People vs. Process: The Wrong Side of Venture Finance

Reposted from the blog itself: This is a very interesting idea, and a great discussion of its merits.

There is something compelling about the idea that seed financing is such a fundamental part of wealth creation in our new economy that it should follow a process, on a scale, comparable to a small business loan. On the other hand, 'the network is the wealth,' and as you point out - their lack of active participation in companies' outcomes limits their value. You would expect quality entrepreneurs to expect better terms from these guys compared to an investor with more value add. There is an extreme contrast between this method and the model of more formalized networks currently in favor.

As you indicate, it would seem that those companies that would benefit most from this model would need it the least. If all a team of entrepreneurs need is a check, that implies they already have a strong network in place to help them advance the business. If that is the case - they probably have lots of options for funding. If Right Side is aware of this, then its methods for selection would certainly involve social network analysis, selecting prestigious founders, and offering trouble free and favorable terms. By spending less time assisting companies - an expensive process - can Right Side afford to give better terms to attract solid entrepreneurs to apply for what amounts to the venture equivalent of a streamlined small business loan? It will be interesting to see if this is the case.

This model might shine at picking out great teams from disadvantaged regions - basically everywhere outside of the Bay Area and Boston. It may be that this model can select strongly connected teams from cash poor regions whose networks can sustain the business, even if they don't permit easy financing.

@rjurney - interesting points on finding great people in hard-to-find places, as well as competing based on more favorable and simpler terms.

If they do want to address the market that way, I think that the message would need to come across better to attract the right kinds of applicants. Right now the message seems to come across very process-focused, which I think will tend to turn a lot of folks off.

That does sounds like a disaster waiting to happen. If you're more loose with your cash than others, but don't have as many benefits or nice terms, you will systematically fund people who couldn't get cash any other way, leaving the really good prospects to people willing to commit more specifically.

The venture capital industry is such a vital part of modern society, it's where robots and cancer cures will probably come from, yet it operates on the level of alchemy. There needs to be a real shake up, on the level of a 100 more right side capital's. And God knows investors would welcome it, they're literally throwing their money at gambling (derivatives) these days.