E What Is Venture Capital, Really?

This is the third in a series of articles that discuss ideas in my new book, The Fairshare Model: A Performance-Based Capital Structure for a Venture-Stage Initial Public Offerings, which is on Amazon. Links to other articles are at the bottom.

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Venture capital investing is popularly construed to be the exclusive province of institutions and wealthy individuals who invest in private offerings. Some define it more granularly, as an investment by a VC fund, and call investments before that “seed capital.” I’ve seen references to “pre-seed capital,” which refers to capital provided before that.

The apparent reason for such distinctions may be the idea that an investment by a VC firm "legitimizes" a startup. I think it has more to do with valuation—until a "Big Dog" establishes one, no one really knows where to set it. The fact is that no one knows how to reliably set a valuation for a startup, but that's a different matter. The question I focus on here is "Is venture capital raised in initial public offerings?"

Recently, I spoke at the Global Capital Summit put on by F50 at Stanford University, which focused on the changing nature of venture capital.

Speakers reported that companies were raising larger amounts of money at a given stage than before.

Also, that VC funds were increasingly investing after a company was generating revenue—so angel investors are providing a larger proportion of funding for startups that are at a pre-revenue stage.

These developments inspired observations like “pre-seed is the new seed” and “series A is the new series B.” No one said that investments made by angels wasn't "venture capital," but I've heard it suggested elsewhere. All of this suggests that startup funding is in an overly nuanced phase.

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Karl M. Sjogren is author of The Fairshare Model: A Performance-Based Capital Structure for Venture-Stage Initial Public Offerings. The book is available on Amazon.

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