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The democratization of VC

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Linda Baker
Thursday, May 24, 2012

BY LINDA BAKER

Money BlogA lively panel of investors demystified venture and angel funding for an audience of early stage entrepreneurs during a recent event sponsored by Fundingpost.com, an online exchange and national events organization. Held yesterday in the Pearl District offices of Perkins Coie, the Portland investor and venture capital event featured local and national experts and touched on some familiar themes: the need for an exit strategy, which these days means an acquisition, not an IPO, the importance of focusing on customers and revenue, and that perennial Rose City question, whether local startups “think big” enough.

But perhaps one of the biggest takeaways was this: In the second decade of the 21st century, the VC world, like many once monolithic social, economic, and political systems, is beginning to break apart, bringing new opportunities and challenges for today’s entrepreneurial masses.

Setting the tone was Matt Miller, the punchy managing director of San Francisco based Walden Venture Capital: “We’re all just a bunch of idiots with money,” said Miller, a former Director of Marketing at Oracle. “We’re living in unusual times. For the first time in history, it’s easier to raise angel money than venture money.”  Between 2008 and 2011, the amount of venture capital money declined by 50 percent, from about $30 billion to $14 billion.  At the same time, there’s been a surge in seed money—the relatively small amount of money first invested in a startup. "There are 19,000 seed projects in the Bay Area because there are 19,000 angel investors in the Bay Area,” Miller said.  “I’ve never seen that before.”

Miller’s message to the audience, which included Oregon startups including Gliph, which is developing a personal privacy app, and Mobilligy, a mobile bill paying system?  “There is a play now that is open to you that was never open to you before.”

Angel investor Peter Weiss echoed that assessment.  Thirteen years ago, big venture firms didn’t get involved in seed funding rounds, said Weis,.  Now venture firms are “suddenly doing $4 million—you didn’t see that a few years ago.”  Weiss also suggested that the distinction between seed, angel and venture capital is blurring. “These terms are more pliable malleable, they’re moving around.”

Other equalizing forces are bearing down on the world of entrepreneurial finance—for better and for worse.   “The big trend is the cost of entrepreneurship is coming down. The barriers to entry are low,” said Angela Jackson, one of the directors of the Portland Seed Fund.  As a result, there are “a lot of crappy companies pitching.”

Panelists were mixed on the impact of the Crowdfunding bill, which passed as part of the JOBS Act and will allow the public to use social media to invest in and profit from startup companies.

“People now have another place like Las Vegas to lose their money,” said Rick Gibson, a Tucson-based Angel Investor. It’s a total crapshoot. Everyone has the right to lose money.”

Scott Sandler, fund manager for the Oregon Angel Fund, was more upbeat. “Yes, a lot of bad stuff is going to happen. The other side is there is going to be a couple of success stories.  The power of crowdsourcing is too great.  It’s not going to be held back.”

Is the democratization of start up capital inevitable? As the panelists made clear,  traditional obstacles to access still abound.  "I can only invest in you if I believe I can make 5-10 times my money in a few years,” said Miller. “So if you don’t know who is going to buy you, then don’t raise venture money.”   But with that disclaimer,  after listening to yesterday’s panel, I ‘m thinking we’re on the cusp of a new trend, especially in Oregon, where lack of venture capital is often cited as a barrier to growing and sustaining local startups. 

As many cultural commentators have noted,  the entrepreneurial ethos is becoming a hallmark of our era. "Generation Y," proclaimed Fast Company in a recent article, "is born to startup."  Perhaps we're bearing witness to the next phase: Generation Y is not only born to start up—it’s also born to seed.

Linda Baker is managing editor of Oregon Business.

 

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