KookyPlan

This is clever:  to discover new talent the Founders Fund (with TechCrunch) has created a strategy of granting money to an entrepreneur…  and then having that entrepreneur turn around and act as a mini-VC and invest in another entrepreneur.

They start by picking 12 top entrepreneurs (with a successful track record) to grant them the money, and then give the entrepreneur the choice of which startup gets funded.  Clever. Very clever!

They leverage the collective intelligence of successful entrepreneurs to pick who they think will be successful in the future.  With very little money committed, the original investors leverage the collective knowledge of entrepreneurs to uncover hiding, up-and-coming talent.  This might be one of the best deal-flow schemes Ive ever heard about!  Great funding innovation…

Take a look below.  What I find clever about this one is that they turn over the screening and investment selection process over to entrepreneurs (the community), and ask them to pick future winners.

News from TechCrunch…

I’m very pleased to announce a new startup investment program today called The TechFellow Awards in partnership with Founders Fund. The goal is to honor technology innovators and stoke new investment in great early stage ideas.  The TechFellow Awards program will grant at least twelve fellows $25,000 each to invest in an early stage startup of their choice. Founders Fund will invest an additional $25,000 alongside those investments and request an additional right to invest another $250,000 when the company raises its next round of financing. In all, Founders Fund expects to devote more around $3.6 million to the program

The fellows will have few restrictions on the companies they invest in. The fellows will be selected from four categories of experts: engineering leadership, product design and marketing, general management and disruptive innovation.  read more from http://www.techfellow.com/

My thoughts:  would this model of distributed investment decision making work well in other markets? with bigger money involved? what are the limitations? risks?

Brian D. Butler Investment, Venture Capital, financial innovation financial innovation, Investment, investment idea, VC, Venture Capital

This is a really important distinction for any investor to make. You need to see the difference between the two…and so, a little parallel might make it easier to visualize who is who…..

There is a fundamental difference between the internet “applications”, and the internet “ad networks”. Internet applications are like hit TV shows. They draw in audiences who like the experience of the “show”.

Internet networks are like the TV networks (think ABC, NBC, CBS, Fox). They have developed serious business plans that know how to turn the audiences into money. The equivalent in the internet-world is Google, Yahoo, and Microsoft. These are the guys that have the ad delivery mechanism figured out. And, as a result, they shop around for newest applications that are drawing in a big crowd (such as Facebook, MySpace, and the like).

An internet application (like YouTube) is very similar to a TV show (like Friends, Seinfeld), in that they bring in viewers and attract an audience. So, like a TV show such as “Friends”, the producers, writers, directors of the show should not be particularly concerned with commercializing the show. They do not need to think about the business model, but rather they should focus on creating an excellent experience for the consumer.

Then, someone else (TV station, network) can come along, and figure out how to make money off of that audience.

But, where does a company like google fit in? They are like the TV networks of old…like ABC, NBC, CBS…in that they have the infrastructure in place to commercialize an audience. They have the advertising and the ability to wrap content in advertising. Google, Yahoo, MSN seem to be the big 3 of online advertising…and they are out there shopping for content that people want to watch, so they can wrap that content in advertising (just like what the big 3 TV networks do).

So, what is the implication to small start-ups…well, it means that (contrary to what your business school prof says), you do not really need a business plan, or any real plan for how your website is going to make money. You just need to develop a very user-friendly and necessary tool that millions of people will want to use on a daily basis (not easy to do all by itself). If you can do that…you have essentially come up with a hit TV show, and the big networks will compete to see who can buy you….think Facebook, MySpace, Twitter, etc….all of those internet based “companies” with valuations that business school profs scratch their heads trying to understand.

If you can start to think about internet “applications” as the TV shows (such as Friends, Lost, etc), and the internet “networks” as the TV networks (such as ABC,NBC, etc)…then it becomes much easier to understand which sites should have a business plan (networks) and which ones should not (the applications). Confusing these two concepts has led many a small company down the wrong path. If your goal is to develop the greatest TV show the world has ever seen (internet application), then focus just on that, and let the business guys (the networks) figure out how to make money off of your audience.

see also:

Valuations and internet companies

Venture Capital Method of Valuation

business valuation

Brian D. Butler Investment, Venture Capital, internet Brian D. Butler, Innovation, Investment, valuation, Venture Capital