Dec 5, 2018 Pauliina Alanen
There’s been a trend that VCs are raising bigger and bigger funds. According to Rebecca Kaden, with these megafunds, it comes down to what they choose not to do, rather than what they do. When your fund is that big, you have to be involved in the bigger companies. On the contrary, if you have a small fund, it’s more about the verticals and types of investment that you choose to do, also referring to her own fund Union Square Ventures, where she’s been the first female partner since March this year.
As investors have adopted the “bigger is better” mentality, entrepreneurs have raised more money per round, starting from seed and continuing across the following stages. According to our VC panel today on Founder Stage, the mega-rounds could permit startups to stay private longer, partly simply because private money available has increased. The investing in tech has been booming over the last years.
Especially early stage investing happens more and more towards the individual rather than towards the company. According to Alice Bentinck this is prevalent particularly in Europe. In Europe, there’s need to put more infrastructure around the funding ecosystem. Alice’s fund Entrepreneur First has been experimenting with new ways of capital, for instance providing entrepreneurs 2000€ per month for a couple of months. This, she said, permits them to invest into the team, rather than into the product. As their youngest companies are just 14 weeks old, they are making their bet on the super talented individuals.
Rebecca Kaden highlighted the importance of timing and finding the right intersection for the technology and market mind-set. Nowadays, VCs are less likely to invest just when the technology is there, but they would like to wait to see the adoption in the market to begin as well. The panel also discussed the shift in thinking about profitability: profitability has become a word meaning not growing fast enough. However, the role of “growth at all cost” has changed to focus more on “at what expense”.
Beezer said she couldn’t help but ask about Brexit from the only Londoner of the panel, Alice Bentinck. “It’s very sad, but today, the British VCs are still looking pretty good.” she commented. Her own VC Entrepreneur First just opened offices to Paris and Berlin. According to Alice, a VC in Europe needs to look at the whole of Europe, not just not just London or Paris. So far it’s fairly hard to predict how the actual Brexit will look like.
It’s in the nature of regulations to always lag and be a bit behind of the upcoming trends. Therefore, as it was discussed a new phenomenon will likely hit a regulatory issue at some point. Rebecca Lynn would prefer entrepreneurs to be proactive and bring the regulators along with you. Alice brought up an interesting way the city of London is collaborating with entrepreneurs: they have built a sort of a sandbox feature for early stage companies to speak to regulators directly.
It was discussed that the majority of entrepreneurs simply need money. Having choices of VCis often a luxury. According to Rebecca Kaden having a partner who is more likely to be a long term partner can really be a make-or-break thing in these unpredictable times. Lynn highlighted the importance of aligning philosophically. She mentioned that investors and entrepreneurs tend to divide into two different camps, either breaking things at any cost, or taking account the network effects and bigger picture. How people react in the most stressful times is quite indicative of the investor’s and entrepreneur’s philosophy.
The panel concluded to this thought: Be smart about where you spend, knowing that you got the model right first is key.
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