Varud

This is kind of funny.  I was quoted on page 12 of a slideshow produced by the VC group North Venture Partners.  I think what’s most amazing to me is that people still have time to write all of this stuff.  I’m thankful somebody is doing it and I hope that somebody also follows my call for a Walmart approach to VC.

Being that it’s a Web 2.0 world, I would be more inclined to see something along the lines of Prosper.com but instead of loans and lenders, this would be for shares and investors.  The only truly necessary thing to do on a custom-basis would be to have audited books.  Everything else could be automated including the legal forms, escrow, etc…  For the most part, Prosper.com has already done much of the heavy lifting.

The company that does this would make money by charging a percentage of the investment.  Because investments would be done on a bidding basis, going around the system would be extremely difficult and not efficient.  Minimum bids would be really low (i.e. $100) in order to get traction.  All businesses would have to have a C Corp set up – the site could even force that C Corp to be a Delaware corp for consistency.  The thing I’ve noticed is that people just want to be told what to do – they don’t want alot of custom choices.

The one choice that might need to exist is whether the investment should be East Coast style or West Coast.  That option would probably introduce enough complexity for the VC groups to justify charging their investors for their services

Right now I’m at the Web 2.0 Expo in New York (The summit in San Fran is too expensive even though I was able to snag an invitation).  The speakers are Charlie O’Donnell from Path 101 and Albert Wenger at Union Square Ventures.  Charlie is very much a networker, talks about having a thousand (real) connections on Linked In.  He seems like a nice fellow that believes in extreme openness (i.e. anti-stealth).  I definitely agree with his thinking on this.

Albert says to do a convertible note with no valuation for angels.  Also, do not give out more than 20% equity to angel investors otherwise it will be very difficult to raise any future money.  VCs are going to want 20% at least and VCs don’t want to end up in a majority shareholder position because they don’t want to actually run the business and the goal is to get the entrepenuer working hard for cheap – which only happens if they have alot of equity.

Albert also says to not presume that ’strategic’ investors will actually be strategic – these relationships are usually founded on a hope of working together but then the major C-level executive who signed over the money in the first place usually has alot of other stuff on their plate.  It’s great if you can get that money, but don’t think too much of it.  Also, strategic investors may scare off future investors if those future investors are in competition with the initial strategic investor – that could cause problems from both sides.

Charlie says that pro rata rights (the ability for investors to increase their investments) are good, and most VC funds don’t mind that for smaller initial investors.  The problem is if too many people have it, then it becomes a burden to get everybody to sign over their rights on the next round.

Albert is passionate about knowing that the team will need to be upgraded as the company grows.  Different types of people are needed for working on a small team of 3 versus a larger 15 person organization.  Founders often get forced out when they don’t realize this and find a way to get people moved around as the company changes.