Responding to a popular request, we are now sharing transcripts of our investor podcast interviews in this new series. The following interview with Bryce Roberts was recorded in August 2016.
Bryce Roberts, Managing Director, O’Reilly AlphaTech Ventures (OATV), and Founder, Indie.vc, discusses the issues with the venture capital financing model, and explored alternatives.
Sramana Mitra: You have a very different point of view about venture capital than the traditional VC point of view. Tell us what your philosophy is.
Bryce Roberts: It has evolved over 15 years of being involved with the business. I had a chance to get into venture shortly after the dot-com bust. I watched the triaging that was happening within a venture fund. Four years later, I had the opportunity to start my own and help shape this seed investing gap that we saw in the market. We had a few objective for seed investing. Some of those have happened, but a bunch of those haven’t.
Part of the opportunity with seed investing when we started it was that it should make resources for venture-backed entrepreneurs widely available. It should also celebrate a bunch of different paths for success given that professional seed investing was engineered around a certain size of fund and certain type of outcome. That was over 10 years.
Now the seed landscape has changed quite a bit. The changes that we are trying to affect involve taking a lot of those things we’ve learned and revisiting some of those first principles of seed investing. Traditional billion-dollar unicorn path works for a certain subset of companies, but even as you look at the broader pool of companies that raise from traditional venture, the vast majority of them are failures.
Part of our belief is that a lot of those failures could have been averted. Entrepreneurs should have other options besides having to convince investors and building their business in hyper growth mode. We tend to go back and affect some change there.
Sramana Mitra: You must have read the article that I wrote recently titled, “Beware of the Twilight Zone of Venture-Funded Startups.” Entrepreneurs raise money with the expectation of hyper growth. Then they cannot deliver on hyper growth and get stuck in this mode where they are venture funded. They’re not growing that fast but they’re delivering reasonable revenues.
At some level, they’re successful businesses. It’s just that their cap table and financing structure does not fit the expectations of their backers. Hence, they become failures. Without that kind of venture capital investment, they could be successful. That’s one of the things that I see as a problem with the venture model.
Bryce Roberts: It’s probably not a problem with the venture model. It’s the model. The problem comes with entrepreneurs only seeing venture as the path for them and having to be so aspirational that they’re willing to contort themselves to fit the model. Most entrepreneurs recognize that their business may not be a billion-dollar company but they have to put that on the front to be able to get that attention.
You used the world reasonable growth. Venture is a very unreasonable business. Venture doesn’t work in a reasonable market. We require irrationality. Too few entrepreneurs and too few options exist that recognize that, celebrate that, and support those kinds of companies. Part of the dissonance between the traditional venture model and what we’re doing within the VC, it’s just recognizing that venture really serves a valuable purpose in the overall startup landscape. It doesn’t suit everyone’s needs.