The Deal
Wednesday, October 22, 
11:44 pm


[Posted on October 12, 2007 - 11:37 AM]

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A recent profile of Momentum Venture Management LLC in MarketWatch highlights a particular trend happening today in early-stage venture investing. To address a perceived funding gap between an idea and a prototype, Momentum and other firms are popping up that offer mentoring as well as small rounds of capital that larger firms can't deploy cost-effectively.

In reading the article, two things struck me. Momentum, which invests seed capital into startups and expects its partners to work only on two deals at a time, will invest only in companies that can break even at $10 million in sales. That is fairly limiting, and I wonder whether startups might instead go with an angel investor who could offer a similar amount but would provide undivided attention.

But the really odd bit in the article is that venture firms wonder how well Momentum's work-intensive model will scale. I understand the economic benefits of scaling up, but at the same time, the idea that you can truly scale early-stage investing is beyond ridiculous to me. 

VCs know this, so why the emphasis on whether a model will scale? Okay, a reason other than increasing management fees. --Stacey Higginbotham

See Oct. 10 story from MarketWatch
For more on Momentum Venture Management, see TheFunded.com, paidContent.org and Digital Media Wire


Comments
From: andy wilson,

I thought it would be worthwhile responding to Stacey's two points.

1. We are based in Los Angeles and can only comments on the angel community here which is quite active (the largest angel network TCA is based in SoCal). The practical reality is that most SoCal angels are not serial entrepreneurs with deep start-up expertise but have been successful in other walks of life (most commonly real estate). The point being that it is unlikely that a typical angel could offer the same depth of relevant experience and skills to help these early stage companies achieve commercial traction. Secondarily, I am skeptical if most angels would even commit half time to a new venture as they generally like to be involved board members which entails perhaps a day or two a month so I don't see a full time angel as a viable substitute.

2.To your second point about scaling, we are in agreement. We are not looking to create a huge enterprise. The partners at Momentum love creating great companies and we are realistic about what it takes and have no problem knowing that we are each limited to a couple of deals a year. As you suggest, scaling is not necessarily a business requirement. Obviously as we add partners we can expand our capacity but there is no obvious tipping point when it comes to achieving scale efficiencies.

Andy
Managing Director/Founder Momentum Venture Management


From: Stacey Higginbotham,

Andy, thanks for your comments, especially about the Los Angeles angel market and particular expertise Momentum brings to the table. I look forward to hearing about the firm's progress and investments.


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