriorating for the past couple of decades without any maintenance or new equipment for students and athletes.” It was not included in the district’s new five-year facility plan.

The Thielen Foundation will donate up to $75,000 to the reconstruction and renovation of the fitness center to stock it with “modern fitness training equipment, in addition to adding new flooring, paint, flat screen television, and a new sound system.”

The project is slated to be completed this spring.

google news
Continue Reading

Trending