I happened upon an interesting panel discussion at the National Venture Capital Association annual meeting Wednesday on the future of the venture industry, or rather the parts of it we don’t expect.
At the core of these unexpected twists could be changes to the financial model that are hard to anticipate, according to two panel members willing to offer predictions.
Change is nothing new to the industry. Seed stage investing became the most recent piece of venture business to be remade as a flood of new money, super angels and incubators stamping out companies at high volume have altered the way seed and Series A deals are done.
The changes came so quickly in recent years they were hard to keep up with, says Naval Ravikant, co-founder of the startup funding service AngelList. Ravikant argued on the panel that Series A deals no longer are done in the traditional manner. Venture capitalists faced with a large stream of companies seeking money have had to zero in on the ones with momentum, much like they would traditionally do in Series B deals, he says.
Next up for disruption are the Series B and C deals, especially traditional fundings for enterprise companies. They will see an impact, too, he says.
“It think it’s exciting,” Ravikant says. “The venture industry is finally going through some structure change.”
More profound changes could be right behind these, says Mike Maples Jr., a managing partner at Floodgate. Maples claims more profound financial innovation could have a democratizing effect on the business in the next five years, though he has a hard time anticipating the details.
“I just wish I knew what it was right now,” he said Wednesday.
At the core of his thinking are some of the changes Ravikant points to. Microcap funds bring new resources to the funding of young companies, and incubators, such as Y Combinator, give more opportunities to entrepreneurs.
Underlying all this has been a rapid drop in the cost of starting companies, particularly Internet-focused initiatives mining new distribution channels on Facebook and in the Apple app store.
Maples says the innovation he expects could go hand in hand with the crowdfunding some believe will be unleashed by the recent IPO bill President Obama signed. But it may not, and it may not have a venture-like structure of carry and fees, he said during a recent dinner discussion I had the opportunity to attend.
But it is likely to extend to many more companies than today – perhaps a million a year – and could be adapted to have specific geographic orientations.
The venture model isn’t particularly well designed for the tiniest of companies. But someone will crack the code, he says.
Photo of Mike Maples Jr. taken by Mark Boslet