The most recent discussions were prompted, in part, by Y Combinator's AngelConf, held on Thursday. Billed as a "how-to" for prospective angels, the event featured a number of prominent investors as speakers, including Paul Graham, Ron Conway, and Mike Arrington. You can watch the archives at Justin.tv.
Conway's assertion that any "entrepreneur who has the guts to start a company should be funded" was an optimistic opening salvo for the day. But Arrington might have walked away with the "most quotable" award for the day, with his contention that VCs fear angel investors are training a generation of entrepreneurs who are "building dipshit companies" to sell to Google for $25 million.
But one good expletive deserves another, and on Friday, Dave McClure laid out his investment thesis: "MoneyBall for Startups: Invest BEFORE Product/Market Fit, Double-Down AFTER."
Tech Investment: A Thesis
McClure analyzes the changing landscape for tech startups, arguing that it's much cheaper to start a company, develop a product and win customers. "Invest BEFORE product/market fit, measure/test to see if the team is finding it, and if so, then exercise your pro-rata follow-on investment opportunity AFTER they have achieved product/market fit. It's sort of like counting cards at the blackjack table while betting low, then when you're more than halfway thru the deck and you see it's loaded with face cards & ten, then you start increasing your betting & doubling-down."
McClure believes that the VC investment model hasn't been responsive to this shift nor can it be responsive to the innovation and agility of tech startups, in part because they simply do not understand the market. "Hurry up & die already, u friggin' pathetic dinosaurs," says McClure (in multicolored caps-locks). McClure's investment thesis serves as an accompaniment to his investment fund 500 Startups, whose website launched yesterday.
Tech Investment: History & Analysis
While the Y Combinator event and McClure's announcement has sparked some good discussion about investment opportunities and practices, we've seen a number of solid analyses throughout the entire month. Weighing in earlier this month, for example, were Mark Suster with his post, "What's Really Going on in the VC Industry? What Does It Mean for Startups?" and Steve Blank with his post, titled "Welcome to the Lost Decade (for Entrepreneurs, IPOs, and VCs).
If you want to get a handle on what some of the thought-leaders in the investment community are saying, all these posts are well-worth reading in their entirety.
Photo credits: Flickr user zzzack