Yesterday, I wrote about James St. Jean’s January article about New Venture Capital Models. He also wrote a part 2, addressing why these new business models are cropping up. Go read his article.
In summary, he said that it was first started by Paul Graham in 2005. Graham was new to the investing scene, a creative thinker and not tainted by the old ways. Sound familiar? This is how most entrepreneurs start when they break off from a large company. Unwilling to say “because that is how we always do it” entrepreneurs are willing to take a look at new ways that may offer advantages. Graham did this to investing.
Furthermore, it seems that NOW is almost a “perfect storm” for investing in small startups. You have products becoming cheaper to build and launch, a shift in traditional venture capital funds to larger investments leaving a vacancy for small investors, and the role of the internet in providing services (and products) to niche markets in a profitable manner. This leaves an opportunity for these microseed accelerators to fill.
The conclusion that St. Jean draws is since smaller capital is at risk the penalty for failure is a lot lower and so this fosters more creative and risky ideas. I agree that this is probably the governing reason for the idea of investing in smaller amounts but not that this is the reason behind providing the extra support.
My supposition is that certain people see a value in a skunkworks: A small team of dedicated developers focused on one goal with little or no distractions of a large bureaucracy but with the support and the skills that a major corporation provides. These certain people came from large companies and business schools where these skills and situations were studied and fine tuned. Realizing they could duplicate this in a skunkworks scenario it is just a matter of finding funding and the right entrepreneurs to make this work.
What makes the right entrepreneurs is THE discussion for this blog. Ultimately, it will not be just skills and experience, but also the entrepreneurs’ willingness to learn and grow into the role of a successful company.
