Erik Torenberg of Village Global joins Nick to discuss Decentralization of VC, Why Your Fund Size is Your Strategy, and Why Startup Formation is the Most Important Contributor to Economic Growth. In this episode, we cover:
- Walk us through your background and path to VC
- What were the biggest lessons learned from Product Hunt that you took to investing?
- Recently had Ben Casnocha on… anything specific you’d like to add about the thesis behind Village Global?
- How do you think about working with experienced vs non-experienced angels?
- How do you think about portfolio construction for VG?
- Fast forward… some angels have strong early signals of success, others don’t — do you cull the herd or amplify those that are good pickers?
- Considering this, why do you think so many VCs have concentrated portfolios?
- How do you think about follow on investing?
- What is the role of a pre-seed firm?
- If there’s a weakness in the Village model… what is it?
- Part of your model is to increase the amount of founders and investors. What do you say to those that argue there’s too much capital already?
- What’s does the future look like for Venture?
- What’s your advice for people getting into venture?
- Three data points
- Let’s say you’re approached to invest in an early seed stage SaaS startup…
- The founder is a technical serial entrepreneur with two solid 8-figure exits. And she has a credible co-founder that is more business/commercially focused;
- An MVP of the product has been launched and was the top product of the day on Product Hunt, when it launched;
- and The Product launched two months ago and currently has $5k of MRR.
- The catch is, you can only ask 3 questions for 3 specific data points, in order to make your decision. What three questions do you ask?
Guest Links:
Takeaways:
- Erik’s path to tech and venture began when he started his startup — Rapt.fm. The startup never took off, but that experience introduced him to the startup and VC world that grew into his passion.
- At Village Global (VG), they are passionate about the future of venture, and they believe that the future of VC is going to be significantly decentralized.
- To have better expertise across sectors and geographies, VG provides incentives to dozens of people to source, select, and support companies with them and on their behalf.
- At VG they work with both experienced and less experienced investors. They want to “uncover the up and coming gems because other people aren’t searching for them as much.”
- VC is known to be an anti-network effects business. In theory, the more companies you have, the worse you are at picking and helping because you have less time.
- Village Global makes a lot of investments because they see VC as a positive network effect business. The more companies they invest in, the more great founders they have in the network, the more valuable the network becomes.
- “There’s this idea called Schramm’s Law, which is that the idea that the single most important contributor to a nation’s economic growth is the number of startups that grow to a billion dollars in revenue within 20 years. We produce around 33 unicorns a year, but we need about 100 unicorns to maintain post-war growth rates. And so the only way I know how to do that is to have more capital, more investors, and more founders.”
- Take asymmetric risks: if it doesn’t work out, you’ll learn a ton, you’ll build a network, it’ll be one of the most valuable things you could do just for your own education. And if it does work out, you will have some meaningful upside of that.
- The future of venture will see the decentralization of VC across the board and more people on cap tables like dozens, but soon they’ll have hundreds or maybe thousands.
- VC will cease to be only a game of craftsmen, and just like the industries they invest in, they’ll be revolutionized by software, and by people who build products and platforms and, and network effects businesses.
- If you want to get into VC but can’t write checks, do fantasy venture capital. Write down what you would invest in and why.