Victus Spiritus


Crowd Sourced Venture Capitalism

29 Jul 2009

(I wasn't angry during the filming but it sure does look that way, thanks YouTube)

Open Collaborative Ventures

The concept is simple, in a manner similar to Covestor's approach a large group of investors pool their money and invest in their choice of venture firm. Covestor has implemented a model for investing in stocks by following folks that have proven track records. The buy in for venture investments is currently far larger than personal investors are willing to risk. Even the more moderate investment levels of angel capital have requirements of $500k-$1million liquid assets, a large sum for most folks. But in total even 5-10k investments of one million people can easily match asset fund dollar values.

The system will require a complete track record of venture firms with representation of their current strategies and holdings. The effect of crowd sourcing venture funding has many positive and potent effects. Now startups may have thousands or even millions of people with a stake in their success and survival. This is a very different environment than today's market where only a handful of stake holders are working for the success of a new business. The efficacy of the concept has been illustrated by Travelzoo, although not a venture investment, the company literally gave away shares to folks who signed up with their email. I sold my shares in 2005 for a few hundred dollars (since then they've dipped quite a bit in value). The fascinating part is that they had hundreds of thousands of people rooting for their success, which really breathed life into the business.

Arguably, the greatest value of venture firms is not the cash they provide, but the powerful networking and many years of practical business experience they leverage for the success of any of their portfolio companies. Leaders in the field of startups Fred Wilson, NYC venture capitalist icon and Paul Graham, Y Combinator early investment hub leader , freely share their greatest lessons learned. The business of picking great startups isn't magic, it's a complex but practical problem space and is rooted in the philosophy of industry change, or disruption and investing in several startup groups. In my layman's understanding, what it boils down to is choosing and cultivating both leaders and teams with the right mindsets and strategies.

The message crowd venture funding sends to our entrepreneurs is one of confidence. By collectively investing in expert venture firms and them, we show a commitment to their ability to help make solid businesses for tomorrow, in a constantly changing economic landscape. The Internet is no small part of this transition. It has driven us to come to expect lowered costs and to discover new models of monetization. Chris Anderson, editor of Wired magazine, gave a great talk at Revenue Bootcamp about his new book Free, The Future of a Radical Price (nope the book's not free).

Ramen Profitable

While mentioning Paul Graham a related topic is how and when to seek external funding for a startup. Paul shares some advantages of being Ramen Profitable, defined as being just profitable enough to sustain a small group of a few founders (yucky Ramen noodles are empty carbs and salt).

A counter comment from Drew Houston suggests the urgency of external investors will aid in discovering dead end or zombie business concepts sooner. Drew is the bright founder and CEO of DropBox, probably the coolest software you may not have heard of for syncronizing and sharing files collaboratively, or simply for yourself anywhere that has an internet connection.