Venture Capital began in 1960s, as a way for the ultra-rich (Rockefellers) to bet on the fortunes of the growing number of business founders that emerged after the WWII. These were the post-war boom years when it seemed that the American Dream might just be a real thing. One of the very first VC firms was Venrock Associates founded by the Rockefellers.
“If you can’t invent the future, the next best thing is to fund it.”
— John Doerr, Kleiner Perkins Caufield & Byers
Good ideas tend to proliferate. The VC premise was simple: if you spread your money across many (many) ventures, the chances are that one will turn out to be an immense success and ‘pay the bill’ for the rest (the fails). Nothing has really changed about this basic idea, other than that the chances of success have become minimal thanks to the colossal inflow of capital.
Looking at the U.S. alone, which is, after all, the cradle of the VC industry and the country that is perhaps most in love with its tech-scene, reveals just how significant was the growth of capital in the VC sector.
This growth naturally coincides with falling success rates, as the sector is becoming more crowded. The report by CB Insights shows that the rate of success if painfully low is sure to lead to more crowding, as VC firms prefer fewer larger deals. The odds of becoming a unicorn are about 1%, and nearly 67% of ‘startups stall at some point in the VC process and fail to exit or raise follow-on funding’.
A typical VC firm is a bit of a black box. The partners divide capital across (very) many ‘bets’ from the leads brought in by a complex of analysts-associates-principals in that order of hierarchy. Post-investment, they do, of course remain involved, although the extent and usefulness of their support varies greatly from fund to fund. The LP experience is indeed fairly limited, and one that could be characterized as ‘give and hope’.
There is a certain degree of perversity wired into the VC business model. Or as the Harvard Business Review‘s guide to VC explains, the financial incentive for partners in the VC firm is to manage as much money as possible. This does then naturally and inevitably lead to a lack of time and focus. It only makes sense that most neglected are the early-stage companies. Seed-stage investing tends to be associated with a certain lottery mentality (‘spray and pray’), when VCs both cannot and do not care.
Networking … (not) working
You might say, ‘So what?’ Much more important, if untold, is the VC’s ability to extend its network to its companies: help them win customers, get new partners, and introductions to important people. And you would be right. A fact proven by research is that a VC firm is only as strong as its network is. But what that same research (and others) also implies is that the strength of a VC’s network is a function of a) the VC’s size and b) the success rate of its investments (and exits naturally).
Neither of those two factors are necessarily mastered by a typical seed-stage VC, which tends to be smaller in size, and will most likely not see successful exits from its investments before a long time. Indeed, those seed-stage VCs that earn stripes for strong performance do get usually promoted higher up the rank, which necessitates their growth … this is because they will attract a much larger investor interest for their second or later funds, which narrows their investment thesis to late-stage deals.
Arguably there is a c): a third factor that can catapult VC’s influence just as much: visibility. SoGal Ventures started as an experiment of two girl students at a college, but have since risen to be one of the most impactful VCs, championed by press and regularly featured on world’s top conferences. As the first millennial female-led VC firm, they have clearly stood out anywhere they went in the grey-ish professional world. The thrust of the public exposure has brought them many ‘pro-change’ LPs and a pipeline of deals.
This form of public activism pioneered by SoGal might just be the new New. Tokenization changes everything. A tokenized VC fund can no longer function like a passive black-box. Indeed, it turns into a quasi-public corporation where the price of the token moves with any news about the fund.
Its a curse-blessing, and an absolute revolution for smaller seed-stage VCs. Think about it: a fund manager can no longer be a passive by-stander, but has to openly speak about the companies that he/she invests in. Given that the companies of late-stage VCs are more mature, they are often deeply involved in the exit plans and deal-making, the details of which have to be kept private. Late-stage VCs simply wouldn’t talk too much. They straight up can’t.
Seed-stage VCs, in contrary, usually have a longer runway before they see any exits or deals happen, so they can be much more outspoken about their investments. They can give a real boost to their companies through some public exposure.
We take it to be our mission that we talk, write and present worldwide about the companies that we invest in. Forming one of the very first EU-approved tokenized VC fund, we believe to be able to combine the high standards for wealth management in Switzerland with the layer of revolutionary technology.
bardicredit, the initiator of bardiventures, and the turnkey fund tokenization consultancy, is a member of the Alternative Investment Management Association (AIMA), a global association of hedge funds, private equity and VC funds with more than $2 trillion under management.