Lean Startups – II

August 9 2010 No Commented

Lean Startups – II

In my last post, I poked fun at Eric Ries and Steven Blank for an article posted by the New York Times suggesting that “lean startups” are a fresh new approach, which is likened to bootstrapping. I pointed out that we outside of Silicon Valley have been bootstrapping our startup ventures for decades because venture capital is not nearly as available anywhere in the world than it is in Silicon Valley.

That same article quotes some Silicon Valley veterans as suggesting “a shrinking role for venture capitalists in seeking and backing young entrepreneurs.” And, that the VC role in the capital food chain “is increasingly being taken over by … angel investors….”  Again, I think the New York Times post has it all wrong.  Venture capitalists have had a decreased role in seed and startup stage new ventures for a decade, choosing instead to make larger investments in later stage ventures.  Furthermore, (and unfortunately) the number of venture capital firms and both the number and dollar volume of their investments has also been decreasing in recent years.

It is wonderful that startup entrepreneurs in some verticals can bootstrap their companies to positive cash flow, organic growth and exit with $1 million or less in invested capital.  And, it is a blessing that solo angel investors and angel groups all over the country are actively funding these ventures.  But, the shrinking role of venture capital has been defined by the poor returns of many funds in the industry and the subsequent lack of interest in recent years by institutional limited partners to provide capital to new funds offered by general managers with less than illustrious track records.

The suggestion that bootstrapping entrepreneurs and active angel investors are reducing the role of venture capital is exactly wrong.  The shrinking role of venture capital in backing promising young entrepreneurs has driven those entrepreneurs to “make do” with smaller founds available from super angels and angel groups.  Thanks heavens for angel investors!

It’s a GREAT time to be an angel.  Find a group and jump in!

Bill Payne is the 2010 BNZ University of Auckland Business School Entrepreneur In Residence. www.billpayne.com