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Series A Crunch And The Lean Funding Model

Duncan Davidson of Bullpen Capital recently presented a very interesting concept at the December 2011 TechCrunch conference in Tokyo. At the conference he discussed how the lean startup model had given rise to a lean finance model for venture capital.

The concept: keep funding lean for as long as possible, until the startup has validated its model and is beginning to scale. Usually it takes around six months of metrics to be in position to raise a big round. That “shovel-in” round is where the lean model catches up to the traditional venture model, as shown in the chart.







Image: BullPen capital

By using this process, the founders have preserved more ownership as well as their options. Most startups are not suited to become billion-dollar babies, and exit via M&A, often quickly (a “quick flip”). Lean funding makes the quick flip attractive both to the founders, who often each pocket at least $10M, and the funders, who make larger multiples on their invested capital by putting less in. If this happens quickly, the IRR can be quite attractive to the LPs who invest into the lean venture funds.  They have learned to be wary of big venture, where their capital is tied up for ten or more years.

To learn more, read the TechCrunch article and view the interview with Duncan, click here!



Written by David Frederick

December 6, 2011 at 5:57 PM

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