Some folks have been saying for at least a couple of years that the venture capital business model is broken. But is the venture capital industry really ready for a different business model?
Orange County investor and entrepreneur Chip F. Parker founded InLab Ventures two years ago as an early stage venture firm with a fundamentally different approach to screening and picking its startup investment deals. The firm, which debuted its new business model during the Demo Conference in Santa Clara, CA, in September, intends to focus on deals in San Diego and Orange County. But few venture investors, at least in San Diego, say they’re familiar with the firm, its founders, or its business model.
“They consider this industry a home run hit industry, says InLab managing director Greg Doyle, who works in San Diego. “But a home run in this industry is an IPO, and the IPO market is almost dead.” At InLab Ventures, Doyle says, “We’re not just looking for home runs. We’re also looking for singles, doubles, and triples.”
One of the chief differences at InLab Ventures is that the firm takes no annual management fee—a charge that, at other venture firms, typically ranges from 2 percent to 2.5 percent of the current fund.
Doyle, who works in San Diego, told me that conventional venture capital firms are hooked on management fees, because such fees provide a lucrative income—regardless of the returns on investments. Getting a percentage of assets under management also gives VCs a strong incentive to increase their fund size, which Doyle says is one reason why the average VC fund size has ballooned
