Silicon Valley has long prided itself for creating the “Pied Pipers” of the world but ironically enough, venture capitalists themselves have been reluctant to disrupt their own industry and the traditional 2/20 model.
But just recently, Kent Goldman, an ex First Round Capital partner, is trying something radical: he’s spreading the wealth with his founders.
It’s simple enough; all founders in his portfolio get a cut of the carry, something unheard of in VC.
I was a bit reticent when I read about his new approach so I decided to write up a list of the pro’s and con’s:
-Collaboration on a whole new level. A lot of times, founders will remain one dimensional not because they are lazy, but because they only know so much. By fusing founders with different skill sets together, you can create an environment of cool ideas.
Don’t know anything about marketing? No problem, just ask the founder who does. Need help with your coding? No worries, someones got your back.
-Everyone is in it for everyone else. The Amish people are renown for their sense of community - when everyone lends a helping hand, the entire village thrives. Upside is well on their way to creating their own little version of a Amish startup paradise.
This has one major implication: a very young startup in it’s infancy won’t have to hire as many people because all the founders can contribute to each others startups and lend a helping hand.
-Deal flow magnet. If startup founders knew they could get a piece of the action, why not take Upsides money? This model could be a great differentiator and help make a founders decision much easier.
With that said, the skeptic in me still sees some potential hiccups:
-How helpful can others founders actually be? If you throw a bunch of people into a room and ask them to assemble a rocket, chances are that the rocket scientist will be the only one who knows how to do it.
And this could be the same thing for Upside startups. With so many different types of companies doing vastly different things, you might not always get the synergy that you expected.
One founders unique skillset won’t be of much use if the other founders can’t take advantage of it.
-Conflict of interest: lets imagine a scenario where 2 different founders in Upsides portfolio (lets label them Startup A and Startup B) are helping each other out. The collaboration goes great and both companies go on to attract investors for a Series A round.
But here’s the problem: one investor (lets call him Big Wig VC), is deciding to invest in Startup A but discovers Continue reading "The Upside & Downside of This New VC Firms Strategy"