Venture Capital for Long Tail Entrepreneurs at SXSW

March 15th, 2009  Comments

I aggregated my blogs to discontinue this blog and create a single Taylor Davidson: Photography, Travel, Innovation and Entrepreneurship blog in May 2009; if you liked this post, click here for the options to follow the blog by RSS, Twitter and email and click here to follow me on Twitter.

It’s funny how old ideas come back to you. Following up from my earlier post Hello, I’m Taylor. (And I’d like to meet you at SXSW), here’s your chance to view the presentation that won’t be “shown” in the SXSW Core Conversation room and your opportunity to participate in the discussion if you’re not at SXSW.

“Venture Capital for Long Tail Entrepreneurs” describes the need for a fundamentally different, economically viable model for creating and funding micro-businesses. Venture capital needs a new model to adapt to declining costs to start businesses, the impact of Generation Y and increased personal and corporate transparency and sharing.

  • THIS IS NOT: “How to raise venture capital”, “How to fund your startup,” or “What is the right funding and operational model for a venture capital firm today.”
  • INSTEAD: The future will be different than today; knowing that, what cultural, business, technological and political trends are “framing” our future?

Presentation and Talking Points
These slides won’t be shown at the SXSW Core Conversation itself, but will be available for anyone to view on their own devices in the room and at home.

Venture Capital for Long Tail Entrepreneurs

Ten Frames (+1)

  • A. Value is created at the edges, but captured at the hubs.
    B. The Long Tail has many edges ”and it better have a hub”.

  • Broken or not, venture capital is ripe for creative destruction and reconstruction.

  • Incubate people, not companies.

    “Lifestyle business” shouldn’t be a dirty word.

  • Collaboration is a core competence.

  • Companies are people.

    “Transparent lives” will create “transparent companies”.

  • “Scaling people” is the untapped promise of the Internet.

  • Creating context is more valuable than creating content.

  • Social capital isn’t new, but everything about it is.

  • Value (flow) is king.

    Value > Cash
    Flow > Stock

  • “Passion allocation” is more important than asset allocation.

    Time, passion and attention are the most important costs of tomorrow’s economy.

  • Generation Y isn’t waiting around.

    Conflicts create companies.

  • Everyone is a futurist.

    Yet we’ll almost always be wrong.

Participate in the Backchannel
We all know the conversation is the most important part, but only a small part of the potential discussion will actually reach everyone in the room. Participate in the broader discussion in the comments below from SXSW and from home; I will answer all questions and dig into the backchannel after the “official” discussion ends.

Details

About Me

Influences & Thanks
Umair Haque, John Hagel, Kevin Kelly, Chris Anderson, Ethan Bauley (@ethanbauley), Alan Patrick (@freecloud), Michael Lewkowitz (@igniter), Chris Schultz (@cschultz), Mike Bonifer, Aaron Chua, Sean Tario and many, many more that have commented, provided their thoughts and added to the conversation.

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By Taylor Davidson. Posted March 15th, 2009. Category: Announcement, Bridging Online and Offline Interactions, Reorganizing Lives, Venture Capital for Everyone   Comments

SIMILAR THOUGHTS

  • Well, I'm late in - but just came across your blog today. How do you think a model like kiva.com or even Cuban's 'open stimulus experiment' effects what you are saying here. Since most long tail plays are probably specialized, or at least dealing in low transaction volume at the non-aggregated level, you might need to find a different kind of investor - one more focused on the specialty than on the business model. Your slides also hint at the idea of the VC becoming a long tail player - lots of small, focused investments with less hockey stick potential (as capitalfellow mentions).
  • No worries, the conversation around this topic has been going on for about a year, and these are merely the latest (and most concise) thoughts :)

    The real, fundamental, underlying question is really about how we will organize people to create economic value in the future state of our economy. Ethan Bauley and I have lately been discussing how the notion of a broader scope of entrepreneurship fits with Hagel's theories of firms re-creating themselves as talent networks; in my mind, companies exist in a market competing for talented people, and if people don't find opportunities to advance their career / life in larger companies, then they'll explore other opportunities, one of which is creating their own companies.

    Funding is always an issue for people starting companies; yes, many, many trends are making it easier and easier for people to start and manage companies at scale more efficiently, and we're reaching a world where the lines between companies and the people behind them are becoming more blurred, but at the end of the day we all somehow have to fund that gap between costs (money out) and revenue (money in). If that gap is small, VC isn't necessary. When that gap is large and entrepreneurs can't self-fund, outside investors are necessary.

    VCs are merely one class of investors that fund that gap, but they typically only fund certain kinds of gaps in certain types of opportunities. Will VCs invest deep into the long tail? Certainly not as they are organized now: their business model, their operations, their commitments to their LPs, etc, simply don't fit investing in those type of opportunities.

    But there is an opportunity for investors to fund those type of opportunities; or at least until firms adapt and create better ways to organize talent. For more detail, read Hagel's posts outlined here: http://www.unstructuredventures.com/uv/2009/03/...

    Kiva.com works in certain situations, but it's more about the group commitment model of microfinance than the small $ investments.

    I love Cuban's "open stimulus" idea; I think there is a negative selection bias towards the type of entrepreneurs that would step forward in that model, but the fact is that success is more about execution than the idea and I hope most entrepreneurs would recognize the value in being open about their ideas.
  • Thanks for taking the time to start bringing me up to speed. One organizational strategy that has direct impact on me is the 'hollywood project' model. Gather the team for a stated goal, disband when you hit the goal - the project then moves to the next stage and specialized team. (Make the movie - distribute the movie). I've been seeing this in product development and marketing for quite some time, especially as it has become so easy to pull together a team without regard to geography. Your next post on the subject looks great.
  • I've been thinking about the "Hollywood project" model lately; the transaction costs in forming and disbanding teams really dictates the kind of projects (depth, duration, etc.) and people (skillsets, past collaboration history and relationships, etc.) where the model can work. I'm pretty sure we're seeing the Hollywood project model in increasing scale within the industries that it's traditionally used, I'm curious if (and how) we're seeing the model used outside the traditional industries. That type of model, applied to new industries, will have a range of economic and cultural impacts that we're only beginning to understand.

    Interestingly, I've also heard the term "Hollywood Model" to describe a method for creating an innovative, entrepreneurial community by creating the underpinnings (cultural, business, etc) for the creative class (related: Richard Florida) to explore and succeed; create the environment and they will come and prosper. I personally prefer to use the term to describe the project-based method for organizing collaborators...
  • If the long tail takes significantly longer to demonstrate value than the traditionally desired hockey stick the how the VC's will decide who to invest with will be interesting. Where as the VC's may look for a series of successfully sold ventures will the focus change from events to increasing cash profitability (tail gets longer, operating costs keep declining).

    I was particularly struck by slide 12 because as Gen Y becomes more aware that time cost is the highest, will the bar for the entrepreneur to achieve for their product get higher?
  • The issue is less a question of the "time to demonstrate value" than the type and composition of returns.

    Secondly, because the fundamental nature of returns shift the operating model of the investor would also have to shift (staff, focus, added-value, scale, commitments to LPs). Therefore it's less likely that a VC would change their model but that we would see new funds (from existing VCs and new "venture investors") to address the opportunity.

    I don't quite follow your last point...
  • I was pondering if Gen Y will become more aware faster of the expense of their time. If so will applications have a shorter time period to prove relevancy.
  • I think Gen Y already realizes the value of their time and their life, and that's one reason I think Gen Y will be an "edge" of entrepreneurial shifts (there are also some less valuable and little worrisome reasons with different implications), but I'll get into that another day.

    I think Gen Y will understand that time is important and will spend their time working on meaningful things, and will use their time more on "meaningful" products and services. The bar for relevancy should be high... although we can debate later on how high the bar is right now :)
  • I like the "Long Tail Entrepreneurs" because this is where the issue is with VCs and Angels that they focus on the top 10%. Meanwhile the others are creating many more jobs. And the Long Tail Entrepreneurs is where the Social Entrepreneurs are too, who create social impact rather than profit.
    Clearly we need to reduce the friction at early stage for these entrepreneurs, and this is what Entrepreneur Commons is pushing for.
    Meanwhile some early results from new model experiements are being documented now:
    http://www.firstascentventures.com/blog/?p=30
    Reasons to be optimistic :-)
  • Transaction costs are huge issues in starting businesses; legal, accounting, funding, "attention switching" costs, creating "personal scale", etc.

    It will be interested to see if the returns (financial AND social) from the first experiments of the funding model will increase or decrease as the # of investments and companies increase; it will come from a variety of intersecting and conflicting financial trends. Looking forward to digging into it soon...
  • Very nice stuff Taylor. Smart thoughts and beautiful photos and vice versa. Wish to hang the 10th slide in my room ;-).
  • You want a print of the slide or just the picture? I'll send you one... seriously.
  • Taylor, it would be great to have the picture !!! Thank you so much. I think you have just highlighted a new value stream ;-)
  • Cool... you want the file or a print? Not sure what print service you use in Paris... just email me.

    Probably should expand my use of platforms to "reduce personal transaction costs" :)
  • hope it went well today... loved the setup above!
  • I was pleased with the level of discussion and conversation, plenty of people willing to think about an unknown future rather than merely focus on the here and now.
  • dang, i think i'm gonna miss the live backchannel!
  • conversation was much more interesting than the backchannel :)
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