Here an extract from an interview to Mark Suster about the importance to get an MBA to work for startups or venture capitalists:
If I were 27 again and working at a start-up and was considering getting an MBA, I think I’d go to my boss and ask if I could spend a year in sales, 6 months in product management or marketing and 6 months in finance. I’d keep my personal balance sheet positive and my future options open. It’s hard to start companies and take risks when you’re $150,000 in debt.
Venture capital (articolo 31). Per favore l’accesso al cosiddetto venture capital e sostenere l’avvio e la crescita di nuove imprese, si prevedono specifici incentivi a vantaggio dei sottoscrittori di «Fondi di Venture Capital» specializzati nelle fasi di avvio delle nuove imprese. Il venture capital è l’attività di investimento in capitale di rischio realizzata da operatori professionali e finalizzata a operazione di early stage o l’insieme dei finanziamenti (seed financing e start up financing) a sostegno delle imprese nei primi stadi di vita. Più in dettaglio, per favorire l’accesso al venture capital e sostenere i processi di crescita di nuove imprese tramite fondi comuni di investimento vengono esentati da imposizione i proventi derivanti dalla partecipazione ai «Fondi di Venture Capital» (Fvc), o redditi di capitale come proventi derivanti dalla gestione, nell’interesse collettivo di pluralità di soggetti, di masse patrimoniali costituite con somme di denaro e beni affidati da terzi o provenienti dai relativi investimenti. Peraltro, per i soggetti titolari di reddito d’impresa, la suddetta esenzione acquista efficacia previa autorizzazione della commissione europea. La norma individua quindi i Fondi di Venture Capital (Fvc) ai fini dell’accesso al beneficio suddetto. Si tratta di fondi comuni di investimento armonizzati UE, vale a dire fondi e società di investimento a capitale variabile (Sicav) di tipo aperto, costituiti nei paesi dell’Unione europea, che investono prevalentemente in strumenti finanziari quotati (azioni, obbligazioni, etc.), che investono almeno il 75% dei capitali raccolti in società non quotate nella fase di: sperimentazione (seed financing); costituzione (start-up financing); avvio dell’attività (early-stage financing); sviluppo del prodotto (expansion financing). Ulteriori caratteristiche che devono possedere le società destinatarie dei Fvc, sono: che non devono essere quotate; devono avere sede legale nel territorio di uno Stato membro dell’Unione Europea (o dello Spazio Economico Europeo), a condizione che abbiano con l’Italia un accordo che consenta un adeguato scambio di informazioni ai fini fiscali; e che non devono essere detenute in via prevalente da persone fisiche, sia in forma diretta che indiretta. Ma anche: che devono essere soggette all’imposta sul reddito delle società (o imposta analoga prevista dalla legislazione locale) senza possibilità di esenzione né totale né parziale; esercitare attività di impresa da non più di 36 mesi; e avere un fatturato non superiore ai 50 milioni di euro (in base all’ultimo bilancio approvato prima dell’investimento del Fvc). Toccherà invece a un decreto ad hoc del Tesoro stabilire, tra l’altro, le modalità di rendicontazione annuale dei gestori dei Fvc per rispettare le condizioni sopra vise, e le sanzioni per il mancato rispetto di tali condizioni.
There is an interesting essay from the Paul Graham, about what’s changing in the funding market and startup environment. LINK
Here some extracts:
[...]
For decades there were just those two types of investors, but now a third type has appeared halfway between them: the so-called super-angels. [1] And VCs have been provoked by their arrival into making a lot of angel-style investments themselves. So the previously sharp line between angels and VCs has become hopelessly blurred.
There used to be a no man’s land between angels and VCs. Angels would invest $20k to $50k apiece, and VCs usually a million or more. So an angel round meant a collection of angel investments that combined to maybe $200k, and a VC round meant a series A round in which a single VC fund (or occasionally two) invested $1-5 million.
[...]
The no man’s land between angels and VCs was a very inconvenient one for startups, because it coincided with the amount many wanted to raise. Most startups coming out of Demo Day wanted to raise around $400k. But it was a pain to stitch together that much out of angel investments, and most VCs weren’t interested in investments so small. That’s the fundamental reason the super-angels have appeared. They’re responding to the market.
The arrival of a new type of investor is big news for startups, because there used to be only two and they rarely competed with one another. Super-angels compete with both angels and VCs. That’s going to change the rules about how to raise money. I don’t know yet what the new rules will be, but it looks like most of the changes will be for the better.
A super-angel has some of the qualities of an angel, and some of the qualities of a VC. They’re usually individuals, like angels. In fact many of the current super-angels were initially angels of the classic type. But like VCs, they invest other people’s money. This allows them to invest larger amounts than angels: a typical super-angel investment is currently about $100k. They make investment decisions quickly, like angels. And they make a lot more investments per partner than VCs—up to 10 times as many.
The fact that super-angels invest other people’s money makes them doubly alarming to VCs. They don’t just compete for startups; they also compete for investors. What super-angels really are is a new form of fast-moving, lightweight VC fund. And those of us in the technology world know what usually happens when something comes along that can be described in terms like that. Usually it’s the replacement.
As you read everyday news about VC sector or related, you probably noticed a trend that is creating. Big tech company are creating internal venture fund to invest in startups ones more and more. Two main examples are Google Ventures and Intel Capital.
What are the pros of this strategy? In my opinion be simplyupdated to new technologies. 
This is an historical problem for big tech companies. Be updated. And probably we could understand that this could be a problem also for a company like Google the incentivate new products internally.
Anyway VC business is saturating, the amount of good startups don’t cover all the funds size and overall the returns that investors would like to receive.
[This blog post is by Ben Horowitz, the Horowitz of Andreessen Horowitz.]
At our new venture fund, we’ve been spending time looking into new ways that will make the lives of entrepreneurs seeking funding easier. To that end, we’ve linked up with Ted Wang who has been working on an open source legal project called the Series Seed documents. We’re impressed with his work and are going to use these standard funding documents as part of our seed stage investments wherever appropriate.
We have to give a big shout out to Ted: he nailed this. It’s exactly in step with our intention of letting entrepreneurs focus on building businesses in today’s environment, without having to follow old VC rules.
In a nutshell, entrepreneurs and the businesses they are starting have evolved. Start ups today don’t need to build a manufacturing plant (as DEC, the very first high-tech VC investment, did in 1957) to start a business. They need less money to build a product and prove that it works before scaling the business. Yet, the paperwork involved in funding entrepreneurs hasn’t changed to meet these needs. Series Seed is the first to establish this new way of supporting funding suited for today’s entrepreneurs – and we’re big fans.
Let us know what you think: check out the Series Seed documents, and share your thoughts.
Here’s more background on our thinking behind how entrepreneurship has changed, creating the need for these simplified funding documents. I’m speaking here from the point of view as both an angel investor and a venture capitalist, two very different kinds of investors.
Angels vs. Venture Capitalists
Why do angel investors exist?
Before answering these questions, it’s useful to ask and answer a related question: why are there angels and why have they become more prominent in the last 10 years? After all, doesn’t the definition of venture capital include all of the activities that angels perform?
The answer lies in the history of technology companies and the differences between how they were built 30 years ago and how they are built now. In the early days of technology venture capital, great firms like Arthur Rock and Kleiner Perkins funded companies like Digital Equipment Corporation (DEC) and Tandem. In those days, building the initial product required a great deal more than a high quality software team. Companies like Tandem had to manufacture their own products. As a result, getting into market with the first idea, meant, among other things, building a factory. Beyond that, almost all technology products required a direct sales force, field engineers, and professional services. A startup might easily employ 50-100 people prior to signing their first customer.
Based on these challenges, startups developed specific requirements for venture capital partners:
In order to both meet these requirements and build profitable businesses themselves, venture capitalists developed an operating model which is still broadly used today:
It turns out that building a company has changed quite a bit since the early days of venture-backed technology companies. Building a company like Twitter or Facebook is quite different from building Tandem. Specifically, the risk and cost of building the initial product is dramatically lower. I emphasize product to distinguish it from building the company. Building modern companies is not low risk or low cost: Facebook, for example, faced plenty of competitive and market risks and has raised hundreds of millions of dollars to build their business. But building the initial Facebook product cost well under $1M and did not entail hiring a head of manufacturing or building a factory.
As a result, for a modern startup, funding the initial product can be incompatible with the traditional venture capital model in the following ways:
As a result of the above, a venture capitalist usually requires a serious commitment from the entrepreneur to pursue an idea that is highly experimental. If the product doesn’t stick, it might make sense for the entrepreneur to pursue a totally different idea or drop the business altogether. This is much easier to do if you’ve raised $300,000 than if you’ve raised $3,000,000.
As entrepreneurs needed someone to bridge the gap between building the initial product and building the company, angel investors stepped up.
Angel investors are typically well-connected, wealthy individuals. They generally use their own money and come with none of the above VC constraints describe above: they don’t go on boards, they don’t need to put in lots of capital (in fact, they usually don’t want to), they prefer dead simple terms (as they often don’t have legal support), they understand the experimental nature of the idea, and they can sometimes decide in a single meeting whether or not to invest.
On the other hand, angels do not manage huge pools of capital, so entrepreneurs need to find someone else to fund the building of the company (as opposed to the product) and most angels do not plan to spend a great deal of time helping entrepreneurs build the company.
One more thing before answering the original question
Before getting back to the need for the Series Seed documents, it’s important to distinguish venture rounds and angel rounds from venture capitalists and angel investors. It’s possible for a venture capitalist to invest in an angel round and vice-versa. Sometimes this is a great idea and sometimes it’s tragic. We’ll first examine the rounds and then the investors.
When should you raise an angel round and when should you raise a VC round?
This question really comes down to the company’s development. If you are a small team building a product with the hope of “seeing if it takes” (with the implication being that you’ll try something else if it doesn’t), then you don’t need a board or a lot of money and an angel round is likely the best option. On the other hand, if you’ve developed a strong belief in your product or your product idea and you are in a race against time to take the market, then a venture round is more appropriate. You will benefit from both the extra capital and extra support that comes with a serious and large commitment from your investors.
So who is qualified to invest in each?
Obviously angels can invest in angel rounds, but what about VCs? Is it safe to have them participate? The answer turns out to be “if and only if they behave like angels.” What does it mean for a VC to behave like an angel? Well, they must:
If the VC wants to be in the angel round, but refuses to behave like an angel, then entrepreneur beware. Having a VC who behaves like a VC in the angel round can jeopardize subsequent financings.
Angels can be great participants in venture rounds, but it’s generally better to have a VC lead those deals as they have more financial and other resources required to build the company.
What does this mean about Andreessen Horowitz and the types of investments we’ll do?
As I stated above, at Andreessen Horowitz, we invest in both venture rounds and angel rounds. When we invest in angel rounds, we behave like an angel. As angel investors, we can invest as little as $50,000, we do not take board seats, and we do not require control.
Rooted in this desire to help germinate quality ideas, our support for Seed Source legal docs will allow both us as investors and the entrepreneurs we fund to focus on building a winning product rather than scrutinizing legal docs.
At the recent Y Combinator Startup School event, prominent Internet venture capital firm Sequoia Capital announced that it has been making more investments in the past 12 months than in the preceding two years.
Apparently, the firm believes that the best time to make investments is during an economic downturn, which has historically resulted in the creation of some of the most influential and successful technology companies.
Sequoia invests in companies that have very clear return on investment opportunities and which focus on monetization early.
Cheers,
Don Jones
Sep 16
I was reading this article on Sylicon Alley Insider and I was surprised by the title “Mint Acquisition Brings Internet M&A Multiples Back To Lofty Levels“. Reading, I found this words:
Intuit is buying personal-finance site Mint.com for $170 million. This represents a fairly rich acquisition price relative to current financial performance:
If our projections of about $10 million in revenue this year are accurate, that would be a 17-times multiple of revenue.
Is it 17 times multiple so high for a startup that probably is closing this year with revenues, that is not burning cash, that work in a evergreen market (banking and finance) with a free product? I don’t believe so.
It is shocking to see someone as smart as Fred Wilson say: “The venture industry is not broken, but some of the participants in it are.”
http://tinyurl.com/p2j6vb
Let’s take a look at this statement for a moment. The model of taking other people’s money and investing it into startups for 2% as a management fee and 20% as carry is not inherently broken. That’s like saying the model of selling hamburgers is broken. If everyone sold hamburgers that killed the consumers, then you could argue that selling hamburgers was broken. Similarly, the infamous “2 and 20″ model breeds widespread bad behavior and poor performance, which is essentially the same as being broken. So, how is it broken?
Well, most venture capitalists have started to optimize for management fees versus carried interest, or sharing in the profits generated. It simply makes sense to raise larger funds every two or three years so that each partner can earn $2 or $3 million a year in guaranteed fees. With exits taking longer and failures rampant, praying to generate personal returns from the carry after paying back your principle is unrealistic. Returns are too uncertain, and some funds have been unable to return the principle, forget profits. And, the math is clear: a 2% management fee over 10 years generates a little less than $50 MM in fees on a $250 MM fund. Meanwhile, a 2x return on a $250 MM fund also generates $50 MM in carry, yet the carry is a lot harder to get, takes a lot longer, and is much more uncertain than the fees.
Venture capitalists pump new fund money into the “flavor of the moment” industries at a staggering rate. The goal is to quickly empty out an existing fund to make way for raising a new fund and to start earning the management fees. Firms only earn fees on invested capital, creating an incentive to invest quickly in “hot” industries without much thought. This roulette table investment strategy, where everyone bets on an industry in a short period of time, barely worked with telecom and the internet, but it looks like an abysmal failure with Web 2.0 and cleanteach. It seems like “0″ and “00″ have come up back-to-back. There are many analogies to justify the roulette strategy, like the “rising tide floats all boats” or “safety in numbers.” You could also use the analogy: “lambs to the slaughter.”
Caring about the entrepreneur has become an afterthought, almost a myth. What firms care about is raising their next fund and returning the principle. It’s become a game. Return some principle, then raise a new fund. As a result, great entrepreneurs rarely go into venture capital anymore. It’s financial three card monte, not entrepreneurship support. Meanwhile, all of the junior associates employed in venture capital need career mobility. These business school jockeys were brought in to identify classmates as funding targets and to run complex capitalization table analysis. The next thing you know, venture firms are populated with b-school grads as partners, who, in turn, are hiring and promoting more b-school grads. Now there are a bunch of “career venture capitalists” with no idea on how to start or grow a company besides watching others from the sidelines.
If all of this were not problematic enough, the current venture capital model requires deal syndication to justify next round valuations, ensuring that many different firms work together, whether they like it or not. The problem is that behavior in a syndicate deal can only be as good as the best investor, and is likely to be just a little better than the actions of the biggest jerk. For example, if one partner in a deal is constantly trying to oust management and take over a company, it’s difficult for all of the other investors to fight this behavior. Even good investors with good intentions often take a back seat to the jerks, and they’re quick to write off a deal, while sipping cappuccinos brewed off the fat of their fees. Preferred voting rights and shareholder politics are so complex that jerks prevail.
So, Fred Wilson said that venture capitalists need to look at the entrepreneurs “as the client.” Essentially, he is saying that the model is not broken, just everyone is doing it wrong by focusing on the fees. Maybe the model encourages people to do it wrong, Fred. Wake up.
http://blog.pmarca.com/2009/07/introducing-our-new-venture-capital-firm-andreessen-horowitz.html