"There is no such thing as a B round." That's quite an emphatic, and almost frightening, statement made by Nat Goldhaber, managing director at Claremont Creek Ventures, who is currently on the boards of Adura Technologies, cFares, and TargetCast Networks.
"There are only A rounds and C rounds," he added. Goldhaber was speaking on a panel titled "How to Beat Kleiner and Sequoia after the apocalypse" at the AlwaysOn Venture Summit this week. Other panelists included Clint Chao, General Partner at Formative Ventures and Rob Hayes, Partner at First Round Capital. Steward Alsop, co-founder of Alsop Louie Partners was the affable moderator.
Not surprisingly, it was a sobering, yet practical discussion about the tightening of the VC purse strings, and the implications on fundraising.
"I define a C round as a round that's put into a comany that already has proven their product in the marketplace; that has sales; and is seeing either observably or [have a] really good argument that the hockey stick is beginning. That's where you're going to find more money from other venture capital funds."
The consequence of this missing round is that venture funds that do invest in the A round need to have sufficient enough funds to take care of the company until it gets to the C round, he said. With the A-round funds, a startup must be able to develop the product, begin the sales process and demonstrate dramatic upward growth.
In other words: "Get enough in the A round to make it all the way through to profitability."
(For more from the conference, look at posts below)
Make me laugh..."there are no B rounds, get enough money in your A round, companies must be profitable on their A rounds". Translation: we've done so poorly separating viable from unviable in VC investing that we need the entrepreneur to remove more risk from the investment, do it faster, and make sure the VC maintains his "A+B" share of the company.
Sure, it's silly how much money most startups take to get to initial revenue. The truckloads of VC money dumped into startups over the last 15 years literally drowns the company, encouraging undisciplined management and "8 sticks on plates" approaches to market opportunity - as if the Monte Carlo simulation approach to an opportunity somehow reduces risk of commercial traction...
However, the reality is that, over the last decade, venture capital investing has morphed into mutual fund management. Darwin has now arrived on the scene, VCs with significant operational backgrounds in their areas of investment will survive, all others will move to compete with boutique private equity in a "more secondary positions/lower multiples RoI" model.
Which is great, actually. We're headed back to the 70s and 80s, where experienced technologists, marketeers and manufacturing people rolled up their sleeves in hands-on early-stage investing. Venture capital will actually start "adding value" again.
It's about time.