More Than A Fund

Venture Capital's recent metrics (2005 - 2015) from National Venture Capital Association data:

  • Number of VC Firms - down 20%
  • Number of VC Funds - down 30%
  • Dollars Raised - down 6%

Fewer firms, fewer funds, less money raised. Where is this heading?

While it is fun to hear stories of $1B+ ‘unicorns’, they are wild exceptions to the rule. In fact, risk-adjusted returns to VC investors broadly over the last 20 years are not very inspirational!

We believe the key to unlocking higher ‘hit rates’ and bigger returns on investment is smarter collaboration.

Securing ‘smart money’ is one approach to addressing the issue. By finding an investor with industry knowledge and connections, you increase your probability of success. This is very useful if you can find that investor, and then convince that investor to back your venture. You are lucky if you do.

There is another way. Instead of trying to lump lots of capabilities in one entity (your potential investor), create an environment where different entities can each play to their strengths. We call this the ecosystem approach.

In addition to the industry knowledge and connections that you might seek from a ‘smart money’ investor, your venture needs many other capabilities. An ecosystem approach is far superior for blending in IT, strategy, branding, sales, marketing, distribution, etc. No one entity (not even a ‘smart money’ investor) has strengths in all of these areas.

Seems simple. It is, but it’s not easy.

The tricky bit is creating an environment where entities with different strengths will align around a shared goal.

How can we set up incentives, contracts, operating agreements and relationships to support such an environment? How do we decide with whom to partner? What process will expedite and improve our results? What culture will encourage the right behaviors?

Intrigued? Let’s collaborate to build a better formula for venture success.

Kernel – an equity firm, not an equity fund