The market for venture capital for early stage startups has seen a dramatic inflow of cash in the past year and a half. Along with that money comes certain challenges. There is a great piece from Fred Wilson of Union Square Ventures about one such challenge, the so-called ‘bad marriage’ problem. No not actual spouses…but rather, the relationships between early stage companies and their investors.
What’s behind this?
- A shift from in-person fundraising to virtual fundraising
- A reduction in closing timelines from months to weeks
- A continued increase in the amount of capital available for early stage companies
According to Fred, these changes are likely to be permanent which is good for early stage company capital formation.
What can help fix the problem?
1. More robust secondary market sales of early stage shares.
2. Startup boards need to evolve. Right now, there are too many investors sitting on boards. There should be more independent directors and more observers on boards as well.
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