1/ Been thinking about what could be referred to as "3rd Wave VC"...
2/ With the continued evolution of the early stage market, what is the most effective way to categorize all of the different types of investors and what does that mean for founders raising from them, LPs backing them, and other investors competing (or collaborating) with them?
3/ Lots of great writing and insight has been shared throughout the year on the state of the market by people like @hunterwalk, who I believe coined the idea of "Seed Phase"
hunterwalk.com/2018/02/20/for…
hunterwalk.com/2018/02/20/for…
4/ The shift in funding flows and rise of megafunds has caused a bifurcation in the market, something @dhaber noted in the tweet below and a thesis many investors (myself included) share.
5/ And we have seen the continued rise of new entrants, as documented tirelessly by @Samirkaji and evident in the way people like @ArlanWasHere, @impcapital, and @ryan_caldbeck (among many others) are leading their firms.
I'll come back to the importance new entrants later.
I'll come back to the importance new entrants later.
6/ In thinking through how to best make sense of which firms do what, I've sorted them into three main categories (for now!)
People-Driven / Platforms / Problem Solvers
People-Driven / Platforms / Problem Solvers
7/ People
Classic seed stage venture model pioneered by the likes of Uncorked Capital & Floodgate. Individuals/small groups of full stack investors that excel at Sourcing, Sorting, and Shepherding (h/t @jeremysliew) & have intentionally stayed small to deliver that core service.
Classic seed stage venture model pioneered by the likes of Uncorked Capital & Floodgate. Individuals/small groups of full stack investors that excel at Sourcing, Sorting, and Shepherding (h/t @jeremysliew) & have intentionally stayed small to deliver that core service.
8/ Platforms
Firms aiming to scale their impact for either underserved founder groups or underserved elements of the founder experience. First Round is, of course, the pioneer here and there has been a lot of innovation in various directions over the past few years.
Firms aiming to scale their impact for either underserved founder groups or underserved elements of the founder experience. First Round is, of course, the pioneer here and there has been a lot of innovation in various directions over the past few years.
9/ Platforms
A few examples that spring to mind are Backstage Capital (underrepresented founders), Alpha Bridge (founder wellness), Hyde Park Angels (geographic impact), and SignalFire (data services).
There are many more doing interesting work here.
A few examples that spring to mind are Backstage Capital (underrepresented founders), Alpha Bridge (founder wellness), Hyde Park Angels (geographic impact), and SignalFire (data services).
There are many more doing interesting work here.
9/ Problem Solvers
This final group is the "3rd Wave" that I mentioned at the outset and is a byproduct of the idea that technology has pervaded every industry and has a role to play in solving most of the world's big problems.
This final group is the "3rd Wave" that I mentioned at the outset and is a byproduct of the idea that technology has pervaded every industry and has a role to play in solving most of the world's big problems.
10/ Problem Solvers
It is also a response to the fact that venture capital financing in the way it has generally been practiced is not ideal for a large swath of companies. Not just "lifestyle" businesses but potentially high growth, global scale companies.
It is also a response to the fact that venture capital financing in the way it has generally been practiced is not ideal for a large swath of companies. Not just "lifestyle" businesses but potentially high growth, global scale companies.
11/ Problem Solvers
Also aligned with the idea that there are many verticals (fintech, transportation, wellness, etc.) with the market size to support dedicated strategies.
Also aligned with the idea that there are many verticals (fintech, transportation, wellness, etc.) with the market size to support dedicated strategies.
12/ Problem Solvers
The defining element of a "Problem Solver" is that they start from the position of the problem being tackled and vertical being served and bring to bear a bespoke "capital stack" more aligned to the needs of the specific company than classic VC financing.
The defining element of a "Problem Solver" is that they start from the position of the problem being tackled and vertical being served and bring to bear a bespoke "capital stack" more aligned to the needs of the specific company than classic VC financing.
13/ Problem Solvers
Examples here include what CircleUp is doing in CPG, Social Capital's Discover (which I learned about this weekend in @Alex_Danco's Snippets newsletter), what Urban.us does with regard city life, and what Indie VC is building.
Examples here include what CircleUp is doing in CPG, Social Capital's Discover (which I learned about this weekend in @Alex_Danco's Snippets newsletter), what Urban.us does with regard city life, and what Indie VC is building.
14/ Problem Solvers
To be clear, a lot of the investing being done here still "looks" like VC but with slight iterations that over time will evolve to provide companies with expanded access to debt, non-dilutive, & alternatively structured capital that is bundled by these firms.
To be clear, a lot of the investing being done here still "looks" like VC but with slight iterations that over time will evolve to provide companies with expanded access to debt, non-dilutive, & alternatively structured capital that is bundled by these firms.
15/ Problem Solvers
This is a category we fall into at TechNexus. Most of what we do today looks like VC investing but thanks to different structure/mandate we can be more precise with solutions when the opportunity arises...in our case often related to corporate collaborations.
This is a category we fall into at TechNexus. Most of what we do today looks like VC investing but thanks to different structure/mandate we can be more precise with solutions when the opportunity arises...in our case often related to corporate collaborations.
16/ Problem Solvers
It is worth noting that so much of what is happening here is at such an early point that it may not even merit its own category...yet.
It is worth noting that so much of what is happening here is at such an early point that it may not even merit its own category...yet.
16/ To be clear, I don't believe any of these models is inherently better or worse than the others and think that there will continue to be a ton of innovation across all three areas in the coming year.
17/ As the tweet below states, differentiation in VC boils down to execution (despite the well-crafted narratives we hear from many firms), so despite tons of competition in the "People" segment, there will always be room for new players.
18/ Similarly in the "Platform" category, there will be new opportunities to improve the founder experience and target underserved groups as the market continues to shift...so I imagine we will see a ton of innovation here.
19/ And as it relates to "Problem Solvers", there is a ton of green space but the novelty of the category and the idiosyncrasies inherent in each firm's model will require a ton of leg work to build buy-in from from founders and capital providers.
20/ This categorization structure is also why I think the rise of Micro VCs is a net positive for the market despite frustration around party rounds, small check sizes, etc.
21/ Angellist's funds (@leepnet) are providing a great testing ground to help emerging managers understand which of these three types of firms they want to be when they "grow up".
techcrunch.com/2017/05/16/ang…
techcrunch.com/2017/05/16/ang…
22/ And given that I am based in Paris and have been following the European ecosystem closely for quite some time, I am very interested in what "Problem Solving" strategies develop here over the coming years.
23/ While venture capital availability has always been much harder to come by in Europe, governments and universities seem to have been more active in solving for some of the other pieces of the capital stack for startups here (which has benefits and drawbacks).
24/ I've been very impressed in my time here in Paris with the number of firms trying completely new things -- in Paris, I'd call out @_TheFamily, @kimaventures, and @keralavc as three that are unique relative to what I've seen anywhere. Sure I am missing a ton of others.
25/ Excited to learn more in 2019 about firms here in France and Europe (new and old) executing best in all three of these categories...specifically the "Problem Solver" category as I think that different geographies and cultures will create a ton of unique directions taken.
26/ And I realize the "3rd Wave" analogy (which I've always thought of in the coffee context) doesn't apply perfectly here...I'm certainly not comparing @m2jr to Folgers :-)
