Making startup finance more efficient #4 - Diversification
Most VCs have very concentrated portfolios with 7-10 companies / VC partner. Thus, they need to be pretty careful when they make an investment. In a sense the evaluation is wasted effort since there are at least a handful of VCs all doing the same work.
It seems like there exists an opportunity for a new investment strategy of funding smaller amounts to a greater number of companies based on a more standardized investment criteria. One could value a company based on some multiple of traffic, do a background check on the founders, write a check and then move on.
There is potential for adverse selection, however, with the more qualified companies going to a traditional VC leaving only the less qualified companies for this new strategy.
