The separation of advice and money

http://blog.samaltman.com/the-separation-of-advice-and-money

by sinak • 13 years ago

38 15 13 years ago

blog.samaltman.com

sinak2• 13 years ago

Is there room for an advisory-only VC that's not beholden to LPs? And if so, what would that look like?

j_baker• 13 years ago

Erm... Correct me if I'm wrong, but isn't "advisory-only VC" an oxymoron? If you're not investing capital, you're not a Venture Capital firm.

sinak2• 13 years ago

Yeah, I should have been a bit clearer on what I mean: VCs typically offer a lot more than just money. Things like their networks, advice, and positions on company boards for example. There could be quite a bit of value to companies that simply fill those roles, as an organization, similar to what individuals to as advisors.

I think that in many cases that might look quite similar to existing accelerators, except that accelerators generally target very early stage companies.

Sam discusses drops in the idea at the bottom of his post:

  The best VCs are great, and they will probably continue to 
  do well.  In fact, they’re so good that they could probably 
  get away with only selling advice—they understand how to 
  build big companies in a way that few other people in the 
  world do.

grimtrigger• 13 years ago

I believe that would be a consultant

SkyAtWork• 13 years ago

Presumably it would look a lot like an accelerator, inasmuch as most accelerators don't put in any significant amount of capital but do add a lot of experience around startup growth.

cschmidt• 13 years ago

Perhaps like a current advisory board. You gather a group of advisers, and compensate them with some equity.

spartango• 13 years ago

Sounds like a management or business consulting arrangement, except longer-term and compensated with equity.

Management consulting is a fairly large industry, but there's an open debate about how effective it is, particularly for startups.

rayiner• 13 years ago

It would look like McKinsey, except for startups.

aashaykumar92• 13 years ago

The negatives posed in this post are hardly negatives. Companies will be able to raise the money they actually need and not have to deal with shitty advisors or gain great advisors and dilute a little more. To an extent, this separation will weed out the shitty VCs, which is an ultimate win for the industry. Is my logic correct?

brandonb• 13 years ago

The other implication is that control will become unbundled from money and advice. An investor who offered money without requiring founders to give up control--board seats, rights to block acquisitions, etc.--would gain a competitive advantage when trying to get into the best startups.

Angel investors are already doing this at the seed stage. Crowdfunding will push it up to series A.

acgourley2• 13 years ago

It's clear that well tuned campaigns with 10-100k seed capital can raise $1M+ for (partially) physical products.

One big question is how that will translate to software businesses. Successful non-game software projects are few and far between. And they raise a lot less [1]. Will JOBS act equity investing change this? I think it will take 4-6 years for a few people to win big with it before there is a bubble-level rush of speculators.

[1] Annecdotal plug: we just had a subscription fitness app crowd funded, but it took a lot of work and the median pledge level is way lower than in most hardware projects: http://www.kickstarter.com/projects/acgourley/bitgym

badclient• 13 years ago

Do we know campaigns that invested 10-100K seed capital and failed?

acgourley2• 13 years ago

Other than the ubuntu phone - I don't. It's hard to find good data as the amount invested to date is not shared.

kumarski• 13 years ago

Sam,

Well written article.

Just one small typo.

"Quick and painless fundraising, without advice necessarily being part of the package, is what many founders what."

want

Reply

adammichaelc• 13 years ago

Curious where the evidence is that advice and money are becoming separate. The boards I've seen are very full of VC's, who have both invested and give plenty of advice.

Sam, if you're reading would love to hear your thoughts.

Reply

The separation of advice and money

Related Stories