Saturday, January 30, 2010

The Power of the Portfolio: VCs and Entrepreneurs

Kudos to the venture-capital (VC) firm First Round Capital for offering its entrepreneurs an exchange fund: If First Round invests in your startup, you can exchange a small percentage of your own company shares for shares in a fund tied to the total First Round portfolio’s performance. As First Round’s managing director Josh Kopelman said, “When I was an entrepreneur, I remember the feeling of having all my eggs in one basket — and it is our hope that this fund will remove some of that stress.” Assuming the details of the plan are consistent with its spirit, it will be a great option for entrepreneurs and a positive differentiator for First Round.

That said, beyond the normal VC role of facilitating relationships among portfolio companies, how else can VC firms leverage their portfolio-holder position on behalf of those in the portfolio? For example, could a VC firm share a health-care/benefits program across all its early-stage startups? Each startup would pay its own way, just as if the startup had its own program. However, a portfolio-wide program would have better terms due to its size, would eliminate the cost and hassle of each startup finding and establishing its own plan, and would offer COBRA for individuals at failed startups (who ordinarily would be out of luck, since COBRA is predicated on the continued existence of a company).

I am sure other examples exist, and I look forward to seeing them emerge for the benefit of entrepreneurs and VCs alike.

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