Rise of the Micro-VC - Sean Seton-Rogers at Build 0.9
In this short and punchy talk Sean Seton-Rogers of PROFounders explains how the investment market is responding to today’s lean startups.
PROFounders Capital is based in London and currently has made 17 investments throughout Europe, including Tweetdeck and Made.com. PROFounders has an early stage focus tailored to fit closely with the lean startup way of running a business (also watch Alex Barrera’s summary of lean startups).
Sean explains that the “old school” venture model was a “staircase” – three discontinuous stages of funding from the initial “friends, family and fools” pool, to the Series A/B/C funders, to the late stage private or initial public offering. This model worked fine for companies that needed several stages of investment, and that could demonstrate traction at each stage. But, says Sean, the lean startup has blown that model out of the water.
Products are now built with small, tight teams. Marketing can be achieved through social media platforms and pay per click advertising. Cloud computing, open source software and powerful platforms like Facebook and Twitter now mean that a company can launch with one tenth of the “old school” level of investment.
The arc of a lean startup is very different from the stage-by-stage growth of a traditional startup. It can be relatively cheap to prove initial traction, and revenue starts coming in early, but there is a sudden steep acceleration in the need for investment around the time that the company matures into a large organisation. The old three stage investment model doesn’t work anymore.
But, Sean explains, the investment market is responding, with super angels and micro VCs taking on a lot of the initial traction stage investment. Venture capital needs to adapt to the lean startup model as lean companies make it hard to put large funds to work. Lean startups have the potential to be more volatile than their traditional counterparts, so investors need to be active and engaged with the iteration to market: both as a source of support, and in order to pick up the early warning signs of a potential problem.
Micro VCs and super angels are good news for entrepreneurs, who can dilute their investment to a far lesser degree than with a traditional investor. The appetite for this model on the part of entrepreneurs is evident in the number of micro VCs (or roughly equivalent model) in the marketplace, with HackFwd and PROFounders being two of the investor organisations that are responding to the market situation and demand in Europe.
Sean is driven to see these companies go for the long haul. For the cycle of growth and investment to continue, some of these startups are going to need to become Google-, Microsoft- and Facebook-size successes. “You have to dream big,” he says. “We still want to create amazing companies that help fuel the ecosystem and create world class companies out of Europe.”
Watch the video to find out how micro VCs and Super Angels can fulfil the needs of lean startups, now and in the future. And head to Passion Meets Momentum to watch more videos for startup founders. If you want to come and pitch to HackFwd - and also get to watch the next awesome speakers live - apply to Pitch in Berlin by May 11th!
