Venture Capital

Any shift in power from founder to investor will be short lived

By December 8, 2015 No Comments

I just read a re/code post which kicked off with the following sentence:

Investors are growing more conservative as valuations are cooling down, and the balance of power between entrepreneurs and VCs may be shifting back toward the money men.

This is a fair observation of what’s going on. When the heat comes out of the market some investors lose their nerve and valuations drop. I had lunch with a UK based Series B investor recently who told me that in the first half of this year his fund was refusing to invest at the high valuations asked by many companies, but that he is busy now because some of those same companies are back now asking for 40-50% less. In this environment the balance of power inevitably shifts a bit from founder to investor.

However, whilst the correction in price might be permanent, the shift in balance of power will only be temporary.

Almost by definition an investor’s strongest card is that they have capital. The bad news for investors is that card is getting weaker. The long term trends of increasing capital efficiency and commoditisation of capital are simultaneously reducing the amount of capital founders need and making it easier to get.

That’s why our strategy is to look beyond the money we invest to be as helpful as possible in every other way we can, and why we’ve invested in a very substantial team to execute that strategy.