Where the "Venture-to-Capital" phenomenon all started...

Emergent Business Reseach Community EBRC is a scholarly association to support research, education and execution of GROWTH VENTURING for PROBLEMS WORTH SOLVING via GLOBALLY CONNECTED FACULTY.

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V2C Research Team (2001-2006)
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The science behind building business from 'venture to capital'

During the last decade of the 20th century, both the appreciation for entrepreneurship and the amount of new venture activity increased exponentially, all over the world. Thanks to success stories of venture capital (VC) backed companies; there was, at first, no shortage of entrepreneurs seeking for VC financing. Consequently, also VC supply soared after the commercialization of the Internet. However, thanks to the rapid ICT development, new business ideas are increasingly knowledge intensive. Paradoxically, while there is more VC financing available, than ever before, it is not available in small (and smart) enough doses.

The new knowledge intensive ventures of our time need, on relative terms, far more knowledge capital (committed business competence) than financial capital. At the same time, VC has become packed in ever larger funds requiring ever larger minimum size investments. As illustrated by the depiction below, a business is faced with a capital and knowledge gap on its way from “venture to capital” – from being a prospective venture to being an investable enterprise in the eyes of a financial investor.

In the space between venture and capital, a variety of players -- principals and agents: Both public and private sector advisers and incubators, advisers for fee and pro bono -- exists to bridge the gap between entrepreneurial teams and venture capitalists. A new and emerging group are “principal level” operators, individuals offering to join the entrepreneurial team for an interim, part-time basis, as co-owners. These are individuals investing their knowledge (business competence, capability and connections), in prospective ventures, in exchange of equity (instead of primarily selling working hours for a fixed salary or fee). Such individuals are referred to as knowledge or V2C investors.

A two-by-two matrix depicting the “the principal level” (active ownership) operators of the firm is presented below. Those investing primarily financial capital, in exchange of equity, are classified either as venture capitalists (VC partnerships) or business angels. Those investing primarily knowledge capital, on a full time basis, are classified either as (founding) entrepreneurs or “venture knowledgists” (V2C partnerships). Those investing primarily knowledge capital on a part-time basis are referred to as co-entrepreneurs.

Knowledge investors are interim owner-partners of ambitious (founding) entrepreneurs, dedicated to building investment ready enterprises for global markets, and interested in realizing the entrepreneurial value added at an eventual exit. The nature of a given individual’s knowledge investment can be labeled as either (more) tangible or (more) intangible – always as evident from the situation at hand and the people in question, and as agreed between the founder(s) and the co-entrepreneur(s) on a case-by-case basis.

As a obvious rule, the younger and the less experienced the co-entrepreneur, the more tangible the investment: For example, defined weekly working hours. Conversely, the more perfect a fit a co-entrepreneur’s mere profile is to solving a key bottleneck, in the target venture, the more intangible the investment can be: At an extreme, merely allowing for the use of the brand value of his/her name as a co-owner. To be sure, knowledge investments are not, primarily, to be thought of either as “mere sweat equity” or “mere brand value” but – ideally – as businessman wisdom and shared parenthood (with no defined “working hour” commitment). By definition, knowledge investing refers to principal (not agent) type and level contribution: To true co-creation of business.