I have been enjoying Mark Peter Davis’ Get Venture series intended to be a guidebook for founders in search of VC love. He has a nice post with pictures that describes recent investment industry dynamics and introduces the Long Tail of Venture: Venturetail as an attempt to explain it.
He describes the emergence of investment models involving smaller initial funding and contrasts those against the traditional VC model of $5M followed by $10M followed by more followed by exit - or more likely crater. He attributes this change to low startup costs and the willingness of consumers to adopt tech like never before.
He attempts to square up two competing predictions:
1. Traditional VC funding model is here to stay, not decline as some have predicted.
2. Startups with lower capital requirements will predominate and new funding sources will arise due to the structural incompatibility with traditional VCs
His idea is that there is a place for both models at the table and the long tail of venture is the metaphor. I think he does a nice job of laying out the problem but he has one major assumption that may turn his conclusion on its ear.
Mark’s analysis assumes an infinite supply of high quality entrepreneurs to generate deal flow across his funding style spectrum. Coming from the operator side of things I find this to be more of a limiting factor than capital availability.
There’s no way to know if its a dominating factor or if it changes much but imagine the situation where you have a limited number of founders worth funding -under any model. If you have entrepreneurs that would have looked for traditional funding now looking for alternative financing and business models VCs may start to feel a vacuum.
$0.02
