10.10.06
Crossover Venture Model
I was in a VC/Startup event tonight and sit with some smart VCs. One of the discussion topics was about crossover investment model and why most VCs should consider the crossover investment strategy that combines hedge fund with traditional VC practice to enhance returns and reduce risks. If you are not familiar with the crossover model, read Peter Rip’s discussion on this. Peter did a great job of putting this clearly.
Even though a lot of “top tier” funds are staying with the traditional VC model, a few great funds such as Sequoia are quietly hiring PE guys into their fund. This may not represent a significant investment strategy shift, but it does raise potential that a combination of PE/VC strategy and talent through cross-stage business intelligence and connection points will help increase probability of investment successes in the right sector at the right time. In addition, this strategy could deploy hedging that can reduce volatility and big costly mistakes.
Entrepreneurs need to realize that VCs are one type of money managers and their primary responsibilities are towards LPs. It does not mean VC’s interest are not aligned with entrepreneurs, but when the hard decision need to be made, VCs tend to think like a money manager with a balanced portfolio vs entrepreneurs with only one company.
