Venture capital firms think small to help startups

Instead of targeting a small pool of entrepreneurs with large investments, venture capital firms are now investing smaller amounts of seed capital, called microfunds, with many more entrepreneurs.

Marcio Jose Sanchez/AP
John Doerr, partner with the venture capital firm Kleiner, Perkins, Caufield and Byers, smiles during an announcement of the firm's plan to double its fund to $200 million for applications for Apple products in Palo Alto, Calif., Wednesday, March 31. In spite of its large investment, the new trend in venture capital is smaller investments to more entrepreneurs.

Venture capital firms and angel investors around the country are trying a new investment model. Rather than target a small number of high-potential entrepreneurial companies with very large investments, there is a growing trend of investing smaller amounts of seed capital, called microfunds, with several entrepreneurs all of whom have promising ideas.

The venture capital firm Solidus Co. has pulled together a group from the Nashville entrepreneurship community to create a microfund to support local entrepreneurs and to help accelerate the growth of startups in the Middle Tennessee area.

JumpStart Foundry is focusing on very early-stage concepts. Over the next 12 months, the microfund intends to select 10 to 14 entrepreneurs for the program who will receive financial, business and technological support to accelerate their businesses' growth.

Each of the selected concepts will receive $15,000 in equity capital and set up special arrangements with participating partners for marketing, accounting, legal and technology services.

In addition, three members of the group will use their knowledge and experience to mentor the entrepreneurs and accelerate the success of the projects.

In return for this investment, JumpStart Foundry will receive a collective 10 percent ownership in the common stock of the company.

JumpStart Foundry has made two investments so far.

The most recent is a collision detection system, called WreckWatch, developed by Vanderbilt University computer science students.

WreckWatch uses a smartphone connected to the cellular phone network to reduce emergency response times to an automobile accident. WreckWatch utilizes a smartphone's onboard sensors, such as a GPS receiver and accelerometer, along with special software to detect and report an accident to a remote response center.

The WreckWatch team will use the funding from JumpStart Foundry to optimize its algorithms through further research and testing.

Why it may work

Townes Duncan, president of Solidus, explained why he believes this fund will make an impact on the local startup environment.

"Traditional venture capital funds require investments to be at least $1 million to $5 million in size. This amount of capital is often much more than an entrepreneur can effectively utilize at the very early stage of concept development," Duncan said.

According to founding member Scott Kozicki, the JumpStart Foundry name is meant to be symbolic of a two-fold mission.

"The fund intends to help launch or 'jump-start' emerging new business concepts. Further, we will also act as a foundry by leveraging our experienced group of founders to help mold the concept into an exciting, emerging business.

"To complete our offering, Jumpstart Foundry will also establish partnerships with local organizations to offer important business services at either free or dramatically reduced pricing for the fund's investments."

JumpStart Foundry offers Nashville entrepreneurs a chance to take their ideas from the whiteboard to the market.

(This post ran as my column in today's Tennessean. Note: I am a co-founder of Jumpstart Foundry, but do not have an equity stake nor do I invest in any deals coming to this group).

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