Advocating For Small Venture Capital

Bigger is not always better, that’s why I’m advocating for Small Venture Capital management firms.  Small, is a business model I’ve always liked.   Austin Ventures is proving that big might be bad for venture capital.

I went to business school at Texas State University simply because their school focused on small business.  I’ve always been a big fan of small business.  It is my belief that the best “Big Businesses” run like they’re small businesses.

Berkshire Hathaway employs more than 300,000 people.  Their Omaha headquarters on the other hand, staffs only 23.  They run like a small business.

Steve Jobs once said of Apple, who employs more than 72,000, that they run like a start up.  Here is a video of Steve describing it himself.  He starts to describe it at the 2:00 mark.

I tweeted a link (see below) to an article in the Wall Street Journal about a company I’ve idolized for a while, Austin Ventures.  To add icing to the cake, it’s by one of my favorite editors at VentureWire, Russ Garland.

av tweet

Austin Ventures recently announced that they will not raise another seed fund.  Russ dove deeper.  The venture capital arena is vastly different than it was in 1999 and Austin Ventures is struggling to decide what their place is in this new arena.

I wrote about “pre-seed funds” last week.  Austin Ventures is feeling the crunch of these small firms getting in on the early action.  In 1999, Austin Ventures was the only place to get early stage capital in Austin.  Now, it is everywhere.  So where does that leave Austin Ventures?

I feel that their real issue is scale.  According to TechCrunch, Austin Ventures now has 20 members on staff, 15 of which are VCs.  They also have billions in funds.  By comparison, my favorite tech Venture Capital firm Union Square Ventures, has 6 VCs and only $1 billion.  Fred Wilson will admit, with the maturity of their funds, he spends more time in board meetings than he does finding new investments.

I really like Chris Pacitti’s new approach.  He’s working a pledge fund instead of a classic venture fund.  Rather than having hundreds of millions he HAS TO put to work, he has a very small venture capital fund that he only puts to work when his LPs like the idea.  This will allow him to operate a multi-billion dollar backed fund like it’s a small venture capital fund.

I love that he’s approaching Austin Venture’s woes by dialing back and operating like a small business again.  His approach is a creative way for a big business to operate like a small business.  I think this fund is going to be very successful.  I can’t wait to watch it work.

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