If you call Dan Wagner a venture capitalist, don’t expect a warm response. Then again, the pioneering internet entrepreneur is careful to stress that he’s not an angel either. So what exactly is Brightstation Ventures (BSV), the $100m technology fund that he heads alongside Shaa Wasmund? “We’re fundamentally different because we don’t invest in other people’s ideas,” he insists. “The concept behind BSV is that we leverage the talent and the vision of the entrepreneurs that are part of the team.” Essentially, BSV backs the people in BSV. “You’re backing the entrepreneurs in the venture fund,” he adds. “It’s a very different business model.”
Fighting talk
Indeed. While the exploits of Wagner and his team, which also includes the famously precocious Ben Way, might not have an immediate impact on the burgeoning, London-based technology VC and angel scene, it’s disruptive enough to warrant closer attention, especially in the context of Wagner’s controversial and outspoken views.
“The VC world is so alien to what we’re doing,” he says. “We might be considered a venture fund, but we’re not really. We want to create a factory for entrepreneurs. Our approach is different from the ‘spray and pray’ approach of a VC. They’ll invest in 10 businesses in a certain sector in the hope that they’ll get one winner. Our approach is that every one of our entities should be a winner. We can’t afford for it not to be. In reality, it’s unrealistic to think that everything is going to be successful, but we’ll fight to make that happen.”
Wagner believes that the VC community tends to invest in businesses because they want to run them on the behalf of the people they invest in. They don’t really back the entrepreneur, he claims, because they want to take their ideas and do it their own way, often installing their own management team in the process.
Of course, no entrepreneur takes the decision to sacrifice equity lightly, but surely VC money also comes with some added value for inexperienced entrepreneurs who are seeking accelerated growth?
“If you had lots of money, would you go to a VC?” asks Wagner. “They say that they add value, but they don’t – they provide money. Actually, they bring bureaucracy and frustration and hold back an entrepreneur. Sometimes, if the person with the idea is useless, they add value, but that person would go to a VC in any case, because they need the help.”
It’s strong stuff, but he’s not done yet. “There are lots of examples where, because of the agenda that a VC has, there will be conflict with the people that run the business,” Wagner continues. “I don’t like the practices that some VCs deploy to take control of businesses. It’s immoral. I have a different approach – I want to help, not take value out. But I’m not as rich as a lot of VCs. There’s a certain ruthlessness and I can do without that involvement.”
While BSV has no equivalent in Europe, a US-based firm established by Peter Thiel, a former Wall Street derivatives trader who became chief executive of PayPal, has similar objectives and is the source of much debate in the States.
The $220m Founders Fund is already making a name for itself as a major financier of the current internet boom, but is attracting at least as much attention for its partners’ outspoken attacks on alleged flaws in the traditional VC way of doing business. One of them, Sean Parker of Napster fame, has been quoted as saying that the fund is an example of “the pendulum swinging back” in favour of entrepreneurs.
Thiel’s chief proposition is that founders should get more of a stake and a say in their companies and not have to wait until exit to gain liquidity. The Founders Fund, which has been dubbed ‘VC 2.0’ in the US press, allows entrepreneurs to ‘cash out’ a small percentage of their stake in a funding round, so they don’t have to wait until the company is sold or goes public.
BSV has developed four stages of growth for its companies, and Wagner says the whole process, from start-up to exit, ideally lasts between two and three-and-a-half years. Yet both funds espouse greater flexibility and fewer unrealistic exit pressures. “We will monetise our investments when we feel it’s right. In some cases, we may never monetise them. We may continue to retain them as profitable go-forward businesses,” Wagner says. “We make something happen without any investment committee. We are entrepreneurs who can make decisions about investments without any third parties.”
Portfolio approach
It’s hardly surprising that this kind of talk is an anathema to the traditional VC community. But alternative sources of equity are nothing new. The rise of the ‘super angel’ – a wealthy individual capable of investing at much higher levels than traditional business angles – is increasingly providing an alternative source of capital for those looking for a major sum of cash in return for a reasonable stake, with the entrepreneur left with enough autonomy to grow the company as they see fit. But entrepreneurs hoping for a quick-fix solution to the age-old equity versus autonomy dilemma could be in for a shock if angels want hands-on involvement in the business.
“As an investor, the big question is: ‘How can I make money out of the investment?’” says Sam Richardson, investment director at sustainable technology fund e-Synergy. “If you’re an entrepreneur investing in a company, the question you may end up asking yourself is: ‘If I was running this business, how could I make it successful?’ Unless you’re planning to run the company yourself, that’s not the right question.”
