The Rise of Fat Venture Capital

This article delves into the changing landscape of the venture capital industry, exploring how the traditional model of VC is evolving. The author argues that we are entering a new era of "Fat Venture Capital," characterized by a shift towards greater transparency, competition, and service-oriented approaches.

Opaque Capital

The article begins by highlighting the historical opaqueness of the VC industry. It was challenging for startups to find the right investors, and VCs themselves often maintained a low profile, relying on their established networks and reputation.

• VC firms traditionally focused on building relationships through business schools and professional networks, often relying on investor referrals.
• There was a lack of transparency about investment strategies and decision-making processes, making it difficult for entrepreneurs to understand which firms were the best fit for their needs.

Drivers of Differentiation

The article outlines several factors driving the shift towards a more competitive and transparent VC environment. These include:

• Increased Seed Capital: The rise of accelerators and seed funds has made it easier for startups to access early-stage funding, fostering greater competition among VC firms.
• Lower Startup Costs: The decrease in capital requirements for starting a company has led to a surge in new VC firms entering the market, further increasing competition.
• Increased Information Availability: Entrepreneurs now have access to more resources and data about potential investors and investment terms, making it easier to evaluate their options.

The Barbell Strategy

The article discusses the "barbell strategy," a common approach among VC firms that involves focusing heavily on both seed-stage and late-stage investments while scaling back investments in earlier stages.

• Many VC firms are now involved in all stages of the investment lifecycle, leading to increased competition for the most promising deals.
• This strategy necessitates greater differentiation, as VC firms must stand out from the competition to attract high-quality startups.

Entrepreneurial Energy in VC

The author argues that the influx of new VC firms, often led by successful startup executives, is injecting a much-needed dose of entrepreneurial energy into the industry. This shift is particularly notable as the older generation of VCs, who shaped the industry's early years, are now retiring.

• This shift towards a more entrepreneurial approach is challenging the traditional, often complacent, culture within some established VC firms.
• The rise of firms like Andreessen Horowitz, with their focus on service-oriented investments and a "Hollywood talent agency" model, has further accelerated this trend.

The Unbundling of the General Partner

The article highlights the unbundling of the traditional role of the general partner (GP) in a VC firm. Services that were once bundled together with an investment are now being offered independently.

• Funding: Startups can now access capital from multiple sources, including crowdfunding platforms, in addition to traditional VC firms.
• Expertise: Advice and mentorship are no longer solely provided by the GP, but can come from a network of advisors, operating executives, and other professionals.
• Professional Network: VC firms are building robust service teams to provide support in areas like executive recruiting, technical recruiting, PR, and marketing.
• Information Sharing: VCs are increasingly using platforms and tools for communication and information sharing with their portfolio companies, providing a more streamlined approach to knowledge transfer.

Marketing to Entrepreneurs

The author proposes that VC firms should shift their marketing efforts from investor relations to a more entrepreneur-focused approach.

• This would involve adopting strategies from SaaS marketing, such as content marketing, professional events, and even paid advertising on platforms like Facebook.
• This shift is essential for attracting the best startups in a competitive market.

The Future of Venture Capital

The article concludes that the "Fat Venture Capital" model is becoming the new normal, with VC firms increasing their size, services, and competition.

• While some traditional firms will continue to thrive based on their established expertise and networks, most will need to adapt to the changing environment.
• This shift ultimately benefits entrepreneurs, as they can leverage greater transparency and competition to secure better terms and access a wider range of support.