The way venture capital is distributed is becoming increasingly decentralized.
As a venture partner at a pre-seed fund specializing in small check sizes, this excites me.
If you are an investor, you should be paying attention too. There will be a Cambrian of opportunities to invest in high-growth ventures previously closed off to Sandhill Road and Wall Street.
Let's take a look back in the history of venture funding to see how VC is slowly being decentralized:
In the early days of venture capital, funding sources were centralized to a few big players with deep pockets handing out checks to entrepreneurs. (e.g. Rockefeller's investment in Fairchild Semiconductor).
In the 60s - 70s, more VC firms emerged as a response to the market's demand for access to outsized returns. Venture capital deployment was gradually decentralized as GPs were entrusted to invest LPs' money in their disparate networks.
In the mid-80s, IPO markets cool down, and less well-performing firms faded out. The 90s tech boom and bust happened, and companies that survived would grow to become the largest in the world.
In the 2 subsequent decades, bigger funds (e.g. SoftBank) and bigger deals dominated the market. Capital started to look for breakout companies earlier in the deal process due to capital constraints, and to avoid the rigid competition up top.
Seed funds and micro-seed funds place smaller bets across sectors, ecosystems (e.g. Dorm Room Fund , Contrary Capital) and countries (e.g. 500 Startups) to diversify against the higher risk of early-stage investing, and to look for the next breakout.
Venture capital deployment became more decentralized as smaller checks found their ways into more ecosystems and geographies, but capital sourcing still came from the big pockets. Crowdfunding began to change that.
In the late 2000s, the Kickstarter / Indiegogo crowdfunding model emerged for everyday investors. However, this resembled "pre-ordering with a considerable risk of delivery failure", rather than actual venture investing.
In the early 2010s, JOBS Act Title III was put in place to allow retail investors to invest income into startups for actual equity. Capital sourcing and capital deployment were hence increasingly decentralized across income classes, demographics and regions.
In 2017, #ICOs began to aggressively decentralize venture funding for blockchain startups on all fronts - for better or worse. Mania contributed to rapid returns in cryptoassets and liquidity never before seen in venture capital.
Beyond 2018, as tokenization takes hold and regulatory frameworks are set in place, retail investors will be able invest in tokenized startup equities. We will see more of the VC economics with public market liquidity. Attempts to protect unaccredited investors will be put in place, as complex financial instruments around these assets emerge. This is already happening.
In the future, decentralized exchanges (e.g. 0x Project ) may have a small but important role (assuming there is liquidity).
But in principle, everyone should be able to invest in tokenized equities for startups on a peer-to-peer basis.
Venture funding for early stage projects will hence be radically democratized and decentralized, in capital sourcing, capital deployment, and value exchange - from big checks written by a few industrialists, to investments of all sizes made by everyone globally.
The arc of venture capital is long, and it seems to bend towards decentralization.
This post originally started as a Twitter thread. Follow me here: (https://twitter.com/mrjasonchoi)