On April 30, 2019, I was a speaker at the Global Capital Summit put on by F50 at Stanford University, which focused on the changing nature of venture capital. Here is my slide deck.
This engaging article from The New Yorker is a technology variation on Six Degrees of Kevin Bacon.
Interesting article about the expanding usage in the 1990s of the term “business model”. http://qz.com/71489/until-the-nineties-business-models-werent-a-thing/
My theory is that the phrase became popular as the availability of venture capital grew, and, those responsible for investing it sought to filter deal flow.
Through the 1980’s, “strategy” was used to describe business activity and the deployment of assets. However, the blossoming of all-things-electronic—computer and consumer electronics—demonstrated that conditions were ripe for brand new businesses. “Model” is a lighter word; it can be articulated before committing to activity and assets.
As the supply of potential deals expanded, and, the fleeting nature of success in the nascent technology sector was repeatedly demonstrated, VCs needed two things. Theories about the kinds of businesses that were likely to find success, and, a quick way to test theories as they shift through deals.
Hence, there were “elevator pitches” about how to find success in rapidly changing markets. Untested business strategies were better described as models.
In Hollywood, studios are pitched “high concept” and, when one bites, “it’s a movie”.
In Silicon Valley, business model became the equivalent of the high concept; appealing models produced funded companies.
Here is an interesting article on how the JOBS Act will affect the distribution of stock.
I’d like to see another one be written about how these emerging channels (i.e., CrowdClear, Early Shares, CircleUp, Angell List, etc.), which widen access by accredited investors access to private offerings, will approach the matter of valuation.
Will these broker-dealers consider whether the issuer’s valuation is “reasonable” when deciding to sell shares? If so, what factors will be considered?
Whether they do or don’t, it is likely that similar companies will be presented to investors with dissimilar valuations and other terms. In other words, greater access to capital will make it likely that an issuer that crowdfunds its capital will followed by competitors who also use crowdfunding.
For example, say the first company to crowdfund in a particular space do so by giving itself a valuation of, $30 million. Because the space is growing and competitive, another company decides to do the same thing. Although its at a similar phase of development, it claims attributes that make it more likely than the first company to generate revenue faster and more profitably. Does it assign itself a valuation higher than $30 million?
What about additional competitors? Might an addtional competitor decide to raise twice the amount the other two do but at a lower valuation?
One thing seems certain–the JOBS Act will leads to more companies raising capital from a much wider pool of investors than before.
It follows that Wild West style variability in valuation and terms will increase as a result. That’s because of (a) the difficulty of establishing a fair valuation for an early-stage company and (b) the challenge of finding “comps”.
Issuers that adopt the Fairshare Model will compete by offering accredited investors and, if its a public offering, small investors, a low valuation and superior investor protections.
In additon to being able offer stock options on Investor Stock, they will be able to offer an interest in their Performance Stock pool. Since Performance Stock only becomes valuable when the team performs, these companies will be better equiped to compete because they will have an advantage in recruiting and managing talent.
Steve Perlstein at the Washington Post has an interesting essay
Is capitalism moral?
There are a LOT of comments!
I posted one too, on March 21. If you can find it, and like it, “Recommend It”. 🙂
Zach Noorani has an interesting post
Crowdfunding boosters are not happy with Steve Rattner
Steve Rattner has posted a blog entry critical of the JOBS Act.
I agree with with concerns about investor exposure–using a conventional capital structure. The Fairshare Model could address several of them.
If you agree, please “Recommend” the Reader Comment I made to promote this site.
Two main themes are in the comments thus far. The most popular are angry about the way capitalism works now–need more regulation sentiment. Another, less dominant, but significant, questions the extent to which public policy should try to protect investors from making mistakes. For example, there are comments that contrast government concern about investments with government acceptance of casinos and lotteries.