Venture Capital in Southern California panel. From right, KPCC's Matthew DeBord, Rustic Canyon Partner's Nate Redmond, Idealab's Alex Maleki, and Ben Kuo from socalTECH.
Felix Salmon has an interesting post today about investing in people rather than companies. He introduces what he calls a "mysterious website" for company (or something) called Upstart that will provide individuals with funding in exchange for "future income."
I don't know anything about Upstart, but once Felix covers the whole "people equity" concept, he gets into some points about venture capital. For whatever reason, I find myself disagreeing with him when he talks about VC, whereas I usually agree with him about many other things. I thought he mischaracterized the VC mindset in a recent post about the Matter and Kickstarter. And I'm not sure how I feel about this argument, either:
In a world where venture capitalists increasingly invest in a startup’s management team rather than in its business model or underlying idea, [the Upstart model] makes sense. Find the entrepreneur and invest in the individual directly, thereby guaranteeing that you’ll have a stake in their success if and when they finally hit it rich on their fifth or sixth attempt.
On the one hand, it can be hard to find entrepreneurs, so if Upstart functions as an entrepreneur locator, great — although the tradeoffs, as Felix notes, could get exploitative and creepy. But on the other hand, I'm not sure that VC has undergone the transition that Felix implies: VCs have always invested in management first and foremost, even when that management consisted of a team of one, the founder and his or her vision. The business model may not even be present yet, and the underlying idea may not even really rise to the description.
In any case, business models for a lot of startups are already pretty well established, so there's really nothing to invest in there, although a business model that truly biffs it might be something that a VC would try to fix. And unless an idea is radically disruptive — probably involving some kind of complex, patented process or technology — it's probably been thought of my numerous entrepreneurs. So, nothing much to invest in there.
That leaves you with the founder and his or her team, be it small or not-so-small. That's where the investment begins — with a commitment to management, regardless of scale, from the get-go.