Blog Category

LEAN VC: WHY SMALL IS BEAUTIFUL IN VENTURE CAPITAL

The Kaufmann Foundation recently noted in a controversial review in the Wall Street Journal that, of its past 20 years of investing in nearly 100 venture funds, “Only four of thirty venture capital funds with committed capital of more than $400 million delivered returns better than those available from a publicly traded small cap common stock index.”

Further damning evidence cited is that fully two-thirds of compensation for general partners comes from fees, not performance (carry). These results reflect the severe challenges of scaling venture’s long-standing “hits business” in an all too elusive “grand-slam business” that a larger fund requires.

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MANAGERS VERSUS ENTREPRENEURS

What is the difference between a manager and an entrepreneur?  Is one better for society than the other? These are questions that frequently arise during our mentoring sessions with young college graduates who are at the beginning of their professional careers.

Management, as a scientific discipline, and managers as practitioners of it, are concerned with the control and maximization of a firm’s resources. These resources may include capital assets, human resource assets, customer assets, and processes.

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FUNDRAISING RULE OF THUMB: $19M, $9M AND $4M

Getting hung up on a high valuation can quickly take the wind out of your entrepreneurial sails.

For most first-time entrepreneurs, deciding on the right valuation can often seem arbitrary and confusing. Consider the experience of my friend Larry (name changed to protect the guilty), who was raising his first round for a coupon/loyalty company.

The space was apparently red hot and his investment banker strategized that he should raise a $20M post valuation despite the fact that he only needed $1M to prove the business model milestone. Seems great, right? Raise $1M at a $19M pre-money valuation.

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