Ford Motors dominated the auto market in the early 20th century with a single car model, the Model T. At the time, customers were seeking low-cost, functional cars, and were satisfied by an extremely standardized product (Ford famously quipped that "customers can choose it in any color, as long as it's black"). But as technology improved and serious competitors emerged, customers began wanting cars that were tailored to their specific needs and desires. The basis of competition shifted from price and basic functionality to "style, power, and prestige". General Motors surpassed Ford by capitalizing on this desire for segmentation. They created Cadillacs for wealthy older folks, Pontiacs for hipsters, and so on.

Today, the venture financing industry is going through a similar segmentation process. Venture capital has only existed in its modern form for about 35 years. In the early days there were relatively few VCs. Entrepreneurs were happy simply getting money and general business guidance. 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."


1) Mentorship programs like Y Combinator help startups ideate, form founding teams, and build initial products. I suspect many of the companies they hatch wouldn't exist at all (and certainly wouldn't be as savvy) if it weren't for these programs.





In the past, traditional VC's played all of of these roles (hence they called themselves "lifecycle" investors). They incubated companies, provided smalls seed financings, and in some cases provided later stage liquidity. But mostly the mentorship and angel investing roles were played by entrepreneurs who had expertise but shallow pockets and limited time and infrastructure.


Read more posts on »