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Everything I've ever learned about venture capital is centered around the notion that in order for the economics to work, you have to invest in big winners (com

Everything I've ever learned about venture capital is centered around the notion that in order for the economics to work, you have to invest in big winners (companies that exit at valuations of hundreds of millions to billions of dollars), such as an Instagram. Do you disagree with that? And/or are you saying that there are many of those kinds of promising startups outside of Silicon Valley to justify these new investment funds? My personal opinion is that there's just too much money chasing too few good companies. In other words, I think many startups, including ones that are worth a billion or more on paper today, will ultimately fail to generate the necessary returns for many VC investors and firms. And as a result, the access to money at all stages will constrain greatly, and sharply.

adventured 9y ago
There are numerous types of venture capital approaches utilized across the US economy. The SV venture capital firms need massive homeruns because of the investing approach they use and the types of companies they invest into. It's not the other way around. They specifically back companies with zero profit, often zero potential for near-term profit, zero ability to sustain themselves, that bleed red ink in exchange for hopefully extreme growth. These VC firms intentionally avoid investing into less rapid growth, self-sustaining, profitable businesses. It's a choice, not a required direction. They want to play it big, they want to be rock stars, they want to get massively rich, they want to find the next Google. They're gold or oil prospectors, looking for the big haul; my opinion is most of them find that game addicting just as any Wall Street rock star does. Mark Cuban is fond of saying that his preferred investing time frame is forever. What he means is, he ideally wants to invest into companies that actually have a sustainable business model, generate profit, and can pay out profits. He's basically a giant angel investor or his own VC firm, and he's on record as strongly disliking the SV model. In general terms, he represents an alternative approach to Silicon Valley. You can find investors like Cuban all over the US. His particular wealth scale isn't necessary at all for what he does as an investor. Finding wealthy angel investors in Pittsburgh, or Salt Lake City, or Dallas, or Atlanta, is not particularly difficult.
- stevenj 9y ago
  I think angel investors are different than venture capitalists. The former typically make small investments, starting anywhere in the low five figures, up to seven figures, but more commonly capping out in the low to mid six figures and receiving a corresponding stake size in the companies. Venture capital often requires taking sizable stakes in companies by investing millions of dollars, in order to have a chance at producing the returns it's seeking. After thinking about it more, this Rise of the Rest fund for the Midwest, to me, is more like Y Combinator (and likely a competitor to it), in that it's essentially a giant seed fund that will then bring in its big-name investors and business magnates to make VC-like investments in the most promising companies. Instead of having a large network of former YC grads, it has a network of some of the most well-known investors and business magnates in the U.S. With that said, Steve Case is quoted in the article saying, "First and foremost, our goal was to generate top returns.”
- JBlue42 9y ago
  I agree with you and I think that's why, despite good intentions, this fund might be a little misguided. On their site they discuss how they are sticking w/ the tried and true of what they know in terms of VC investment in tech companies. You can't fault them for that since it is what they know and are used to. The issue with that in context of the geography of where they are looking is that yes, there will be talented tech workers out there and entrepreneurs (within the tech sphere) that they might stumble across. What could be more necessary in terms of stimulating economic growth is looking at non-tech entrepreneurs in this areas, or at least ones that are not some version of an internet company. There are probably a lot of folks out there that have ideas for companies, ones that might be hyperlocal or regional, that could be good, sustainable businesses but won't grow like a unicorn. Their costs might not be so much personnel but capital expenditure. They might not be sexy investments. But, if the intent is stimulate economic opportunities in 'forgotten' areas, this is the more likely scenario than finding a superstar developer in a haystack.

adventured 9y ago

There are numerous types of venture capital approaches utilized across the US economy. The SV venture capital firms need massive homeruns because of the investing approach they use and the types of companies they invest into. It's not the other way around. They specifically back companies with zero profit, often zero potential for near-term profit, zero ability to sustain themselves, that bleed red ink in exchange for hopefully extreme growth. These VC firms intentionally avoid investing into less rapid growth, self-sustaining, profitable businesses. It's a choice, not a required direction. They want to play it big, they want to be rock stars, they want to get massively rich, they want to find the next Google. They're gold or oil prospectors, looking for the big haul; my opinion is most of them find that game addicting just as any Wall Street rock star does. Mark Cuban is fond of saying that his preferred investing time frame is forever. What he means is, he ideally wants to invest into companies that actually have a sustainable business model, generate profit, and can pay out profits. He's basically a giant angel investor or his own VC firm, and he's on record as strongly disliking the SV model. In general terms, he represents an alternative approach to Silicon Valley. You can find investors like Cuban all over the US. His particular wealth scale isn't necessary at all for what he does as an investor. Finding wealthy angel investors in Pittsburgh, or Salt Lake City, or Dallas, or Atlanta, is not particularly difficult.

stevenj 9y ago
I think angel investors are different than venture capitalists. The former typically make small investments, starting anywhere in the low five figures, up to seven figures, but more commonly capping out in the low to mid six figures and receiving a corresponding stake size in the companies. Venture capital often requires taking sizable stakes in companies by investing millions of dollars, in order to have a chance at producing the returns it's seeking. After thinking about it more, this Rise of the Rest fund for the Midwest, to me, is more like Y Combinator (and likely a competitor to it), in that it's essentially a giant seed fund that will then bring in its big-name investors and business magnates to make VC-like investments in the most promising companies. Instead of having a large network of former YC grads, it has a network of some of the most well-known investors and business magnates in the U.S. With that said, Steve Case is quoted in the article saying, "First and foremost, our goal was to generate top returns.”
JBlue42 9y ago
I agree with you and I think that's why, despite good intentions, this fund might be a little misguided. On their site they discuss how they are sticking w/ the tried and true of what they know in terms of VC investment in tech companies. You can't fault them for that since it is what they know and are used to. The issue with that in context of the geography of where they are looking is that yes, there will be talented tech workers out there and entrepreneurs (within the tech sphere) that they might stumble across. What could be more necessary in terms of stimulating economic growth is looking at non-tech entrepreneurs in this areas, or at least ones that are not some version of an internet company. There are probably a lot of folks out there that have ideas for companies, ones that might be hyperlocal or regional, that could be good, sustainable businesses but won't grow like a unicorn. Their costs might not be so much personnel but capital expenditure. They might not be sexy investments. But, if the intent is stimulate economic opportunities in 'forgotten' areas, this is the more likely scenario than finding a superstar developer in a haystack.