A recent post showed a seed capital breakdown by source. It suggested that personal savings, friends & family and loans are still the dominant sources of funding for seed capital, while VCs and angels still play relatively minor role here. So that was seed capital only, and showing the status quo rather than any trends. In this post I would like to go further and share my thoughts about two things:
1. How tech companies are funded across all growth stages (from seed, to series A, follow-on, growth equity, buy-out equity, …)
2. How crowd-funding, syndication platforms, and other innovations in venture capital may alter this landscape in the future
The below diagram is a rough summary of how I think about this at the moment.
The above shift would be a reaction to the past 20-30 years where too much capital has gone to under-performing VC funds and smaller VC funds having outperformed larger-sized funds. On the one hand, finding good deals, supporting founders, managing portfolios, making exits happen, all these are valuable skills that require infrastructure – hence the justification for management fees. But on the other hand, the advent of syndication and technological innovations could enable venture capital to operate with far less overhead, and to become more flexible in its allocation of capital, and thus more efficient.
For this trend to actually materialise in a meaningful way, increased transparency and more exchange of information are needed. Finding and closing early stage deals require entrepreneurial and networking skills, but with the help of data-mining technologies (like for example Mattermark) and syndication platforms, investors will require less and less infrastructure. For later stage deals, an information exchange could play a key role in such a development to encourage more flow of information amongst VCs and even with the current LPs (investors in VC funds).
Yoram Wijngaarde, founder
The dealroom.co team