Twitter Backer: The Power Is Shifting From Investors to Entrepreneurs

Venture capitalists used to hold most of the cards in Silicon Valley. Not so anymore, says Mike Maples.

It used to be when you started a company in Silicon Valley, the venture capitalists held all the cards. Entrepreneurs would beg, borrow or steal for a chance to pitch an idea to the denizens of Sand Hill Road. And when they were lucky enough to secure backing, the money men would often walk away with a sizeable chunk of the company in return for a mere pittance.


That’s changing, Floodgate managing partner Mike Maples said last night at the Founder Showcase startup competition in Mountain View, CA. He should know. As an early stage investor whose $25,000 stake in Twitter was already worth 26 times that amount as of a year ago, according to Bloomberg, Maples has had a front-row seat on the changes in the investing ecosystem. Two years ago, Fortune named Maples, who also invested in Digg and Ngmoco, one of “8 Rising VC Stars.”

The power shift, Maples said, is due to the significantly lower amounts it costs to start a company today than it did five or 10 years ago. Whereas entrepreneurs used to need several million dollars in order to get a company off the ground, now they can get started with half a million–or less. Many of the companies pitching in last night’s competition, for example, were only asking for a few hundred thousand.

The smaller amounts that entrepreneurs need give them more latitude, Maples said. “They’re less beholden to investors because they need less money to prove or disprove a hypothesis,” he told Fast Company. The smaller amounts also mean entrepreneurs can take risks today they might not have been able to in years past. “If a seed fund invests $500,000 in a startup, and the startup fails,” he said, “it’s not like the entrepreneur never works in this town again.”

The shift also means investors–whether early stage seed funds like Maples’ or larger venture capital firms–have to rethink how they work. The job of early stage investors, he says, isn’t so much about finding the next great business as identifying people who’ve spotted great opportunities and helping them find their business model. “It means a mindset that says, ‘I exist to help you discover your business,’” he said. “I don’t exist to evaluate whether your business plan is right.”

And as for larger venture capital firms who enter at later stages and whose role is to help companies scale and execute on their business model, Maples said entrepreneurs now have more power in choosing with whom they work. “Your success,” he said of the larger firms, “depends on whether you have a good brand and whether the entrepreneurs view you as a credible partner.”

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E.B. Boyd (@ebboyd) has holed up in conference rooms with pioneers in Silicon Valley and hunkered down in bunkers with soldiers in Afghanistan.