THE FRAMEWORK

I have a need to organize the world.  Four years in as an angel investor and one as a VC, I realize the world of startups and venture investing is pretty noisy and ambiguous… very hard to organize! But there has to be an order, a pattern. How else can one make a successful career of venture investing (money) or entrepreneurship (time and heart) in startups?  Without some structure, it is gambling.

Below is my framework for thinking about digital startup BUSINESS MODELS. This is based on the 500+ startups I’ve seen over the last few years. The framework is still evolving, because my data set is evolving too, and I am young and learning.

I think about businesses model as a vertical line connecting the customer to profit. 

The BUSINESS STRATEGY is where and how the entrepreneur chooses to play on each of these dimensions. The spectrums of how and where to play are captured in the full framework below. There are many different ways to create and MONETIZE a valuable service for customers, depending on type of customer. 

THE GOOD: MORE FUNDING AND MORE STARTUPS…

One of the original theses behind Hyde Park Venture Partners was the attractiveness of the growing entrepreneurial ecosystem in Chicago and the broader Midwest on the startup and funding sides. A year into this journey, we wanted to revisit a few of the metrics we first considered when ideating HPVP in 2010 – namely early stage round frequency and capital invested. At that time, we were looking back at 2007-2009 data. We expand on that in the chart below to include 2010 and 2011 data.

       Source: VentureSource, includes business/consumer services and IT only

Midwest dollar investment levels have returned to and surpassed pre-crisis levels and the number of rounds has nearly doubled that of pre-crisis levels. Both of these facts are good news for the startup and investing environment. Not only is capital flowing into the ecosystem, but more opportunities are being funded, widening the funnel at all stages of the startup spectrum.

Given that there are not a lot of new VC funds in the Midwest (and in fact many approaching the end of their investment life), one might wonder where the capital is coming from. While data to prove it is limited, our hypothesis is that there is increased capital flowing from coastal funds and local angels. Anecdotally, we know there are a number of coastal funds showing interest in Chicago. Indeed, some have invested with us (Amicus Capital, Great Oaks Venture Partners and others).

We also know that angel activity levels in the US are approaching that of VCs and likely surpassing them in the early stages. This is discussed in a recent Wall Street Journal article citing a study by the Organization of Economic Cooperation and Development (read article here). In Chicago, we see very heavy activity by angels – both as individuals and through more institutional entities like Hyde Park Angels. The Angel Resource Institute reported in its 1H 2012 Halo Report that angel activity is increasing significantly in the Midwest relative to other parts of the country and that angel groups are increasingly investing with other types of investors (VCs). This is true in particular for round sizes above $1M, where companies typically need an institutional investor to take a large stake and lead the round, even if angels are involved.

We are excited to introduce HPVP's new branding and website, www.hydeparkvp.com, our prime channel for sharing the latest and greatest news about our portfolio company partners. You can also visit here to find job opportunities with our companies as well as Ira and Guy's occasional thoughts and ruminations on the startup and venture world.