Tables turn as VCs pitch ideas to start-ups

Venture capitalists in the United States are pitching ideas to entrepreneurs on behalf of time-poor investors, with local funds backing the idea to take off in Australia.

An article in The New York Observer claims American VCs are attempting to lure entrepreneurs with promising start-up ideas, crediting start-up incubator Y Combinator as the catalyst for the trend.

“Most tech VCs would say they swear by [American angel investor] Ron Conway’s adage, ‘We invest in the entrepreneur first, not the idea’, but … VCs seem increasingly comfortable placing a custom order,” the article states.

“The practice was sanctioned in 2008 when… Y Combinator published its start-up wish list.”

The article goes on to say that since then, the concept has taken off in the US, with VC firms becoming increasingly comfortable to pitch their ideas to start-ups.

Mick Liubinskas, co-founder of Australian tech seed fund Pollenizer, agrees more VC firms are starting to take this approach, here and overseas.

According to Liubinskas, Pollenizer has already been approached by investors looking to develop their ideas via purpose-built start-ups.

“We’re being approached by people who have some money to invest but they don’t have the time to pursue their ideas,” he says.

“For example, investors say, we want a mobile business in our portfolio – are you interested in building a business around this? But that doesn’t mean it stops people from launching new start-ups in their garage.”

Serial entrepreneur Domenic Carosa, who heads up Future Capital Investment Fund, also supports the idea. “It’s another valid method of coming up with good ideas,” he says.

“Some people are not that good at coming up with great ideas but are great at executing them and vice versa. This concept simply allows VCs to wear one of those hats,” he says.

However, the New York Observer article questions the viability of start-ups that didn’t formulate their own ideas.

“Jordan Cooper, a venture partner at [New York-based VC fund] Lerer Ventures, recently offered funding and office space to anyone interested in working on an app he mostly wants for himself – a private social network where people can dish on their love lives,” the article states.

“A few people offered to build Mr Cooper’s dating app … but they weren’t committed to sticking with it long-term.

“If they wanted to build someone else’s idea, they wouldn’t be entrepreneurs – they’d be working for a software development agency.”

Liubinskas says start-ups are “always hard and always risky” and therefore need to be formed in a certain way.

“They can’t work without the founders having an equity stake. The founders also need to be well paid but can’t have too much money. When they have too much money or too much time, that’s when they become complacent,” he says.