In Search of the Optimal Venture-to-Capital (V2C) Business Model

Abstract

This paper illustrates the differences between traditional and emerging business models in the recently identified Venture-to-Capital (V2C) area. This area refers to the stage in the development of a company when it is “between Venture and Capital”, ie. before the idea or the venture is eligible for Venture Capital investment. Many entities exist to assist companies in the V2C operating space. Most obvious taxonomy of the V2C players includes Incubators, Advisors, Business Angels and Classic/Seed VC. All these have different business models, including motive, contribution, incentive and revenue model. There is, however, a large number of new operatives in this field which do not quite fit this traditional taxonomy.

In this study, a number of these new operatives are examined and their business models outlined. When comparing the traditional and new business models, three observations are made as conclusions: New models are hybrids of traditional models with only some new features; Contributing intellectual capital in the sense of “sweat capital” or business knowledge is seen as a key requisite; Trend goes towards obtaining equity interest in the target company for upside potential in the compensation. This study paves way to future research in creating new taxonomy for Venture-to-Capital operatives and delineating a “best practice” to the practitioners in the field.