The spring semester of my Entrepreneurial Finance class starts tomorrow. During the next four months, we will examine over a dozen entrepreneurial ventures from a diverse mix of industries - technology, service, food & beverage, and fashion. We will also look at a variety of financing methods including venture capital, angel investing, licensing, franchising, roll-up, venture debt and my old favorite, bootstrapping. One thing that strikes me every time I teach the course and in my investing activities is how much easier it is to critique someone else's idea than build your own. In addition to the case study analysis, the students also have the opportunity to develop a business model and financial model for a new concept, which always proves a lot more challenging.
I think this same concept plays into what I've seen happening a lot more in the venture community: partners at VC firms jumping back into entrepreneurial ventures. There used to be a fairly standard career path in the venture capital industry. After a successful career in a technology leader (Intel, Microsoft, Cisco, etc.) or one or more exits as a start-up founder, you were enticed to become a partner on Sand Hill Road, or as some call it, jumping over to the dark side. With a limited number of these opportunities and 10-year fund cycles, there wasn't a lot of transition among partners in firms. In fact, most partners that left VC firms either cut back to a non general partner role and/or to personal investing and other activities.
However, over the past 5-10 years, we have seen a lot of changes in the make-up of firms, expansion and consolidation in number of firms and partners leaving to join other firms or more interestingly, to start companies or join other start-ups. I thought about the differences a lot when I spent several years as a venture partner. I had been considering moving towards a full time role as a VC, but decided I enjoyed the company side better and participating as an active member of the team rather than strictly an advisor, coach and board member.
Perhaps, this is partially driving some of the jumping across the table, but certainly the performance metrics of funds and individual partners has also played a key role. An argument can also be made that money remains the key driver and given the increasing competitiveness in the VC business in both raising funds and investing, that start-ups are now seen as the more lucrative route.
I'm going to continue to follow the paths of entrepreneurs turned VCs turned entrepreneurs again and see how it evolves. As an angel investor and start-up CFO, I should have a good vantage point.
The Queen’s Gambit
1 hour ago