As venture capitalists, Brett Gibson and Dan Mindus were used to asking entrepreneurs what new solution they brought to a problem. So when they joined to form NextGen Venture Capital, it was only fair and natural that they brought something new to their industry.
As they explained on a visit to “Common Ground with Bill Walton,” their new wrinkle was to bring more to the table than venture capitalists had in the past.
They didn’t want to simply write a check, take a seat on the board and offer advice on a quarterly basis. They wanted to partner with the company’s leadership, connect it to assets, expertise, talent and customers.
To, as Gibson said on the show, “roll up our sleeves, get in the trenches with entrepreneurs and help them grow their businesses.”
Its 900-950 limited partners, all of whom have expertise of value to tech start-ups, give NextGen “an army of people … who want to support innovation, who want to support the next generation of companies,” Mindus said.
NextGen focuses on the first of the four stages of venture investment – seed money. Most of the companies it funds have not made a dollar when the relationship begins, so the firm “surrounds you with the expertise and help of hundreds of venture partners who will help you build the business,” Gibson said.
One of its companies helps those in the gig economy get paid faster by, in essence, lending customers the money in their paychecks, then collecting that portion of the checks from their employers. It’s payday lending without the high interest rates and with the credit-worthiness of the employer, rather than the employee, at stake.
Another allows universities to get paid with a percent of future student earnings. If students earn a little more than average, the school would be paid a little more. If they earned less, the school would receive less. Still another provides virtual reality products that help people overcome stage fright, beat drug addictions and overcome post-traumatic stress, among other things.
The change in strategy NextGen offers responds to a change in the marketplace. Before, venture capital firms with a handful of partners analyzed companies and made investment decisions. Today, it is less expensive to start a new company, so investors have less leverage. If you’re an entrepreneur with a good idea, you call the shots.
So you can insist on service. You can get help finding out, for instance, whether others elsewhere are working on the same problem. You can get help locating customers and assets and follow-on investment.
You also need talent, which means, as things stand today, your options are limited to Silicon Valley, Boston, New York, Chicago, Austin, Seattle and the Washington, D.C., area. Despite being high-tax, high-regulation, high-cost-of-living jurisdictions all, these cities have put distance between themselves and the rest of the country when it comes to attracting the technical talent to produce the various next big things.
They do it by partnering with research universities – Mindus lauded Michael Bloomberg for bringing together Cornel University and Technion, “basically the MIT of Israel,” to stand up a new university on Roosevelt Island – and, in essence, creating the kinds of communities where people who could live anywhere would choose to live.
This creates talent clusters. Giants, such as Microsoft and Amazon, attract talented people. Those people get trained to manage tech companies, meet other talented people, then go off and start their own companies. This begets more large companies and then more young executives leaving those firms to start their own businesses.
Not all those businesses will be successful, of course. But NextGen’s theory is it can improve the percentages by calling on its network of experts to not only help firms in which it invests but help locate the most promising of the next generation of companies.
It’s a new idea brought to the table by a company that traffics in new ideas. It will be interesting to see how it plays out.