Why Doesn't The Traditional Venture Capital Model Work For Today's Investors and Founders Anymore?

There are articles discussing "why venture capital is dead" and "why venture capital isn't dead," but these contradictory opinions don't reflect the nuance of the investment landscape. Is venture capital dead? Probably not, but the traditional VC model no longer works well for startups.

The data shows that if you were to essentially "blind build" a portfolio of 100 or more startups, you are more likely to get better returns than if you invest as a limited partner in just a few startups with a top-tier venture fund. When you add this to the fact that about 99% of the population doesn't have access to those kinds of venture fund connections, it becomes evident that the traditional VC model doesn't work anymore.

Syndication Platforms: The Solution to Replace Traditional Venture Capital

Aside from VCs, most startups seek funding from angel investors. While angels can provide significant benefits to startups, there are complicated and expensive legal hurdles that are associated with becoming an angel investor.

This is why syndication platforms are becoming so popular. With a syndicate platform, individuals can collaborate to set up and run an SPV or a micro fund without many of the expensive, time-consuming administrative requirements that often limit access to the best deals.

Syndicates offer more benefits to both investors and entrepreneurs. Investors gain a network of like-minded individuals who can help expand their networks and share allocation, and founders get a much more extensive support network of investors who are eager to be more hands-on and involved with helping the startup succeed. In this case, angel investors can become an entirely new type of VC.

The Angels-to-VCs Model Puts Real Skin in the Game, Which is Better For Everyone

One example of how well this model can work is the European fund s16vc.com. The fund has 120 founders and operators who not only provide financial backing but are also willing to take a "deep dive" into the company to offer value outside of capital.

Now, instead of only participating in syndicates, these angels have shifted to investing through early-stage funds. Still, they maintain the hands-on, "in the trenches" demeanor of the best angel investors.

From my experience as a founder, I can say for sure that we love seeing individuals at our backs rather than large, faceless institutions. I have raised funds for five of my startups, so I can confidently say that I prefer having dozens of angel investors rather than one or two huge venture funds. With an extensive network of angels, I can develop deeper relationships and potentially gain non-monetary value from each, which isn't the case with traditional VC funds.

The Future of Venture Capital is a More Personal Model

I believe the industry will see a strong global shift to democratization, with a move from institutional hands to private hands. Within the next 20 years, the most powerful transfer of hereditary capital in history is coming. A substantial part of heirs will no longer want to “keep their the family business”; rather, they will take that money and use it for investments that align with their values. 

The easiest way to do this is by funding purpose-driven startups, so we can expect to see a new wave of next-generation VCs, angels and founders as well as the tech platforms necessary to serve them.