🔥Upside Guest Writer: Venture Capital's Tectonic Shift, By Norman Winarsky, General Partner at America's Frontier Fund, VC-in-Residence at Platform Venture Studio.
This week our guest writer is Norman Winarsky, General Partner at America's Frontier Fund, VC-in-Residence at Platform Venture Studio, advisor to startups, angel investor, author, and angel investor.
Norman is past President of SRI Ventures, which he founded, and which has launched more than 70 companies with a total market value of over $70B.
Norman was co-founder and board member of Siri, which was a startup spun out from SRI in January 2008. Siri has now been incorporated into all Apple iPhones, computers, homepods, and more.
He is co-author of "If You Really Want to Change the World: A Guide to Creating, Building, and Sustaining Breakthrough Ventures," published by Harvard Press. Norman is a Lecturer in Management at Stanford Graduate School of Business, with a special focus on teaching how to create breakthrough companies.
This week Norman, in his piece entitled “Venture Capital's Tectonic Shift” he gave us his insights on the current state of Venture Capitalism. He believes that Venture Capital will never be the same, and founders of startups will have far greater opportunities than ever before.
Title: Venture Capital's Tectonic Shift
By Norman Winarsky
We are in the midst of a challenging economic period, and fundraising for nascent ideas and fledgling businesses will no doubt be much more difficult than a year or two ago. As we stand at the precipice of recession, startup valuations will inevitably contract, and Venture Capital funds will have more difficulty raising funds from Limited Partners.
All that is largely understood. However, what’s more subtle is the irreversible tectonic shift that has quietly occurred. Its result: Venture Capital will never be the same, and founders of startups will have far greater opportunities than ever before.
Venture Capital Post-COVID
We are now living in the post-COVID era. When COVID first hit in March of 2020, venture capital firms prepared for the worst. This type of event has happened before both in 2001 and 2008, and ran the same playbook:
Stop virtually all investment activity.
Shut down companies that couldn’t survive without additional investment.
Help the remaining companies survive and give them care and support.
Warn that we are in a “crucible” moment.
Encourage startups to reduce spending maximally and lay off any non-essential team members.
Focus on generating revenue.
Note that if a startup makes it through it will be a stronger company
And yet, just a few months later, something remarkable happened. Venture Capital firms began to conduct remote Zoom meetings with startups seeking funding and found it tremendously effective. Some conservative VC firms agreed to consider investment if (1) someone on their team was a good reference for the founders and (2) someone actually visited the startup at their location. Others were more aggressive and moved ahead without either constraint.
This new approach worked very well. VCs learned that in most cases they could effectively diligence the team and their company remotely. With this, pre-seed and seed funding accelerated, even without meeting the team in person.
Almost no one traveled or commuted, but everyone was back to work. Working longer and working harder. Working even more effectively because a major limitation of VC opportunities disappeared: geographic distance.
Out with the Old, In with the New
It used to be that a VC was reluctant to invest in companies if they were more than an hour’s drive away. In that way, they could easily attend a board meeting or visit the office. Beyond that, VCs often felt that their ability to help the teams they invested in was directly related to their local network of entrepreneurs, partners, lawyers, financial professionals, universities, and labs. If the company was too distant, the VC’s networks were not useful. This aggregation of talented people and networks is what made Silicon Valley so successful.
Additionally, upstart founders almost always had to live and work in an entrepreneurial center like Silicon Valley in order to start a transformative venture because of local network effects. Oftentimes you could do in days what might take competitors months or years. Entrepreneurial ideas and the whole venture capital ecosystem were there and constantly circulating with energy and enthusiasm. If you believed in an opportunity, others could help you and work with you. You were in the flow, and this flow was neither a trickle nor a rolling wave. It was a rapids. It was exhilarating.
The days of COVID-19 changed everything about this. The world of remote work is with us and has broken all geographic boundaries. Founding, investing, advising, and building a transformative startup can be done anywhere - as long as you have access to the knowledge and experience of other great entrepreneurs, founders, investors, and mentors. More, these resources are all increasingly available to founders no matter where they live and work in the world.
How do Founders Create and Build Startups in this New Era?
When founders have a great venture concept, they need to:
Learn how to create and build a startup
Assemble the best possible founding team
Win investment interest from VCs, Angels, and other investors
Move quickly and stay in the flow.
Each of these four elements is now possible with our increased interconnectivity and the widespread acceptance of remote work.
Let’s take them one at a time:
1. To create a great venture concept, founders can learn the essential elements from advisors, mentors, or venture capitalists, as well as from books, blogs, podcasts, and more. This learning cannot be minimized. The process of building a venture is complex. Some people say the process of going from a startup to a major company is like building a small piper cub, flying it in the air, and then building it into a jet aircraft, but doing all this while flying. In the post-COVID age, founders can obtain much of this advice and support remotely.
2. Founding teams can now be located virtually anywhere in the world. Many major difficulties are now gone. Immigration, visas, travel, and asking people to move their family and life to a new location is not as important. A founder is now able to recruit the best of the best, wherever they may be. There may be occasional travel, but relocation is no longer a necessity.
3. Most VCs are now open to opportunities throughout the world. Often the venture capital team themselves, including the general partners, analysts, scientists, and support, are located throughout the world. Startup founders can be virtually anywhere. Consideration of these startups is limited not by geographic location but by the quality of the startup and by the expertise and experience of the VCs.
4. Founders must be in the flow. They need to be able to engage with entrepreneurs, partners, customers, competitors, and advisors constantly. Much of these discussions are now done remotely, with no concern or need for physical presence.
The digital world has unbound both the world of the entrepreneur and that of Venture Capital. Build and invest accordingly!
As a result of this tectonic shift, the Venture Studio industry is perfectly positioned to help entrepreneurs develop their startups. This industry began years ago in geographic centers, such as SRI in Palo Alto (where I worked to create and build ventures, such as Siri, as President of SRI Ventures) and TechStars in Boulder. Venture Studios are designed to help founders and their startups with all four of the key elements above.
Platform Venture Studio is one of the first all remote Venture Studios created post-COVID. (Full disclosure, I am a VC-in-Residence at Platform Venture Studio). We help world-class founders create and build startups. Together, we are a co-founder working with the founders and helping all four elements described above. Rather than being centered around a geographic hub, we center around themes including, for example, carbon offset or energy or food. Within each theme, we have a stakeholder/constituents group of founders, investors, team members, and more.
Our primary constraints are the quality of the founders who come to us, the unmet need they propose to solve, and the quality of their venture concept.
Welcome to the new world of venture capital and startups! Your greatest challenge is no longer your geography… it is only your own abilities.
Let’s make some great ventures together.
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