Change in the Venture Model or bubble 2.0
Matt Marshall and the NYT are reporting on Charles River Ventures announcement that they will be giving out $250,000 bridge loans on “simple terms.” and a quick process. Judging by the number of blog posts picking this up, this is a very popular move. This is similar to the Gemini/Lightspeed internet incubator in Israel. I think the CRV observation that internet companies need less money now is correct. I also think it is healthy for them to have smaller amounts of money and simple cap structures that often get muddied in angel rounds. However, I think smart angels can actually benefit both the founders and the VCs if we all work in unison. In Israel I have seen a new cadre of angels that I think is having a positive impact on both venture scene and internet startups.
But back to the new VC model, I have a few questions:
1. As a VC, even if you can put out money quickly and easily, how do you invest time (added value?) in a larger number of small investments? How do you bring relationships to help on such a broad range of companies.
2. David Sze from Greylock asks a good question in the form of a statement in the NYT article: “But David Sze, a partner at Greylock Partners, which has led small investments in promising Internet start-ups like Digg, said the program could force entrepreneurs to commit to a particular venture firm before they are ready to do so.”
3. This was clearly created to generate deal flow in an area, Internet, where CRV has not made a lot of investments, much in the same way that Gemini did in Israel to generate internet deals. This can lead to a flow of deals that it becomes hard to dig out from. Does it really float the quality to the top? And, if you are an entrepreneur, do you want to be in that pile?
In the bottom line, I think this is a brilliant marketing move by both CRV and Gemini moving to quickly establish positions in the internet space and a keen observation.
[Originally published on 2nd November 2006 by MIchael Eisenberg]