The Separation of Capital and Advice

Traditionally, venture capital and advice have been a packaged deal. Founders seeking funding also received guidance and mentorship from venture capitalists (VCs). However, this model is changing with the rise of crowdfunding platforms.

• Founders can now raise capital directly from investors, often without needing traditional VCs.
• This allows founders to choose their own advisors, not just those who happen to manage institutional money.

The Advantages of Separated Capital and Advice

The separation of capital and advice offers several advantages for founders.

• Founders may experience less dilution of their equity.
• They have the freedom to choose the advisors they want, based on expertise, not just investment capital.
• Increased competition among investors leads to better terms and greater transparency.

The Disadvantages of Separated Capital and Advice

While beneficial, this new model also has its downsides.

• Advisors may be less motivated to work hard for companies they haven't invested in heavily.
• The separation could exacerbate founders' disrespect for the value of capital.
• It may lead to increased risk and potential for investors to lose money, with startup investing becoming more like day trading.

The Impact of Crowdfunding on the Capital Landscape

Crowdfunding is a major catalyst for this shift in the venture capital landscape.

• Founders can raise funds quickly and efficiently, without needing traditional VCs.
• Crowdfunding allows founders to reach a broader range of investors, including those who may not be traditional venture capitalists.
• The crowd is often willing to invest in companies that VCs might not consider, at higher valuations and on clearer terms.

The Future of Venture Capital and Advice

The long-term trend is towards founders having greater leverage than investors.

• Startups now require less capital to get started, making crowdfunding more viable.
• The increasing popularity of startups attracts a wider pool of investors, further empowering founders.
• Top-tier VCs may adapt by focusing on providing advice, leveraging their expertise in building successful companies.
• Less successful VCs will need to evolve or face extinction as the market shifts.

The Role of Advisors in the New Landscape

While the separation of capital and advice is becoming more common, advisors still play a crucial role.

• Advisors may still invest in startups, but at a more favorable price point.
• However, the demand for advisory services could lead to a challenge, as many individuals believe themselves to be great advisors.

Conclusion

The changing dynamics of venture capital and advice create both opportunities and challenges. Founders now have more control over their funding and advisors, but navigating this new landscape requires careful consideration of the potential risks and rewards.