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Why Updated VC Models Are a Win for Entrepreneurs

Why Updated VC Models Are a Win for Entrepreneurs
Image credit: shutterstock/Stuart Miles

Less than five years ago, VCs were the only game in town for backing a startup (short of a rich relative). This is no longer the case. Crowdfunding platforms, organized "super angels" and quasi incubator-funding programs like Y Combinator and Techstars have created viable alternatives to spending a year pitching your dream to VC after VC.

I find it poetic that my industry, which has long touted the fact that we invest in disruptive companies, is dealing with a bit of disruption ourselves. Our incessant nagging of our portfolio companies to out-innovate is being turned back on us. And for you, dear founder, this means VCs are battling to find and fund you. Below, I've outlined two ways we're going about it.

The talent agency. Andreessen Horowitz was the first to really break the traditional VC mold in 2009. The two Netscape execs modeled their VC after the storied Hollywood talent firm Creative Artists Agency, adding partners with expertise in marketing and public relations to create a full-service operation that can assist a startup in every aspect of its business. Fast-forward five years, and nearly every blue-chip VC has adopted the Andreessen Horowitz model.

Why you win: A big Series
A round is nice, but having the manpower, connections and expertise to set up your company properly right from the start is better.

The venture partnership. Traditional VC firms are like traditional law firms: Associates or principals put their time in with portfolio companies and eventually make partner, at which point they go to more cocktail parties and assume an increased sales and oversight role.

Today's firms have fewer partners and more hired guns (usually called venture partners or entrepreneurs-in-residence). These folks are recruited to scout, assist in diligence, get paired with and sometimes even start new companies--but eventually they leave to pursue bigger and better things.

Why you win: The best firms will always attract the best entrepreneurs as a soft landing pad between gigs. The promise of a future position with a VC firm only sweetens the original funding deal.

Good companies are always in demand, but never as much as they are right now, with VC firms in a virtual arms race to get them. Take advantage of this environment to get the best possible deal and team you can.

Sam Hogg is a venture partner with Open Prairie Ventures, a Midwest-based venture-capital fund investing in agriculture, life-science and information technology.

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This article was originally published in the January 2014 print edition of Entrepreneur with the headline: Change Is Good.

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