Chatting with the folks at Acquia yesterday, CEO Tom Erickson rhapsodized about “super seed capital,” the hot new venture capital (VC) trend.
“I’m on the board of TaskRabbit, using super-seed financing. These firms only specialize in small rounds of a quarter-million or a half-million. The idea here is they’re a lot more patient. Smaller amounts lent over longer periods create more patience.”
Cool, I guess. The question came up because I have become doubtful about standard venture capital financing as a vehicle for open source. Growth rates on even the best companies (like Acquia itself) aren’t enough for a VC who needs a good shot at a 10-1 win to justify his investment of money and time.
Of course, as is the way of these things, even super-seed looks headed for a crash, writes Paul Kedrosky. This prediction has Always-On pulling out its sad angel, it has Fred Wilson pushing back, and it has reporters watching the show.
It also has me ROFLMAO. Because I don’t know if either the VC community or those anxious start-ups have noticed it right now, but money today is essentially free.
Take a look at what the U.S. government is paying for money. They can get three-year loans for less than 1%, and 30-year loans for barely 4%. They say now is a great time to refinance.
Of course, the way to get those cheap rates is to not need the money. But if you’re rich money right now is not a problem. And you shouldn’t need a 1,000% return to justify an equity investment, either.
The world is awash in capital, and what was once considered a modest return can justify the investment. Even open source can get new financing in this environment.
All we need is a working model for how that cheap money gets paid off. Turn debt into equity, get a modest return on the equity, pay off the debt. Rinse, repeat.
Dana Blankenhorn has been a journalist, writer and part-time futurist for over 30 years.
