Invested

Paul Singh recently sent out one of his weekly Dashboard.io emails (highly recommended if you aren't signed up) where he talked about his recent experience co-hosting GROW - a conference for accelerators. Paul touched on an interesting point about the evolving venture "investor" model - where pressure from all sides was forcing investors to adapt a "service" model over an "access" model.

We spend a lot of time at VSL thinking about this topic in the context of more mature financial services - beyond VC including growth equity, LBOs, LP fund interests, and debt - essentially any private sector transactions (e.g. off exchange).

Our view is that a great deal of investor value has been created by a combination of four drivers:

  1. Analytical capability (I have a quantitative understanding of financial structures)
  2. Content knowledge (I specialize in [insert vertical or transaction type])
  3. Information asymmetry (I know something you don't that affects pricing/risk)
  4. Access (My ability to get something you can't) - the focus of Paul's email

There have been a lot of factors at play over the past 30 years that have dramatically shifted the investor landscape.

Traditionally investors have relied on the 1st driver, analytical capability, for returns. As the industry has matured and more people entered, this driver became commoditized. Next, investors turned to the 2nd driver, content knowledge, specializing in certain sectors, asset classes, or transaction types. The advent of modern telecommunications has caused the 3rd driver, information asymmetry, to erode. The Internet has exacerbated this erosion. The world is flatter and more people have access to the same information. This has left the 4th driver, Access, as the sole remaining competitive advantage.

Ask any serious professional investor and you'll find that the mentality has also shifted; the game is now about putting your money into the right company, meaning investors have to sell themselves as the best financing partner. Whether they realize it or not, investors are now providing a service in addition to providing the investment capital.

The past 2-3 years have seen a wave of web platforms beginning to tackle the access driver - from mainstream equity crowdfunding sites like AngelList, SeedInvest, and Funders Club to white label solutions such as Proseeder and CrowdValley. These platforms are already having a profound impact on the angel investing space and are beginning to move up the food chain to venture rounds. We expect the web to have a large impact on the way that all private sector transactions occur.

We expect this innovation to look very different in the later stage investing compared to Angel rounds - as the investment ecosystem shifts drastically from angel to venture to growth to buyout, the relative importance of each driver shifts along with it.

In subsequent posts, we'll explore some of our views on how web technologies will need to adapt as they go up the food chain to larger transaction sizes.