The VC Olympics

Fred Wilson does his Roone Arledge imitation as he doth protest too much about Stowe Boyd’s advisory capital post and my agreement with Stowe.

Unless you have capital at risk or some other form of “skin in the game” like sweat equity, you cannot and will not feel the thrill of victory and agony of defeat that binds the VCs and entrepreneurs in startups. Capitalism works for a reason. Greed and fear are powerful forces. I have worked with many “independent directors” over the years. And they are often incredibly good directors who add value in all sorts of ways. But they don’t feel it in their gut the way the entrepreneur does. VCs, particularly the best ones, do feel it in their gut. And so they are there for the entrepreneur when they need it most, joined at the hip with the risk/reward belt.

Cue video of a VC on skis hurtling down a mountain.

I think the point of Stowe’s post is that equity gives advisors the sense of material involvement in a startup that is better than consultation, and that by making such arrangements, one can get advice, connections, and expertise from people who are, in many cases, at least as qualified as the people who happen to have money.

Or here’s another way to put it: Money is a commodity, nobody’s is better than anybody else’s. But knowledge and connections are uniquely valuable. And in an time when startups need less money, then the relative value of knowledge increases.

Note that this is precisely the example that Publicis’ new Denuo is following. Now in their case, Publicis is a giant company that could, indeed, also invest capital. But so far as I know, Stowe Boyd isn’t filthy rich (yet). And yet his advice would be very valuable to many startups and they should find the way to get it without requiring him to invest.

The larger story here is that venture capital is not escaping the explosion of business models that is also hitting media, advertising, retail, and many other industries. So VCs, too, need to explore new models. Perhaps they need to find ways to involve — and compensate — networks of advisors to bring that knowledge to startups and to spread their own work and risk in finding and helping and managing relations with companies, so they can get involved with more companies at a smaller scale than they can afford to today. If you can no longer bring $5 million to 10 companies but can’t afford to manage 50 $1 million investments — because it stretches your real assets, which are attention and time — then maybe the way to scale is via Stowe’s model.

[Full disclosure: Fred is a friend now; we share advice; and I have and would gladly pitch any company I’m working on to him.]

  • I think venture capital can be horizontally delaminated just like any other industry. Companies shouldn’t raise capital before they need it just because they also need advice and connections.

    So Stowe’s idea is a good one. Have blogged on it here.

  • I’ve been to both Syndicate shows to take a hard close look at blogs, social media and other stuff associated with web 2.0 As far as I can see it’s still a faith-based economy. The predominant strategy seems to eek out enough to pay the rent through an ad network or build enough noise around a product, feature, or point-of-view to be flipped to a Yahoo or Google. I hear a lot of the same stuff as I did 98-2000 when all these big behemouths didn’t “get” the Internet just as they now don’t “get” citizen or social media. At the same time, the big guys are making the same mistake of falling all over themselves in an attempt to avoid looking dowdy.

    Last time I checked it was profits, not revenue, not impressions, not feature/function, or dare I say it “buzz” that insured longevity for companies. I’m no reactionary like a Nick Carr or that Brit in SF who fancies himself to be young curmudgeon. There is something to social media in terms of creating value for people. But creating the kind of value in use that can be converted into value as exchange (remember your Marx) is something I don’t yet see and Mr. Boyd’s emphasis on advisory capital confirms for me that no one has cracked a sustainable cash-oriented scalable business model for citizen media—yet. But these are early days.

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  • Marina Architect

    Two live case studies: 37 Signals versus Six Apart. Have at it. Marketing veneer equals Six Apart. Stripped down utilty is 37 Signals.

    VC’s have a way of imposing marketing veneer. If WordPress had a marketing veneer with the requisite lifestyle photos (it works despite the noise you make), Six Apart would be patronized only for?

    Google should be providing the products 37 Signals. Cheers. Time to break out for the night West Coast.

  • This idea isn’t all that new, and has been happening in the industry for a long time. The only difference now is that VC’s are being completely cut out of the picture, and “leading industry” experts want to replace them.

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