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The Two Generations of VCs At #StartupColumbia: The More Things Change…

 

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There’s something to be said for experience, and last week Columbia, one of the oldest colleges in the country, kicked off its first annual #StartupColumbia entrepreneurs competition with a fireside chat entitled New Venture Landscape: Then and Now. It was an interesting juxtaposition having on the stage Alan Patricof, Greycroft Partners founder who has long been regarded as father of the venture capital industry, and David Tisch.

One recalled being hacking AOL as a nerdy 14 year old. The other remembered when Xerox was founded.

“I was never a nerd,” Patricof insisted. “Never.”

There was no internet when Patricof graduated from Columbia Business School in 1957, much less accelerators – or such a thing as venture capital. “It was just wealthy families back then,” Patricof recalled. “The Rockefellers, the Whitneys, the Phipps. It’s an industry that evolved to become an industry.”

Tisch is co-founder of the accelerator TechstarsNYC, Managing Partner of BoxGroup – and a member of a latter-day wealthy family who made their fortune in real estate.

Some things don’t change, but one thing has: there are certainly more pathways to funding than there were in the days when Patricof began his career. He cited the fact that there are presently some 25,000 accelerators in the US – astonishing, considering that it has less than 10 years since Y Combinator first hung its shingle.

“Just because someone hangs a sign on their door and says they’re an accelerator doesn’t mean that you should give up equity,” Tisch cautioned the packed room. “The worse the program, the more they ask for. Just because you get in, doesn’t mean that you should take the deal. Look at their traction and who’s running it. Make sure you’re getting value for what you’re giving up.”

Patricof cited that a significant number of strong businesses come out of  accelerators. In fact, 34 of the 36 TechstarsNY companies that went through the program under his aegis went on to raise additional funding.

“Are you giving $20,000 for 6% for Greycroft?” Tisch shot back.

“It’s an expensive competence,” Patricof conceded. “My concern about this startup craze is there’s a lot of me-too businesses, and a lot of people who are not focusing at the outset on ‘Do I have a differentiated product? Is it really new, or am I just bitten by the startup craze and I’ve got to start something?’ Based on what I’ve seen, there’s a lot of that out there.”

Both generations of investors certainly had their opinions on crowdfunding.

“The loss ratio will be extremely, extremely high for people with a little money who want to play in the same field as we do,” said Patricof.

“With all the new money flying around, it helps with the diversity of the company,” said Tisch. “Access to capital means a wider variety of companies who can target a wider set of demographics than VCs can focus on. That will have a lasting impact on entrepreneurship.  It gives a company a chance to build a company that’s not a VC-backed company.  But if you’re going onto a crowdfunding platform thinking that you’re going to find the next Facebook, you’re making a mistake.”

Oculus VR, anyone?

Tisch did point out what he felt was a huge differentiator between investors and entrepreneurs.

“Investors wake up every day and it’s their job. Entrepreneurs wake up and it’s their life.”

True that, and the two men did seem to agree on one topic: startup salaries.

“What is the lowest salary possible (that you’ll take)?” said Tisch on the subject of factors he considers in the funding equation.

“You get a lot of points for sweat equity to the extent that you can do on the minimal amount of money,” Patricof agreed.

Some things never change.

FueLogic@fuelogicdotco
Heard at #StartupColumbia:  "Let's talk about the #pinkelephant in the room: salaries." #entrepreneurproblems #igotbillstopay

No matter how vibrant the startup ecosystem may be in New York, there isn’t an entrepreneur who wouldn’t agree that it’s still a battlefield, and they’re out there on the front lines on a daily basis. Investors of all ages take heed: The first axiom of fighting – an army moves on its stomach.

Which may be the reason why Patricof, given his years of experience, suggested that potential entrepreneurs get real world experience before they go off and start a company: work for an established company first and learn the ropes. In other words, until you’re ready and know a thing or two about business, don’t give up your day job. Leave it to an experienced investor to make the point that it’s not about a company: it’s all about business.

 

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About the author: Bonnie Halper

Bonnie Halper is Editor-in-Chief of AlleyWatch and also writes and curates the StartupOneStop.com newsletter, which focuses on startups and entrepreneurs, and is currently being read in 50+ countries around the world.

  • Bill

    Very interesting post form someone with many years of experience in funding early stage or startups. Having seen the ecosystem form the inside and the transformation of the industry since 1957 must have some great insights. I think with the growth of crowdfunding and the number of accelerators we will see many more niche companies that will become successful enough to grow and employ people, but maybe not become the next multi-billion dollar company. I think the crowdfuding ecosystem will be great for SMB’s that are the true drivers of the US economy.

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