Four Silicon Valley VCs on the Changing Tides of Venture Capital

Between the number of new venture capital firms, accelerators and incubators and the changing dynamic between firms and startups, venture capital isn’t what it used to be.

That was the message delivered by a panel of venture capital partners Thursdayat GROW Conference in downtown Vancouver. Paul Singh of 500 Startups moderated the discussion, which included US Venture Partners’ Dafina Toncheva, Greycroft’s Dana Settle and First Round Capital’s Rob Hayes.

Toncheva kicked off the discussion with a blunt assertion, that venture capital “basically sucked,” for the past ten years. As funds underperformed and institutional investors grew tired, change seemed inevitable in the mid 2000s.  

The cost of building a startup fell so dramatically and so to did sizes of venture capital firms. Eventually, $5 million and $20 million funds were being looked at as the legitimate players that they are today. “There’s a lot of things that are going on and it puts pressure on the venture community to redefine itself and think about how to stay relevant, how to continuously respond to the competitive pressures,” said Toncheva. “And at the same time to partner with the entrepreneurs and deliver the value that is expected.”

Hayes asserted that the days of the venture capitalist sitting in a few board meetings and simply strategizing, are simply gone. Now, fundraising is significantly easier for startups. The entrepreneurs hold more bargaining power. Singh added that while previously the venture capitalist acted as a gatekeeper, founders are now demanding more.

“Moneys fundable. Everybody’s money is green,” said Hayes. “You can’t just sit back and say, ‘well I’ve got the money.’ To get involved with the companies that are going to be the best companies, it’s extremely competitive. The very best founders are saying, ‘what can you do for me?’ ‘How can you help me grow this company?’ ‘I actually want to partner with someone who’s going to help me grow.’” 

Singh even went as far to say that as venture capitalists, “we kind of sit in the same boat as founders,” referencing how today’s firms must answer the requests of both founders and limited partners. It was Hayes and his partners at First Round Capital, Singh pointed out, that had spent over $1 million building an eight-person team that builds tools and resources to make life easier for the portfolio companies. Ten years ago, this surely didn’t exist.

“If you’re a founder starting a company, you’re dealing with 20 different things every day and if we can help take two or three of those things off their plate that’s great. One of the ways we can do that is connecting them with other people,” said Hayes.

Early on in the discussion Settle explained how Greycroft was founded because the partners saw in 2006 that the venture capital market was “fundamentally broken.” It goes back to the 1990s, said Settle, when way too much capital came into the market, compared to the opportunities. As a result the venture model was to adapt to all funds that entered the market, instead of a model that “organically evolved relative to what was going on in the technology market.”

“Now I think we’re actually back to a point where its kind of normal, where probably the rate or the amount of money is getting close to the right amount of money in the venture market,” she said.

Greycroft started as a $75 million fund for digital media companies seven years ago. Settle said they invested in companies that needed less than $10 million to go cash flow positive and less than $1 million to generate revenues.

By today’s cost of starting up this kind of money seems like a king’s ransom. But at the time, when several firms possessed funds in the hundreds of millions, it was considered a break through. “There was the innovation along with going back to the venture model of syndicating 100% of the time and bringing lots of great people together to help startups.”