Another muse on Early Stage Investing

VC is broken! OK, we get it, lets move on…

Another muse on Early Stage Investing:

Over the past 6 months there have been a myriad of articles written on the changing face of Venture Capital investing. I could list each article and it would easily fill this page. Instead, let me summarize:

  • Returns Stink 
  • There are no exits 
  • Many portfolio companies are overvalued by today’s standards
  • Government regulation of PE/VC is coming
  • There is too much money chasing too few really good opportunities
  • LP’s are not meeting capital commitments or they are selling positions on the secondary market
  • Fundraising is next to impossible
  • VC and Private Equity investing is struggling to survive amidst the liquidity crisis

While these all are true and have been exacerbated by the recent economic meltdown, the proverbial “elephant in the room” is the VC model itself… which must innovate, immediately! It’s not acceptable to call yourself early stage yet have fund sizes that exceed your ability to deploy capital appropriately in this area. Many funds are now confused as hybrid venture, growth capital and private equity funds. This makes it difficult for investors to choose best in class managers at each stage and therefore dilutes the entire industry in the process. We founded Cava Capital to focus only on early stage investing. This is hard stuff; you need to get your hands dirty and help out tactically, not just strategically. Our roadmap includes:

  • Keeping the funds small and nimble while focusing on creating great companies with fantastic entrepreneurs
  • Finding those innovative ideas and companies that are built to be capital efficient and funding them appropriately
  • Focusing on profits and cash flow, even in small companies
  • Getting involved! We created a proprietary consultative process designed to enable tactical implementation of strategic goals. It is built to accelerate success, adding real value via our active, truly hands-on, strategic & operational guidance. We utilize our committed “Growth Network” of over 25 successful investors, financiers, executives and specialists with 200+ years of combined start-up experience and integrate them throughout our process
  • Thinking forward, not simply following/chasing markets. We believe in the development of sector “points of view” which help guide our selection of investment opportunities. We then pro-actively generate deal flow through our network to find those companies that fit our positions on a market or sector. If companies don’t exist, we will help to start them using our EIR program and incubator relationships on both coasts. We believe this process results in a diverse, top down and bottoms up portfolio construction
  • Aiming for doubles. Our model for success is slightly different: We don’t count on 1 or 2 home runs to carry the fund. Our expectations for exits are more in line with the $75 million acquisition than the billion dollar IPO. We believe this gives us more opportunities to transact in different environments and increases the likelihood of success for an investment
  • Being friendly and having empathy. Running a start-up is hard enough… we know, most of us have been there multiple times

Innovating the current business model of venture capital is not that difficult and it takes many forms. We have seen new age incubators, seed funds of large, established firms and other new models appearing every day. This is a welcome change and one that will help the entire industry rethink the vision for the next generation of startups. The need for venture is greater today than over the last 20 years! Job creation, innovation and new technologies will help lead us back to a growing, leading economy… but we need it at both ends; investor’s and the market’s acceptance and support.

We believe in Start-ups and will fund them appropriately if they meet our investment criteria. Have fun. Life is too short.

About cavacapital

Cava Capital is a venture capital firm targeting go to market stage investments (series A and B) in next generation marketing solutions companies primarily in the Metro New York region. We are business builders, actively assisting our CEO's in the critical areas of Sales, Business Development and team building, bringing our exceptional and deep network to each and every portfolio company to help drive success. We prefer enterprise facing companies, but aren't scared off by the new consumer models.
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