VCs Doing First Rounds Themselves

The Wall Street Journal recently posted a study indicating that VCs are doing more financings themselves without looking to syndicate the deals. This is consistent with what we’ve seen and heard, and reminds me of an old poker saying – “If it’s good enough for a call, it’s good enough for a raise.” As the WSJ article lays out, there are many reasons this makes sense for the VCs and is consistent with the new investment model many are utilizing, which is basically smaller investments with smaller (but more predictable) anticipated exits.

One question not addressed in the article is how this affects the portfolio companies. In some ways it makes their lives easier. Fewer institutional investors means there are fewer groups demanding time of management. It also reduces the chances that there will be conflicts among the stockholders that could be to the detriment of the business. It also means, however, there are fewer resources available to the founder and the company. Each VC firm that comes in brings its own strengths and contacts. When you reduce the number of VCs with a vested interest in a company’s success, you obviously mitigate some of the benefits that comes from raising institutional capital. But maybe that’s ok if these are simpler and smaller companies than the companies that were getting funded 10 years ago.