I often talk to people about how the fundamental premise of our investing at Union Square Ventures is that the Internet is disrupting everything. Sometimes people ask whether that includes Venture Capital. I always answer: Of course it does! It would be more than a bit strange to assume otherwise. In fact, when I compare what it is like for an entrepreneur to fundraise today compared to when I was raising myself for the first time in 1996 it is already completely different.
For starters, in 1996 there was virtually no content about VCs on the Internet. A few VC firms were beginning to have web sites but to call them brochureware would have been generous. There were no extensive discussions of terms by other entrepreneurs, no published investment theses, no VC blogs, no way to engage with VCs on Twitter. The whole process was still entirely opaque and the way to get to a VC was largely through traditional offline networking.
Angel investing was tiny to non-existant outside of Silicon Valley. The vast wealth creation that was the first Internet bubble was still a few years off. As was the creation of a whole slew of seed stage funds. As was the dramatic drop in the costs of starting a company. Sometime around 2005 or so I gave a talk at the University of Hawaii, where I pulled together numbers that showed the cost had dropped across the board by about 10x. It has since gone to essentially free other than the cost of the team’s time.
Now we are having two more crucial trends: crowd funding and the quantified startup (aka Money Ball for VC). On the crowd funding trend for tech startups, there are Angel List and Funders Club, and for consumer businesses there is Circle Up (which we have invested in). On the quantified startup trend there have been a bunch of VCs developing in house tracking solutions and now there is Mattermark with the tag line “Big Data meets Venture Capital.”
What does it mean? For entrepreneurs it is fantastic because we have shifted from an opaque and semi-closed system to a transparent and open environment which more merit based than it has ever been. For traditional VC firms it means the business has become more competitive and there will be a compression of returns as a result (because of various industry dynamics there may still be superior returns for an ever smaller number of firms at the very top but even that will come under pressure).
Finally, it means something for people who want to be in the Venture Capital business. Until now getting started there was somewhat akin to a club you had to be invited into (or be able to buy your way into). Now, however, there is an open entry process. If I were young and wanted to be in VC I would get myself a Mattermark subscription and set up shop on AngelList helping to organize syndicates. So what are you waiting for?