It is interesting that a16z is making a public announcement following the angelist syndicates announcement a few days back. The initial sentiment with the angellist event was that it will drive down VC fees, angels and founders will be king and take more control etc. However, a16z and by proxy (I suppose) silicon valley VC community is making a public announcement that they will not be funding series A anymore. It could be lead to some interesting outcomes.
1. Via Angellist syndicates it will be easier to raise up to $1 Million (maybe half). So you will have a bunch of companies that get funded via this super series/seed/angel model.
2. Then they will hit a roadblock, they will not get any $10-$20 Million to fund growth or get a true product/market fit.
3. The vast majority of the companies from step 1. will be wiped out because even if they have a hint of product/market fit, they will not get funding.
4. The tiny minority from step 1. that can get funding for Series B. in the range of $50Million or more will wipe out all other startup in the category and capture all the gains. This in turn means a16z and the likes will be able to extract a lot more stake out of the angels and the founders.
Net net, won’t be surprising if angellist and other crowd funders end up losers in the process and returns go to a16z and their compatriot VC’s.
Love VC double speak in the article. You know how politicians talk, when they have to pass some unpopular law they invoke the common man and the small business owner. Scott Weiss from a16z is a standup guy. Always fighting for the engineer founder. Fucking those MBA types since the beginning. Please elect him to be your VC. If AirBnB showed up at a16z do you think he would turn them down (non-engineering, MBA type company). Yeah, didn’t think so :-)
Just to be clear we didn't publicly announce that we are not doing Series A investments anymore. They remain the bread and butter of what we do. Scott was making a more nuanced point about a difference between how we look at consumer vs enterprise companies right now, and our relative preference for enterprise A's and consumer B's.
Re AirBNB, (a) we are an investor in AirBNB, and (b) the founders are extremely sharp product people and technically very deep. The CEO is a designer by background, like Ben Silbermann at Pinterest, another investment of ours. Both are hypercompetent product people with deep technical chops.
I don't think your numbers will work out. It is going to be very difficult to raise $5M on AL. Here is an example of someone who raised $250K. He needed 35 backers. This is during the heady starting days. At an average investment of $10K to $20K you will need 500 investors to get to $5M. How will this work with so many investors? My guess is you will get to $1Million, tops and stop. I doubt you can show market fit with $1Million.
Crave is showing lots of fit - market or otherwise.
With AL syndicates, getting to $5M for a hot startup on AL will be a cake walk. All you need is for a few of the top syndicators to get excited about you and you're at serious money. In fact, some of them are actively contemplating that possibility: see http://www.linkedin.com/today/post/article/20130928204536-24...
> and by proxy (I suppose) silicon valley VC community
I don't think it proxies that well. As the article points out, a16z raised a $1.5 billion fund, some top-tier firms might come close, but most of the mid- and bottom-tier VCs operate with the fund sizes in double-digit millions.
Also, for a highly contested B round, A round participants or brand-name VCs will get preference over a generic nondescript firm with a Sand Hill Road address.
Somebody from YC might correct me on this, but I think a16z's participation in automatic round upon admittance to YC comes with drag-along rights, which they can choose to exercise at either A or B rounds. So they don't have as much of a problem of missing on quality dealflow that others will miss on if they choose to skip A rounds.
I'm actually not even sure (without checking) if we have any drag-along rights from the YC Start Fund investments. If so, I don't think we have ever claimed them. We would never force a company to take our money if they didn't want to even if we had the legal right.