The Segmentation of the Venture Industry

Chris Dixon’s 2010 argument that venture was segmenting the way the car industry did once Ford’s one model stopped being enough.

As Kyle filed it: The segmentation of the venture industry by Chris Dixon Investing 101 2.0 Bifurcation in Investing

Kyle’s highlights

• Ford Motors dominated the auto market in the early 20th century with a single car model, the Model T.
• But as technology improved and serious competitors emerged, customers began wanting cars that were tailored to their specific needs and desires.
• Today, the venture financing industry is going through a similar segmentation process.
• Today, there is a surplus of venture capital and entrepreneurs have become increasingly savvy “shoppers.”  As a result, competition amongst venture financiers has increased and their “customers” (entrepreneurs) have flocked to more specialized “products.” Fund Differentiation
• But more pronounced, especially lately, has been the segmentation by company stage.  Today at least four distinct types of venture financing “products” have become popular. Fund Differentiation
  • Mentorship programs like Y-Combinator help startups ideate, form founding teams, and build initial products.
  • So-called super angels provide capital and guidance to a) hire non-founder employees, b) further product development c) market the initial product (usually to early adopters), and d) raise follow on VC funding.
  • Traditional VCs (Sequoia, Kleiner, etc) help companies scale and get to profitability.
  • Accelerator funds (most prominent recently is DST) focus on providing partial liquidity and preparing the company for an IPO or big M&A exit. Agglomerators
• What we are witnessing now is a the VC industry segmenting as it matures. Mentorship and angel funding are performed more effectively by specialized firms.  Entrepreneurs seem to realize this and prefer these specialized “products.” Specialists
• The segmentation of the venture industry is healthy for startups and innovation at large, even if at the moment it might be uncomfortable and confusing for some of the people involved.

How it connects

• Chris Dixon
• Fund Differentiation
• Venture Capital
• Market Segmentation