Sam, I don't think it's wishful at all. As I say in my first comment, this is happening. If I run into two fund managers working on this in one week, I wonder how many others are. The world has changed. The optimum entrepreneurial models have changed. This creates new, lucrative funding opportunities. Its not about balance sheets anymore. Its about customers and revenues - especially recurring revenues. If I brought you a business that could prove their cost of customer acquisition was $100 and the lifetime value of that customer was $500 - wouldn't you be interested in providing them $100,000 to acquire another 1,000 customers (worth $500,000)? Sure, that's a very simple model, but that's what this new funding opportunity looks like. I think it's exciting.

Outstanding post, Danny. I've added a link on my list on the broken VC model here: http://www.angelblog.net/The_VC_Model_is_Broken.h...

You bring up an important point on new investment models. Earlier this week, in Washington State, I had a fascinating discussion on this with Rob Wiltbank from Willamette University. He is one of the world's top researchers in the area of entrepreneurship, angel and VC investment. Yesterday, Gary Yurkovich from Espresso Capital and I discussed the same thing.

We all agree completely with your prediction that new sources of financing will soon be available to fund the scenario you describe above. But we don't think it will come from traditional banks, but instead from new types of funds that will designed specifically to service this new need in the market. Both Rob and Gary are thinking about building a fund to do that.

Excellent response, Brad. Thanks.

10% feels about right to me and I agree that definitive data is frustrating difficult to find. Scott Shane, in his book "Fools’ Gold", says “Estimates using data from the "Entrepreneurship in the United States Assessment" indicate that the friends and family capital market is about $139 billion annually.” The best numbers I can find indicate that traditional VCs and angels each invest about $20 to 25 billion per year.

So the total seems to be somewhere in the $200 billion range, giving each of VCs and angels about 10% of the total. (I am still surprised by how big the Friends and Family component is.)

In the interest of keeping the debate going, I would like to respectively disagree with your point about using “longitudinal data – probably going back to the 1980s”. The VC industry has changed SO much since then. Back in the 1980s, the average VC principle was responsible for investing about $3 million – not per year, but total. Many of my angel friends manage portfolios bigger than that.

Back in the 1980s, the median VC investment in companies with M&A exits was around $5 million. Now it’s over $30 million.

Here are a couple of graphs to illustrate those metrics: http://www.angelblog.net/Venture_Capital_Firms_Ar...

The size of today’s traditional VC funds is the single biggest reason that the old VC model is so badly broken.

I like your term ‘visitors’ to describe a lot of the guys who built, and then failed to effectively manage, those huge VC funds created in the 1990s.

The economy desperately needs more early stage investors like you and Fred Wilson who will actually invest in start-ups. And more greybeard VCs like Alan Patricof who will say publicly that to produce a good return, today’s VC funds should be around $75 million in size. And of course, a lot more angel investors.

On the identity crisis, my comments may be more about my own ‘damage’. I co-founded a traditional VC fund in the early 2000s. About five years in, I realized that the ‘traditional VC model’ was broken - irreparably. It was painful to see all that work go into building something on a defective foundation. I don't want to identify with being a “VC” anymore because most people now associate that term with something that doesn’t work and needs to change.

I wish we could find a new term that followed in the size sequence of:
1.angel investor,
2.angel fund
3.<new name for a right-sized fund that works beneficially with entrepreneurs and produces an outstanding return for its stakeholders>

Great job of illuminating the BS, as usual. But in this case, I am afraid that Steve Murchie is ‘more right’ than you are on the question of VCs having “effectively stopped investing in seed stage ($500K and less) and startup-stage ($2M and less) opportunities.”

Sure, I agree with your list of “good friends who happen to be VCs that also make investments in this range.” You and your friends are in a small minority of VCs. Most traditional VCs make VERY few startup and seed investments.

I have believed for a while now that you have an identity crisis. You call yourself a VC but you act and think like an angel investor. Yeah, I know you have written about your angel deals, but you still think of yourself primarily as a VC.

The data is that angels invest in about 27x more startup and seed deals than traditional VCs: http://www.angelblog.net/Angels_Finance_27_Times_...

You are absolutely correct that the data on the VC industry is bogus – dangerously so: http://www.angelblog.net/VC_Return_Numbers_Are_Bo...

Keep up the great blogging – it’s important.

This is a fascinating idea. There is a similar angel investor CPC in Vancouver - Green Angel CPC. The CEO is the founder of the Vantec Angels. They are using the CPC to build a secondary market for angel backed energy and cleantech companies. Here's a recent press release http://www.wutif.ca/greenangel/NR090612-QT.pdf

Healy - outstanding post. Very true. Like most things, this cuts both ways. I've sat through about 1,000 pitches now. Watching my fellow VCs and angels, I have come to believe that the biggest reason entrepreneurs DO get funded is because the investors LIKE them. Most of my investor friends disagree, but I am sure it's true.

There is a very easy way to determine if this factor is the reason you aren't getting funded. Yes, I said EASY. Find a mentor who really understands the investment process. Have them work you through your pitch before you present. It's also essential you have them at the presentation. Make sure they get a chance to hear the feedback from the investors. If they are good, they will be able to tell you with an 80% certainty, what the investors are really thinking. If they are REALLY good, they will be able to tell you how to fix it.

Brad - thanks again for flying to Vancouver just to speak at the first Bootup Labs Entrepreneurial Society gathering. You made a very valuable contribution to our community. I hope you feel better soon.

David - an outstanding video and a great tribute! Well done!

Outstanding post, Mark. This is a great case study for 21st century entrepreneurs. Bootstrap then Early Exit. For anyone thinking of going this route, my book will be out in March http://www.Early-Exits.com

Great post and some fascinating statistics.

But didn't "the markets have hit bottom, stabilized and begun their growth again" in the decade after the 2000 bottom?

From your numbers, that didn't seem to help much.