Micro VCs Are Coming | Hacker News Reader

Micro VCs Are Coming

mattermark.com

72 pointszbravo42 comments

How is this different from VCs who focus on seed stage? There are a number of such funds out there and some have been very very successful, I don't understand this "Micro VCs are coming" thing if the definition is really just "VCs who focus on Seed stage" because they've been here for a while.

Well, coming up with a cool new name creates new opportunities for quasi-viral articles. But officially, it's about the size of the fund, and the increasing number of funds in that size range.

I think what the article implies is a growth in numbers and in penetration of "finance" circles.

Angel investors, seed funds and accelerators are one thing - they are an element of the start-up eco-system. Until quite recently this was a very small niche, and VC has existed for at least 2-3x as long. (And that's just how we now know it, funding for risky ventures is centuries, if not millennia old)

The article describes an independent "Micro VC" fund with partners and LPs, but another type would be small corporate funds. I worked at Bloomberg Ventures when it was just starting to figure itself out (now known as Bloomberg Beta) - perfect example of a relatively "small", corporate-backed entity that you could also describe as a "Micro VC".

And it's the emergence of these funds, this article highlighting the non-corporate funded ones, that is a noteworthy phenomenon.

Perhaps it's because 99% of VCs I've talked to who claim (on their website, in person, or otherwise) to focus on the seed stage or early stage, change their mind when you actually go pitch to them. Like asking about users, traction, and so on. If I had those already, I would by definition not be early stage.

True early stage investors focus on technology, team, demos, prototypes, and so on. Probably team more than anything else.

This. I have given up on talking to "seed stage" VCs a while ago. Apparently their definition of "early stage" is different than mine - it is a total waste of time.

Your definition of "true early stage investors" seems to favor those who would shut out anyone without connections or Ivy-league pedigrees. Maybe investors have found that traction is more important than the founder's biography blurbs. Seems like it's totally reasonable for a company to be in an early stage and have actual users. For those without a golden ticket, this may be the only way to attract investment, since they can't rely on the investor's definition of "team" as a criteria.

Sure, traction is an excellent indicator of a company's potential to succeed. I don't dispute that. And I respect you if you are in investor who is looking for companies with traction. However, in this case though, please don't call yourself "early stage". This wastes everyones' time. You get people pitching to you that don't meet your baseline criteria. Those people waste time with you instead of other truly early-stage investors who are actually likely to open their wallets and throw a few bucks at a couple founders so they can quit their day job and get working on their idea.

Incidentally, I think applying for YC is one of the best ways for those without connections / pedigree. The nature of the application process is such that partners and YC alum reviewers usually look most closely at what the team has actually done, not merely what school they went to or what fancy startups the founders have worked at.

(I no longer work at YC, so I'm just speaking to my time working with 10 batches there.)

> True early stage investors focus on technology, team, demos, prototypes, and so on. Probably team more than anything else.

I don't think that's true anymore, if you want to get the best valuation/terms for your company you can't go into a meeting with a potential seed/early stage investor without showing some kind of traction.

The bar has been set higher for startups, that is why there is this downward movement in the VC food chain to focus on early stage deals, they are seeing companies with traction and revenue, so they want in earlier before it's too late.

Sure you might be able to raise money just based off of technology, team, demos, prototypes, and so on, but as Jason Calacanis puts it, it's just table stakes: http://calacanis.com/2015/11/02/dont-bring-a-knife-to-a-gun-...

They want series A numbers at a seed-stage price.

startups in pre-seed are like poor underfed people. micro VCs are like nice people who invite you for Saturday lunch, bath and change of clothes. They did not change your life but on Sunday you might look good enough to raise from a bigger VC.

I was hoping the whole "accredited investor" requirement was going away.

SEC has been sitting on it's ass on that for 3 years, but it looks like mid-2016 things will kick in (assuming nothing changes) http://www.sec.gov/news/pressrelease/2015-249.html 180 days after Jan 29 2016

Edit: Not sure how wide spread this is, but some states have rules for smaller investors, such as Oregon http://www.dfcs.oregon.gov/securities/faq_crowdfunding.html

That would be an absolute unmitigated disaster. VCs with ample resources capable of doing thorough due diligence still manage to get hoodwinked by frauds and con artists. I shudder to think about how many more UBeams will come out of the woodwork to scam my grandmother out of her retirement savings should those requirements be lifted.

You don't think people should have the freedom to invest their money in whatever they want to? Or is that a privilege that only wealthy people should enjoy?

The reality is that it is impossible for everyone to be an expert in everything. At some point, certain fields, medicine and finance for example, become so complex that it is impossible for a lay-person to make an informed decision. Historically, when lay-people are given the freedom to "use their money however they want" within these fields, hucksters and frauds have quite successfully conned them because it is impossible for a lay-person to tell the difference between a legitimate opportunity and a scam; they don't have the expertise, experience, and even the time to perform the due-diligence needed to make an informed decision. While these regulations are certainly a blunt instrument, and they do prevent a very small segment of the lay-population who could make an informed decision from doing so, the alternative is far worse.

Having money doesn't automatically make someone an expert in all of those fields, either, but that seems to be the only actual requirement to become "accredited".

It doesn't make them an expert, but it does reduce the likelihood that the losses they take on a given investment are likely to impact their retirement.

This poster is right, people are not qualified to use their money freely. Their freedom must be restricted because of our beliefs.

Taken as whole, this explanation doesn't make complete sense.

States routinely run opportunities/scams that target the "lay population". Why don't these regulations address actual harm, rather than hypothetical harm?

I think they did address actual harm. It is only hypothetical now because it has already been addressed. States do routinely "run opportunities/scams" that also likely do actual harm (assuming you're referring to lotteries here). They probably shouldn't do that. But that they do doesn't suggest that they have just given up all their justification to prevent other harm through regulation.

Only the rich are allowed to get richer. We poor people wouldn't know what to do with money if we had it, we can't possibly be trusted with what little we have.

Well, the rich are mathematically favored to get richer, almost no matter what public policy decisions we make, short of tax rates that even Scandinavians would call confiscatory.

But that aside: do you honestly think that the opportunity to invest in small "private" companies is likely to make non-rich people rich? I don't think so. Angel investing is a notorious trap for flush cashed-out startup people, because it's hard to make angel portfolios work. And those are people with relatively huge financial resources to draw on!

Normal people have many more liabilities than just lack of accreditation in competing with rich people in venture capital.

If the goal is to get rich, pretty much any endeavor will fail. It's a non-goal.

"non-rich" people could be interested in contributing money to endeavors they deem worthwhile. Current rules prevent most from contributing to such endeavors, however.

The likelihood of getting rich has nothing to do with my right to use my money as I see fit.

"my right" is a strange term. It's entirely a social concept and is defined by the society you happen to live in (and re-defined by every subset of that society).

In a sense, money is just a technology a society uses for allocating its resources. So, yes, the society/government can regulate how you can spend your money as a little monkey-patch on its tech.

You're just incorrect. Money is a medium of exchange, not a means of allocating resources.

Judging by the downvotes, we're just going to have to accept that institutionalized classism is the price we pay for being on HN.

I'd argue that HN is practically the only place in the whole world one can just walk in to and get serious, current, and actionable information on real-world social ladder-climbing.

Nobody here believes you should "know your place", but the more you learn about the world and business, the more you see just how hard this shit really is.

The downvotes aren't out of classism, but because your posts are not constructive to the discussion. They articulate a philosophical viewpoint and offer no real information of the sort I described earlier.

HN is not your soapbox.

Social ladder climbing is mostly just morally difficult.

Oh no, the peasants found a soapbox! Good thing there's downvotes, that'll shut them up.

Please stop posting unsubstantive comments to HN. Snark is deprecated as well.

A friendly exchange is a cooperative reallocation of resources. Thus money is as I said, a medium/technology for reallocation. You seem to think being a medium of exchange is mutually exclusive with being a means of allocating resources. On the contrary, media of exchange is a subset of technologies for allocating resources.

Despite how much you dislike it, it seems that the government can in fact decide what you do with your money. For example, hiring an assassin is illegal. I'm sure we'd all agree that banning conspiracy to murder is not a violation of your rights. Thus your "freedom" to spend your money according to your wishes is limited by the safety of other citizens, with as loose a definition for "safety" as we like.

The problem is the legal system.

A single, large investor can sue, effectively, a corporation because they are on the same spending level. You need, roughly, a million dollars to sue a corporation.

A group of small investors have a VERY difficult time suing that same corporation. They have to be very unified, and, even then, it's very expensive. If the company is effectively burning up the money, it is very difficult to prove fraud and takes a very long time to do it. And your fighting your own investment which is paying the lawyers on the other side.

So, if you've invested, say, $50K, the company can basically run away with it and there is almost nothing cost-effective you can do. Even if you win, the company can go bankrupt--so your lawyer won't take things on contingency. Maybe you can interest the government in a securities or tax fraud case, but don't hold your breath.

Look at the problems with Kickstarter and the lack of ability to get your money back when things are, quite obvious, malfeasance. Those same problems hold until you start talking individual investments of almost 500K+.

Even worse, hucksters are VERY good at rooking people intentionally. I went through a case where a small group of us were showing the red flags all over the place (no financial statements, no board meetings, on, and on, etc.), and people still sided with the huckster.

The vast majority of people are dumber than you think.

You could make the same argument about stocks "you want to allow my grandma to lose money in stocks?". The right to lose money is just as important as the right to gain it.

HN people seem to love this argument, but it doesn't hold water.

The accredited investor standard doesn't prevent you from losing money.

It prevents people from marketing investment products to you.

Even if you're unaccredited, you can still invest in private company stock: it's just legally risky for the company that sells it to you, since the law makes it very easy for you to sue them.

The reason the accredited investor standard has teeth for startups is that if you're taking money from unaccredited investors, you're almost always taking it in small amounts from lots of people. The law assumes --- reasonably! --- that if you're doing that, you're marketing your stock as an investment product. That makes you, in effect, a public company, and you have to follow all the same rules as other public companies do.

Huh, you just brought up an interesting point that I hadn't considered: if you invest in a company and it turns out to be a scam, you're more likely to have the resources to pursue legal action if you meet the currently defined threshold of an "accredited investor".

I too have always been a bit miffed about the whole accredited investor thing, but that angle had never crossed my mind.

But the default way to invest in stocks is to go through a broker. Apple isn't sending people to personally knock on your door offering you 1000% returns.

look how many people get suckered into multi level marketing aka pyramid schemes. Imagine if those schemes were allowed to get their members to just "invest" money with promised returns for getting other "investors". It seems real easy for it to turn into a loophole for full on pyramid schemes to start popping up. Not to mention the kinds of ponzi schemes you can run when you can peddle stock in non-public companies that the average retail investor can not even look up quarterly reports on

Regulation to protect people from themselves.

It shouldn't go away. Small investors get raped without strong regulatory protection. But it is ridiculous that anyone can invest in P2P lending, while being prohibited from a "P2P-scale" equity investment. There should be caps, and rules.

If you want non-accredited investors to invest in your startup, all you need to do is IPO.

Yes, there will be a regulatory burden of reporting on your financials... The kind of reporting that allows non-accredited investors to make informed decisions about whether or not your startup is a good investment.

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