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Is the Venture Capital Model Broken?

Lots of people are asking this question: Is the VC model broken?

It’s an important question, regardless of what you believe, because it creates debate and change. Few things ever stay the same, and the VC model is no different. And without a doubt, I believe the VC model and startup investment in general will undergo significant change in the next 5+ years. We’re just at the early stages of it. The focus shouldn’t really be on whether the venture capital model is broken, but on how venture capital is going to work in the future; because I think most people agree that change is afoot.

So what will that change look like? And beyond venture capital, how will the entire industry and approach for raising capital evolve?

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Are Strategic Investors More Important in a Downturn Economy?

First, let’s define a strategic investment. A strategic investment is one that’s made most often by a company in your industry, and in some cases a competitor. I don’t think most startups look at strategic investment opportunities – they pursue angel and VC investors first – but in a downturn economy, do strategic investors become more relevant?

A lot of venture capital money is being held onto by VCs, or being invested into their existing portfolios. Angel investors will be a bit more wary as well; they’re seeing their stock market portfolios taking a beating and will have less investment money to deploy. But strategic investors, assuming their businesses aren’t totally collapsing, may have small war chests and see opportunities to jump in and support startups.

Jason Mendelson and Mark MacLeod both provide excellent insight into the pros and cons of strategic investors. Generally Jason and Mark aren’t overly positive, and it’s easy to see why:

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About Ben Yoskovitz

I recently joined GoInstant as VP Product. GoInstant changes how we use the web, making it shareable like never before.

I'm also a Founding Partner at Year One Labs, an early stage accelerator in Montreal. Previously I founded Standout Jobs (and sold it). I'm a hands-on startup guy, helping companies grow successfully from the idea forward. You can reach me at byosko at gmail dot com.

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The opinions and commentary on this site are mine and mine alone. They do not necessarily reflect the opinions or positions of my employer, GoInstant.