I moved into venture for the same reasons I moved into entrepreneurship: there were immediately addressable needs that were relevant to me and large enough to be felt in the broader market. Just as had I made it my mission to expedite the introduction of needed technologies into the marketplace, I saw an opportunity in Venture Capital to fill a gap that could make a significant difference for investors. My initial concern was the low ROI I had read about in the Kauffman Foundation Report 2012, documenting a poor history of returns for the average venture investment over the previous 15 years. Was the system itself ripe for a little disruption?
While venture capital and alternative investments, as an asset class, have been advertised to outperform the market based on their higher level of risk, there was something keeping the average venture returns suboptimal. The answer was highly systemic. The Funds were charging management fees over the life of the fund as well as a preferred liquidation charge that was taking significant capital from both the portfolio companies and the investors. In addition, with the abundance and availability of capital, the average Fund was growing larger and larger, compelling its investments to also be larger and larger. This pushed the average investment to a much later stage in a company’s development. To get the advertised ROI for the investor, the Fund would need to hit a home run on each of its investments. To make matters even worse, the Funds were writing large checks to mostly unproven entrepreneurs and trusting in their ability to execute on the Funds unrealistic ROI requirements.
Could I build something different?
What if the Fund’s management itself could be the founder/entrepreneur, and thus start out with 100% ownership of its companies at $0.00 valuation? It would be in control of the company’s development all the way through that venture’s life cycle. If that could be done, investors would definitely receive a lion’s share of the upside. Add to that no fees or carry, so the fund managers could stand side by side with their investors as partners, exiting under the same rules that the investors did.
And so K8 Ventures was conceived. A supply chain of company creation, partnering with and supported by a dedicated team of talented individuals all aligned on vision, mission and compensation. In summary, K8 creates “home grown” companies giving K8 consistency and control over the road mapping of its companies’ trajectory.
While it is true that the organizational layout of this model is key to K8’s success, there is also a human element to K8 Ventures that cannot be overlooked. I’ve blogged about the incredibly collaborative team we’ve built before and the result is that we all contribute to value creation, ensuring that every investor and LP are on the same page. Which is remarkable, really.
In two years of functional existence, K8 has seen success manifested in various ways from an amazingly receptive market to early traction with partnerships and, we are fortunate to be in contract discussions for our first exit.
Another of K8’s “home grown” companies, P3rceive, a cutting-edge, neural network technology-based, financial sales simulation and modeling engine, has forged a strategic partnership with the largest mid-market accounting firms in the U.S. And K8 is rapidly developing the IoT technology for a device that will help users manage their nicotine intake.
While these advancements are all incredibly exciting, they are only the beginning for K8. K8 will continue pushing the boundaries in building creative, influential companies that not only offer unparalleled opportunities for investors, but improve the world in which they are born into. And like the very companies it builds, I want K8 to change its industry, venture capital, as it continues to bring a fresh, people-centric view to the VC world.