We recognized this gap in the capital for young companies a while ago when we started Tandem Entrepreneurs and I could go on about this in great detail. However I will just highlight that the gap isn't just with financial capital, it is with human capital too. Beyond the founders, there are very few who would join these startups as employees? Why wouldn't a talent entrepreneur not just do his own? The basic equation of go raise some money and then go hire people breaks down.
Moving to risk, they key driver here is that investors must take themselves out of the equation when investing.The company must make sense even if they are not involved. This makes them cautious when things are still iffy. Tandem address this problem through a co-entrepreneurship model. We invest both human and financial capital. The human capital is to find our way to clarity together. This gives a greater comfort in taking risk. We feel much more like an entrepreneur.
Of course the Tandem model is not very scalable; we can’t even do the 30-40 that YC will do. We do a handful a year and only where we know our human capital will bring an edge.
I don’t think the VC’s have much incentive to do a co-entrepreneurship model, when they can make nice salaries doing what they do. It is obvious in hindsite that the short haul model of Southwest Airlines was a good business but it was a long time before the incumbent airlines paid it heed. I wouldn;t hold my breath for the VCs to change.
Moving to risk, they key driver here is that investors must take themselves out of the equation when investing.The company must make sense even if they are not involved. This makes them cautious when things are still iffy. Tandem address this problem through a co-entrepreneurship model. We invest both human and financial capital. The human capital is to find our way to clarity together. This gives a greater comfort in taking risk. We feel much more like an entrepreneur.
Of course the Tandem model is not very scalable; we can’t even do the 30-40 that YC will do. We do a handful a year and only where we know our human capital will bring an edge.
I don’t think the VC’s have much incentive to do a co-entrepreneurship model, when they can make nice salaries doing what they do. It is obvious in hindsite that the short haul model of Southwest Airlines was a good business but it was a long time before the incumbent airlines paid it heed. I wouldn;t hold my breath for the VCs to change.