From: Your (increasingly disillusioned) LP
Subject: Your Proprietary deal-flow
Next time you use the words “proprietary deal flow”, notice that I sigh, and gently roll my eyes. My spirit is willing to, indeed, it wants to believe. Yet my brains scream otherwise. Remember this thing called the internet – that’s democratizing everything. Including any proprietary barriers. You quote Marc Andreessen and remind me that “Software is eating the world.” Yet you don’t see it’s now eating your lunch. Or at least nibbling at it. From where I sit, I can see the obvious – I hope you do too.
(a) The end of proprietary as we know it: Not too long ago, you could walk down the halls of Stanford (or name your University), mingle in YC entrepreneurial demo-days or get a referral from your best CEO buddy. The goal was to find the next best thing. This is like a hunt – very primal – very challenging, it drives up your testosterone. You would find a target and then hone in. Now, the dance would begin – first, a few one line emails fly back and forth. Then you get a pitch deck. Yet you, my dear GP have so much to do, so little time. So you find a cute way to keep this relationship “just about” lukewarm. Whats the rush? You have a hundred other pressing things to do – that startup kid can wait. The hunted, that CEO is ensnared in your web and thinks you are sooooo interested – or almost. You could string this CEO along for days on end while pretending to take care of entrepreneurs. But I fear that such a elaborate mating ritual is no longer feasible. That CEO has choices – all online – all of which would get them funded quickly. Dismiss them as crowd-funding and foolish money at your own risk. A bright young CEO, Tom Serres of Rally.org raised $8 million in two weeks. Google that. And many start-ups are following suit – you see, they don’t like to be locked down to a few tight-fisted GPs. So they are going to places where money flows a bit more faster and freely. If you don’t return that call, guess what – poof, that deal is gone.
(b) The democratization of deal flow: Power to the entrepreneur: Its kinda like eBay – the best products should attract the best prices from the best buyers in the fastest amount of time. That’s a good market place. You yourself taught that to me about 10 years ago, didn’t you? Well, its a full circle. After all, why should entrepreneurs suffer all this opacity. Transparency matters. The balance of power is occurring, indeed. Your money (or mine?) is not that important. Should I find a hedge-fund meanie where my liquidity is better than a 10+2 year blind pool?
(c) No online taboos. And speed matters, even more: As these artificial barriers crumble, and you find your opportunities online – be it Angelist, Funders Club, kickstarter – don’t be ashamed. Its not like you found a girlfriend online. Even that’s not a taboo anymore. So lets stop this proprietary network stuff and get on with this online matchmaking. What would make you attractive to CEOs? Maybe these crowd-funding sites should offer Yelp-like 5 star ratings? I can even visualize the criteria:
- Returns calls / emails in 24 hours
- Brings fellow investors along
- No negotiations – a true believer
- Says, “I’m in” via text message (as opposed to long drawn boring partner meetings? Who has time for that?)
(d) Finally, feel free to use this one line message for all online opportunities, where you need to make a $3 million investment decision by 4pm today: “I don’t usually do investments this way ….but in this case I am willing to make an exception.” It doesn’t make you look any smarter – its just for your own sanity.
Good luck, dear GP, those internet / e-commerce beasts that you fueled, the marketplaces that you designed, that friction-less balance of power that you yourself sought in every economic situation is now staring back at you. Your turn, dude!
About the author: Mahendra Ramsinghani is the author of “The Business of Venture Capital” and a disillusioned LP in 3 funds. His next investment will be with a fund manager who auto-responds “I’m in” to every text message. Opinions expressed here are entirely his own.
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