Start-up Entrepreneurs' Blog

Is Start-Up Funding Shifting in Favor of Entrepreneurs?

October 22, 2010

There is a change underway in the venture capital and angel investment industry, one that goes beyond the slowdown of the lingering recession. It is a fundamental shift in the market of capital. VCs and angels are a business and have a market, just like the start-ups they fund. And like the start-ups in their portfolios, they have to adapt to the market changes or leave the market.  I haven’t been able to articulate this change, but I feel it when everyone talks about the changes going on. I was at a few meetings this week where the change was succinctly described.

Is Capital Becoming a Commodity?

Mike Maples at Flloodgate has best been able to pin down the trend. In his view, there is a power shift in the start-up community in favor of entrepreneurs. Capital is becoming a commodity, and as a result, entrepreneurs are becoming empowered. The need for capital to start a company is collapsing. No longer do entrepreneurs need a $5 million check to learn something important about their business opportunities.  We are entering an era of “capital as a service”.

The New Super Angels Are Coming

Innovations in the Internet and software coupled with lower costs of market validation have lead not only to the institutionalization of the super angels, but also a proliferation of start-up incubators.  Super angels are now more akin to micro venture capitalists. It seems as though small groups of angels have formed incubators in just about every local college and university in Silicon Valley, where the students are working as interns for the fledgling start-ups in their incubation program. Small groups of angels within angel groups have formed smaller funds of their own. Some venture capitalist that used to be start-up accelerators just a short while ago, have take the opportunity to transition into being a smaller, traditional VC firm.

The Shake-Out Continues

The shake-out in the venture capital continues, as many of the smaller firms founded in the late 1990s are closing because they are unable to raise money for new funds. Their customers, also known as limited partners have deserted them for other firms with better track records of investing money or the newer super angels. It seems as though the graduate business schools have become a magnet for many former VCs, where they are now teaching the next generation of entrepreneurs. Some are getting involved in think tanks and specialize in government policy analysis for entrepreneurship.  

The wind of change is here.  It’s just a matter of what the landscape will look like after the dust has settled.

Filed under: Start Up Funding

Tags: angel funding, funding, startup funding, venture capital