A new venturing model is being developed at the tail of the venture industry. It is based on innovations in venturing such as the lean start-up[1] methodology, cloud services, collaboration platforms, accelerators, crowd funding and micro venture capital platforms. These developments are the building blocks of an emerging venture economy in which start-ups, institutions as well as corporates participate. Yet, before we explore the main drivers towards the venture economy, we first have to deal with the limitations of the venturing practices of today.

I see five key challenges to make the venture economy happen. These challenges[2] are: the exclusivity of VC blockbuster model; poor performance of seed capital funds, rigid focus on the execution of the business plan; the corporate performance trap and the dna gap: corporate vs start-up.

The exclusivity of the blockbuster VC model

The blockbuster VC model is only applicable for a very small number of potentially ultra successful start-ups. For the entrepreneur this is a high-risk, though potentially high rewarding trajectory. What are the funding models for the very large group of remaining start-ups that do not fit into the blockbuster VC model?

Poor performance of seed capital funds

On average seed capital funds generate poor returns. Only a small group of top quartile performing seed capital and multi-stage VCs is attracting the most sought after start-ups. Moreover, most seed capital providers provide additional services such as business development, access to networks and talent recruitment, making the balance between effort, investment and return even worse …

Rigid focus on the execution of the business plan

In the traditional start-up model, entrepreneurs build a team to develop proprietary IP based on a business plan. Funding will be attracted based on the realisation of the milestones outlined in the business plan. The reality is that every entrepreneur knows that initial business ideas never come to life according to plan. Most entrepreneurs need to pivot their plans several times before the business gets traction. Yet, pivoting your business into new directions is difficult to explain to investors and building a business without a team is even a greater challenge.

The corporate performance trap

Imagine, that any good idea would find an entrepreneurial team with the right mix of capabilities, experience and stamina. It would certainly cause an explosion of breakthrough innovations improving our life, health and welfare. Unfortunately, most people are stuck in day filling jobs experiencing on-going performance pressure. No room is left for experimentation, not to mention venturing activities.

The dna gap: corporate vs start-up

Entrepreneurship is pivotal for the economy. As product life cycles (PLCs) are rapidly shrinking and businesses become mature sooner than ever, innovation and entrepreneurship should be in the soul of any corporation. A sharp contrast to the corporate dna focussed on planning & control and developing proprietary IP, not to mention the ‘not invented here syndrome’. Start-ups can fill in the gap and help corporates and institutions to innovate. They even might need corporates to leverage on their scale as the window of opportunity for start-ups is shrinking as well (the same shrinking PLCs ..)

 

[1] I recommend to read The Lean Start-up of Eric Ries

[2] Please note that for the sake of the argument, I have simplified the challenges