In the past three or four decades, venture capital asset class has played an important role in investing portfolio companies. It has created a high value and lots of successful stories. However, a report in 2012 from Kauffman Foundation broke the silence in venture capital world. They cast doubt on the current venture capital model, and concluded the model is broken, venture capital industry performed poorly over almost two decades.
However, in July, the announcing of a new fund named Upside may inject some fresh blood to the old venture capital model. Kent Goldman, a former partner at First Round Capital who left this year to start a new venture capital fund, Upside Partnership, says in an interview that “it’s a new type of partnership and something that I don’t think ever has been tried in venture capital before.”
According to Wall Street Journal, this unique approach by Upside “will give every founder it backs a share of the firm’s returns along with seed money to build his or her own startup. Mr. Goldman said he will take a “standard” venture capital carry (or roughly 20%) of the returns and will peel out as much as 50% of that amount to divide among the founders. The idea is to provide incentives to founders to share best practices, serve as beta testers and otherwise help each other. ” And both TechCrunch and The New York Times have confirmed that the carry for the founders would be in double digits.
The New York Times reports, the point of the compensation structure, Mr. Goldman said, is to encourage collaboration among the entrepreneurs in which he invests. And this novel approach will bring entrepreneurs to the same side as investors. It has not yet been tested, but the vision of this approach is upside.
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