I'm pleased to announce that VentureBeat is partnering with the Founder Institute to kick off an event called Future of Funding, designed specifically to help address these questions.
Here's the context: The number of VC firms is dwindling, and the amount they're investing has declined, but that cash is the life-blood of Silicon Valley. The reality of a slower industry (fewer IPOs, the much longer time it takes to get to IPO, and reduced number of big acquisitions) is transforming the way VCs treat their entrepreneurs. Without almost no public discussion at all, VCs are starting to cash out founders and other employees at hot companies like Facebook and Zynga even before they go public -- to an extent never seen before. Rather than making founders wait for an IPO or acquisition to get rich, VCs are letting the founders get wealthy early -- on the hunch that if the founders can take some money "off the table," they'll have the patience to keep building for the long haul. Is this working? Well, it's a good time to start discussing it.
The VC industry has long been shrouded in secrecy (things like fees, carry and other terms that VCs negotiate with their limited partners are almost never talked about publicly), but now some players are beginning to call for standards and transparency. Much of the public discussion has been dominated by occasional surveys or studies released by the National Venture Capital Association. Strangely, no one independent body has stepped forward to debate these topics aggressively.
So when Adeo Ressi, founder of the Founder Institute, asked me whether I'd partner on his event Future of Funding, it was a no-brainer. He's lined up an impressive list of early-stage investors, entrepreneurs and others who have followed this industry closely and care about it -- from Jeff Clavier, to Mike Maples, Dan Primack, Reid Hoffman and Michael Arrington. I'll be reaching out to the LP community to get involved too.
We're offering a great discount for VentureBeat readers, which you can't get anywhere else: A 20 percent discount on the early-bird price, or $476 (use the code "VB"). That's about a third of the $1,356 general ticket price that kicks in on Dec. 25. So move quickly.
Over the past two years, I've watched Adeo shake up the once-smug VC industry. It began with his audacious website, The Funded, which for the first time let entrepreneurs comment publicly about what they think of individual venture capitalists. The often negative reviews infuriated VCs, long accustomed to deference. I agreed with many VCs that the ratings were often irresponsible (VCs have to turn down a lot of startups, and so there is no shortage of jilted entrepreneurs ready to vent their sour grape anger, especially when they can do so anonymously at The Funded). In my talks with Adeo, I feared he harbored a knee-jerk animosity toward the VC industry as a whole. VCs noticed it too, and the credibility of his efforts was often questioned. On the other hand, I kept talking with entrepreneurs who loved Adeo's site, because it provides information about the money men that they'd never had before. Taking money from VCs is a very intimate thing. You're stuck with the VC on your board for years. Even if entrepreneurs can't believe everything they read on the site about a VC, at least it would alert them to possible red flags (if a VC was criticized for never having bet on a winning company, the entrepreneur can do some checking about it).
The great thing about Adeo is that he engages with the criticism. For example, he opened up TheFunded with new ways for VCs to respond to criticisms. And he's since gone on to show that he really cares about helping entrepreneurs: He created the Founder Institute to provide them with new resources, tools and learning.
Here are some other questions the event will address: When negotiating the price of so-called secondary sales, what sort of valuations techniques should be used? In founder cash-out transactions, how widely should investors include other members of a company's management team in the deal? If the transaction includes the founder and key management, at what point can the entire team walk away from the company? Fees and carry percentages, where are they headed? What other new covenants are LPs discussing? What about the emergence of the so-called "process" VC fund, embodied by Andreessen Horowitz? That new firm, co-founded by Marc Andreessen, appears to have moved away from the typical VC firm practice of having partners sponsor a specific deal, where the partner joins a company's board after doing diligence on it. Instead, Andreessen Horowitz is hiring a deep bench of researchers and others to do diligence, who then report back to the firm's management before an investment is made. Partners still join boards when they do deals, but the firm's back office has more of a role. Other firms like True Ventures and Vantage Point Venture Partners appear to be moving toward this sort of model too. Does this reflect an industry that is becoming more professional?
Are incubator programs working? In an effort to innovate, for example, Polaris Ventures launched Dogpatch, and Charles River Ventures created its QuickStart program, just to name a couple. But the latter, one of the first efforts initiated three years ago, hasn't shown many great results yet. And what about the innovations started by the larger venture capital firms, such as moves by Sequoia, Battery, Kleiner Perkins and others to raise later stage funds or to diversity into vastly different sectors? The jury is still out on these efforts; some players believe it's more prudent to retrench.
All of this and more will be discussed at Future of Funding at the San Mateo, Calif., Marriott on February 18.
Again, for VB readers, here's the significant discount to tickets you can't get anywhere else, at $476 (use the code "VB"). That's a third of the $1,356 general ticket price. See you there!