A Literacy of the Imagination

a deeper look at innovation through the lenses of media, technology, venture investment and hyperculture

Filtering by Category: venture funding

A New Venture Model: '5 and 15'

A couple of buddies of mine (Mike McCracken and Miles Gerson) and I are exploring a new kind of funding model that disrupts the traditional '2 and 20' model. Here are a few main reasons why we've been compelled to do this:

- VCs tend to invest way later stage and are good at sourcing and structuring, but tend to struggle with (or ignore) operational efficiencies. We've known this for a while, but things have come to a head given that a lot of early stage companies that are in revenue are also lacking support in their critical growth stages. Many of these same companies are coming to us for that support, along with help in raising strategic capital.

- Incubators and accelerators have done a great job of helping get startups off the ground, but have significant challenges of scale. At K5, we've been exploring ways to partner better and network the investments for startups we take to the seed through A series raises.

- Corporate venture arms are exploding; I've mentioned P&G-backed Cintrifuse in other posts (a fund of funds model that Mike helped develop through Ernst & Young), but there are many others coming onto the scene, such as this new $100mm fund from Siemens. That said, many of the corporate venture groups we've talked to still lack visibility to new startups 'on the ground' and also have challenges with vetting them. As important, we've seen and heard about lots of acquisitions and early exits go south because of poor integration with corporate business units or as units managing their own operations and P&Ls.

- Family funds are also changing face; some of the family offices we've spoken with are pivoting towards more operational roles inside of their portfolios; much of this has to do with a need for investment transparency and stronger vetting processes.

- On the capital front, crowdfunding is and will continue to transform the business landscape, and the equity crowdfunding space, specifically, is very interesting in terms of accredited investment. We'd like to develop ways to hybridize capital and equity requirements so as to make funding scenarios more flexible and extensible.

So the central idea here is that we can provide operational value to early stage companies. Mike has deep experience running companies and financing them (with UGO entertainment, for example, he raised 13 rounds of funding before they exited), while I have a lot of experience building platforms, developing products and taking them to market, and I've done this both on the corporate side and at the startup level. Miles has solid experience managing a fund, vetting and structuring deals, and has been building up his network on the corporate venture side.

The funding structure itself is still nascent and frankly a little messy, but the notion of '5 and 15' (5% management fees and 15% carry) rests on the premise that we can generate fees from active management of the companies in which we invest. Some VCs we've spoken to have actually said that the trend is dipping below a 2% management fee, but with the caveat that the LP (limited partnership) model is still in place.

I'll share more as we progress with this...

Socially Conscious Investing, Work & World-Building

Happy New Year! 2014 has already proven to be quite fruitful and full of new roads for discovery.

As a follow-up piece to previous posts on conscious capital, co-op investments and discovering value in the age of bitcoin, I thought I would share a video of my talk in Grasse from October. Some of the corporate examples of sustainable innovation you're probably familiar with, but it goes a bit more into how these kinds of efforts can scale in a global marketplace. Many companies are still hesitant to invest in sustainability efforts, and I believe that's because disciplines like CSR are more about good branding than good business models. But that's all changing.

The real emphasis is on how people can transcend their roles and responsibilities at work and in everyday life to become progenitors of change. This has been the core philosophy behind the innovation experiments we've been running around the globe, and it involves much more than good technology and fancy methodologies (although those elements are, of course, important).

In this case -- enabling executive stakeholders in the cosmetics industry to imagine a different world through their products -- we were able to spend four days developing creative muscles, nurturing personal and group awareness, as well as running through role-playing scenarios. The participants literally built worlds or ecosystems that reflected ecological and emotional connections to their companies, and the economy itself. One CEO even remarked that in doing so, she envisioned a new world without economic bubbles.

(*sidenote* we're editing a documentary film of the whole experience which we plan to distribute in Q3...)

Related to 'anti-bubble' economics and scale, Marc Andreessen was featured in an insightful piece in the Wall Street Journal a few days ago. That said, I thought the interview with him below is a terrific view into the immediate future (what I call the 'Future Now'). In particular, it's interesting to hear his thoughts on globalization and how value is created in competitive markets through an entrepreneurial mindset. I wish that he and other innovative investors would address more of the 'human problems' we face (Mr. Andreessen does touch upon on it in spots), but their intentions seem to be headed towards more of a socially conscious approach to investing, alongside of building sustainable companies and economies.

As I've mentioned in other posts, the concept of work is completely transforming, and not just as a by-product of repatriation, disintermediation and other production or transactional efficiencies (which are becoming more and more obvious). Passion and empathy are co-opting 'work' as a cultural edict and a form of social responsibility that embrace the complexities of human discourse. People want to change the world -- they need to, and they're figuring out how to make it happen for themselves and their communities.

And what a wonderful thing that is to see.

 

The Power of the Co-Op Investment Model

Following up on earlier posts regarding brand economics and ecosystemic investment, it's been interesting to witness (and advise on) some shifts in the startup investment landscape.

One such shift involves what can be coined as 'co-op investment'.

The basic premise of a co-op is to provide a structure that aligns various resources, operators and assets such that the investment itself has shared value. So, in the case of a corporation subsidizing a co-op investment, you would have entrepreneurs, marketers, researchers, lawyers and supply chain folks inhabiting the same space, sharing resources and making sure that their collective efforts produced demonstrable results.

Co-Op Investment.png

This has been the case with P&G's Cintrifuse project in Cincinnati. What started more or less as a $60mm write-down a little over a year ago, has blossomed into an ecosystem of 23 upstart companies and a funding mechanism that pairs up strategic partners with smart money, smart resources and tons of possibility for scale (a new form of a fund-of-funds).

A friend who is close to the project and I are developing ways to expand on the model, to see how this might scale in other markets around the country -- the idea being that we can develop new civic infrastructures, create new jobs and right some of our inherent social ills such as income inequality, poor education and skills development, as well as urban decay.

More to come as this model evolves...