Is Traditional Venture Dying?

The companies most intriguing to venture capitalists are companies with potential to disrupt old existing industries. Uber and Airbnb famously disrupted transportation and hospitality respectively. As many industries find themselves staring at either internal innovation or death by disruption, it might be time for traditional venture capital to take a hard look at it's model as well.

A Wall Street Journal article on many founders' increasing discontent with the traditional venture deal structure points towards the rumblings of a potential shift in the way entrepreneurs source capital. Taking venture capital really only works well for all shareholders if the company grows to a high valuation and has a successful exit. If this does not happen, the VCs are left with a poor return on the deal and founders are left with little payout due to investor liquidation preferences.

If this growth is not achieved early on,

founders look around three years in, and they have 45 people and no real business model and own 4.5% of their business and are asking themselves what happened.

Surprisingly, according to the WSJ article, only 6.5% of high growth startups take venture funding (though of the companies that make it to an IPO, closer to 40% are venture backed). If such a small portion of high-growth companies are taking venture capital, then there there is a large portion of potentially successful, high-growth companies that are not.

There are multiple alternative funding models that exist for wanting to raise capital and those who would like to invest in early or series A stage startups. Two come mind: indie.vc and Angel List. Indie.vc does not immediately take ownership its portfolio companies but rather takes options to convert during an exit. If the company stays private, indie.vc takes cash repayment of multiples on its original investment. On the investor side, Angel List allows individuals to fundraise on their own and create syndications to provide larger investments in companies without the traditional venture capital firm bureaucracy.

Where are the fast-growing companies not taking venture capital getting their capital during their growth stage? Can individual accredited investors benefit in the future from growing founder discontent with the traditional venture capital model or is the network of the VC firms what really drives these companies to true success?