Much has been written about capital efficient startups. Needless to say, I’m a big fan.
Typically, capital efficient startups come in two different flavors:
1 – One type are those that burn little/modest capital in the first stage (generally 0-2 years) while at the same time learning a lot and creating signficant value. At that point, they can raise follow on rounds (for growth, ad sales, staffing, scale, whatever) at a higher price which is good for all inside shareholders and also reduces the risk for the new investors.
2 – The other type are capital efficient companies that reach profitablity with little invested capital and then can grow from profits.
I’ve seen startups come in both configurations and it’s a beautiful thing. We have a number of them in our portfolio and I am confident we will continue to invest in capital efficient startups.
But over the break, i’ve been thinking about companies that require signficant capital upfront – before they prove anything or reach any meaningful milestone.
Specifically, I’ve been thinking about consumer electronics. In our world of capital efficiency, is it possible for a startup to build our next generation phone, television, tablet, ereader or game console? Or do we all have to wait for Google, Microsoft and Apple to make these things? Are big co’s the only ones that can innovate and bring these products to market?
I believe that startups can build these things. Just look at Tesla for inspiration.
It’s going to take a special combination of entrepreneurs, operating excellence, capital and audacity. But it can happen.
And I hope we can invest in some of them – in addition to our capital efficient tech startups.