CategoryRevenue-based investing

Don’t go chasing unicorns [Guest post]

Venture capital should never have become the standard way for us to fund new businesses. As an asset class, it’s uniquely designed to fund disruptive innovations. It does this by funding ventures that are likely to fail, but — if successful — can result in outsized outcomes. In other words, it’s a ‘home run’ based model. For a venture capitalist, seeing 6 or 7 out of 10 portfolio companies fail...

Breaking the paradigm of startup investment

I’ve been writing and talking for years about how “California Capitalism” is the wrong answer for 99.9% of all startups.  I expect I’ll be talking about this for at least another decade, maybe two, before the investment world comes around to see what they are doing wrong. I don’t blame investors.  They are simply stuck in a paradigm, and if you go back and learn what...

You are doing it wrong… investing in startups without waiting for exit

Impact investors face a startup market that has few acquisitions, fewer IPOs, and is filled with entrepreneurs who liken selling their companies to selling out. How can investors earn a reasonable/market-rate return given these realities? This webinar will share a series of alternative investment structures used to create a return on investment without a traditional exit. More webinars at fledge...

California Capitalism

What is the story with the unicorns?  Is there a tech investment bubble?  What on earth is going in in the venture investing world? The short answer is that we’re at a crux of a paradigm.  The paradigm wrapped around investing venture capital in startups. Few people I talk to know that venture capital, as practiced today, is a fairly new concept.  People instead assume its been around...

Aligning entrepreneur and investor incentives

In the last post, I talked about how revenue-based investments are a lower cost of capital than traditional equity.  In this post, as promised, I’ll explain how they also better align the the incentives of investor with the entrepreneur. To start with, always remember to put yourselves in the other person’s shoes when raising money.  Investors invest to make a positive return on their...

A 60% discount (for entrepreneurs)

Revenue-based investments are quite uncommon in startup investing, and as such, few entrepreneurs and few investors understand their benefits. The traditional form of startup capital is equity, with investors expecting a “10x” return on their investment, i.e. they expect that the company will be acquired for a sufficient amount that the investment will earn the investor at least 10...

Investing in the Other 95% of Startups

Less than 0.4% of American startups are funded by venture capitalists. We know this thanks to the measurement and reporting of the venture capital industry and the Kauffman Foundation. 2,000 companies were reported to receive their first round of venture capital, out of a bit more than 500,000 new companies created annually. (Both of these are U.S. statistics). Investments by Angel investors are...

How Traditional Angel Investing Falls Short

A rationale for Revenue Based Investing by David Bangs, guest contributor and impact Angel investor For many years I have been doing carefully considered angel investments in companies I find interesting. Some of the invested companies have failed while others are thriving. However, none of these companies have been sold or gone public, producing the desired return on investment. I am not alone...

Investing without “Exits”

Continuing the discussion of early-stage investing, a common thought circling around the venture capital community is that their the traditional investment model is broken.  In “Investing without Zombies”, I focused on the odd choice of optimizing the system for the least likely case.  But there is a second flaw in that system as well.  Exits. Traditional equity investments are worthless until a...

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