From his perch as founder of Fledge, a network of social impact accelerators, Luni Libes has claimed the role of industry provocateur, critiquing the prevailing Silicon Valley model of investment and agitating for more aligned funding models. In particular, he’s an advocate for revenue-based funding, whether via loans or redeemable equity, where startups buy back their shares over time in a way that generates an agreed upon return on investment—the model used by Fledge. His revenue-sharing workshops at SOCAP draw standing room crowds (here’s a video version). In this guest post, Libes shares his thoughts on unicorpses, venture capital and the gospel of revenue sharing.
I’ve pitched dozens of California and Washington venture capitalists, and all of them were wearing shirts, pants, and shoes, but just as the folktale king wrapped himself in invisible clothes, the venture capitalists (and the Angels who follow their lead) wrap themselves in mostly useless structures that serve neither themselves, their partners, nor the vast majority of companies that are seeking capital.
The problem is that the “preferred equity” used by startup investors only works for 0.01% of startups. It works spectacularly well for that tiny percentage of startups. Some of them are household names: Apple, Amazon, Microsoft, Google, Facebook, and Intel. What you can’t name are the 87% of companies that receive funding from venture capitalists which fail, and the millions of other companies that the venture capitalists and Angels passed on investing because they were “uninvestable.”[…]
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