The current generation is passionate about entrepreneurship, with 54% of US Millennial wanting to or having started a new business. It is no coincidence that this is happening at the same time we experience a paradigm shift in company formation with costs at all time low thanks to cloud computing and mature digital infrastructure, easy access to outsourced first class development resources, the mature crowd-sourcing environment and the accessible and ubiquitous mobile ecosystem giving internet access to +1.2 billion people and growing at +3X the speed of desktop internet[1]. Angels, Super Angels and Incubators filled a void taking a prominent role in providing the capital, industry experience and relationships needed by entrepreneurs, in an engagement model that is less demanding than VCs. But Angels have limited follow-on investment capacity. And while they provide indispensable assistance at the incubation and innovation stages, entrepreneurs need further help when they approach the go-to-market stage.
For many tech entrepreneurs is a rude awakening to realize that they “built it and nobody came” and in taking their company through the growth phases, they need help with go-to-market and product roadmap strategy, building stage appropriate high performance teams and driving their companies through market shifts. The issue for +90% tech ventures is execution, not capitalization.
At the same time Corporate Innovation is slowing down. Big companies cannot move fast enough due to their legacy constraints, and while there are few exceptions when a Creative Thinker is at the helm: Gates, Jobs, Ellison, Bezos, Zuckerberg, innovation is rather hard in their absence.
Disruptive innovation is hard to incubate via organic efforts or via acquisitions, because the cultural antibodies kick-in. Acquired companies or internal projects that were successfully piloted and reached a minimum critical mass are suddenly subject to the complexity of processes and frameworks of a larger organization that is at a different stage in the company lifecycle. This often result in failure and only 20-30% of the over $5b spent by corporate in acquisitions are ever successful[2]. Corporations can benefit from having a closer look at the fundamental changes and stages that growing emerging companies go through, the team dynamics and the speed of response to market shifts. Corporations need a front row to entrepreneurship in order to make the proper changes to foster organic and monetizable innovation to increase their acquisitions rate of success.
Time is ripe for optimization to come to the world of Venture Capital. There is a new paradigm of capital efficiency and execution is the key element for risk mitigation. Venture Capital should not be a mere money management practice, it should be about having the right operational talent and proven operational experience to engage with entrepreneurs at a deeper level, helping them build their companies. There is a need for more transparency and proactive management of portfolio growth, and a new level of accountability that goes beyond a financial annual report. It is time to go back to basics in Venture Capital.
[1] Murphy/Meeker – Mobile Internet trends 2011 - KPCB
[2] Harvard 1987, Mercer Management Consulting 1995, McKinsey 2003, Boston Consulting 2007
