TechCrunch - Bradley Tusk says VC is dead. But the 'fixer' in him is just getting started
Bradley Tusk, co-founder of Tusk Venture Partners, explains his decision to not raise a fourth venture capital fund, citing the lack of liquidity and the inefficiencies in the traditional VC model. He found that providing regulatory services in exchange for equity was more lucrative and aligned with his interests. Tusk highlights the challenges in the VC industry, including the lack of exits and the high costs associated with running a fund. He also discusses his initiative to promote mobile voting to increase voter turnout and reduce political polarization. Tusk emphasizes the importance of understanding regulatory environments for startups, especially in regulated industries, to avoid potential pitfalls.
Key Points:
- Bradley Tusk stopped raising traditional VC funds due to lack of liquidity and inefficiencies.
- Equity-for-service model is more lucrative and aligns with Tusk's interests in regulatory work.
- VC industry faces challenges with lack of exits and high operational costs.
- Mobile voting initiative aims to increase voter turnout and reduce political polarization.
- Startups in regulated industries must understand regulatory environments to succeed.
Details:
1. 🎵 Welcome to Equity
- The segment does not contain actionable insights or metrics as it is primarily music without any spoken content.
2. 🎙️ Introducing the Expert and Today's Topic
- The podcast 'Equity TechCrunch' delves into startup business trends and significant technology developments.
- Rebecca Balan hosts this episode, bringing her expertise to the discussion.
- Industry experts join to explore in-depth tech trends such as AI advancements and market shifts.
- Listeners are set to gain insights into how these trends impact the startup ecosystem.
3. 💡 Bradley Tusk's Evolution in Venture Capital
- Bradley Tusk, co-founder and managing partner of Tusk Venture Partners, strategically chose not to pursue a fourth venture capital fund after evaluating financial outcomes from his investment strategies.
- Tusk realized higher financial returns by providing regulatory assistance to tech startups in exchange for equity, rather than through traditional venture capital means.
- In the conventional VC model, profits were significantly reduced due to the need to return capital to investors, repay fees, and split profits, which Tusk aimed to avoid.
- He successfully helped companies like Uber legalize ride-sharing and aided Clear's entry into airports, showcasing the effectiveness of his equity-for-services approach.
- Tusk's decision underscores a broader trend towards direct compensation models in early-stage investments, allowing for retention of 100% of proceeds and potentially influencing future VC industry practices.
4. 🔍 Why Bradley Tusk Stopped Traditional VC
4.1. Focus Shift from Traditional VC Activities
4.2. Duration and Continuation of Traditional VC
4.3. Challenges with Fund Size and Management
5. 📊 Exploring the Equity for Services Model
- The Equity for Services Model involves taking equity instead of cash, particularly effective in late-stage deals where a combination of cash and equity is possible.
- Participants have gained significant regulatory and market strategy insights from managing three funds, enhancing their approach to investments.
- Early-stage investments are often supported using personal funds, with a strategic request for pro rata rights to join future funding rounds, ensuring a stake in subsequent growth.
- The strategic team consists of seven members plus a leader, whose operational funding is sustained by a successful political consulting firm.
- TUS Strategies, the consulting firm, provides financial flexibility by supporting late-stage tech startups and major corporations, allowing reinvestment into other ventures.
6. 🚗 The Uber Story and Political Strategy
6.1. Equity for Services Model
6.2. Regulatory and Political Strategy
6.3. Uber's Regulatory Challenges
7. 📜 Policy and Regulation in Tech
- Uber utilized a controversial strategy of entering markets without prior approval, often opting to 'beg for forgiveness' rather than 'ask for permission.'
- In contrast, fintech companies must obtain strict licenses like banking licenses to avoid legal repercussions, highlighting the importance of compliance in this sector.
- Lemonade's approach in the insurance industry involved obtaining state licenses to ensure legal operation, emphasizing the necessity of regulatory compliance.
- For companies like Bird and Uber, the risk of equipment being impounded was outweighed by the strategic advantage of rapid market entry.
- Decision-making regarding regulation involves assessing risks, political landscapes, and existing market interests, which vary greatly by industry.
- The regulatory approach is highly dependent on the industry, startup type, and market dynamics, illustrating the strategic diversity in handling regulations.
8. 🏛️ Local vs Federal Tech Regulation
- The US tech regulation is predominantly managed by state and local governments rather than federal, which affects how tech companies navigate regulations.
- Dealing with state and local regulations is both advantageous and challenging; it avoids a centralized 'choke point' like DC but requires managing regulations across multiple states or cities.
- Federal regulation can be a 'miracle,' making it rare for investments or startups to rely solely on federal action to resolve regulatory issues.
- Local officials like city council members and state senators receive less attention, providing an opportunity for companies to influence regulations by mobilizing passionate customer bases.
- Examples include Uber and Bird, where mobilizing local voter support had a significant impact on influencing regulations.
- Direct engagement with local officials by registered voters can be more impactful than similar efforts at the federal level due to the lower volume of communication these officials receive.
9. 📱 Revolutionizing Voting with Mobile Technology
9.1. Introduction to Mobile Voting Project
9.2. Successful Pilots and Impact
9.3. Addressing Political Polarization
9.4. Future Plans and Challenges
10. 🔒 Security and Challenges in Mobile Voting
10.1. Concerns and Acceptance of Mobile Voting
10.2. Philanthropic Funding and Open Source Development
10.3. Collaboration with Election Vendors and Customizability
10.4. Potential for Misinformation and Nonpartisan Information
10.5. Impact of Low Voter Turnout on Policy Influence
11. 💼 The State of Venture Capital and Market Insights
- Venture capital has not returned a dollar in capital to LPs in the last four years, indicating a lack of exits and liquidity.
- Some funds have resorted to secondary sales at substantial losses, reflecting the scarcity of exit opportunities.
- Recent IPOs, such as the Google WHZ acquisition, are under close scrutiny as potential market openers, yet overall liquidity remains low.
- The secondary market often involves significant discounts, underscoring the lack of lucrative exit opportunities.
- Companies are compelled to manage burn rates strictly, with many resorting to raising down rounds or utilizing debt facilities.
- The market was previously overheated with high valuations, necessitating a painful but necessary correction.
- This lack of liquidity impacts not only VCs but the entire investment cycle, influencing future fundraising and startup growth.
- Recent IPOs, while limited, may signal a shift, but the broader impact on market sentiment is yet to be seen.
12. 🌟 Keeping Innovation Alive Amidst Economic Challenges
12.1. The Impact of Liquidity on Innovation
12.2. Challenges of Monopolistic Power and M&A
12.3. Strategic Advice for Founders in Current Market Conditions
13. 🔗 Closing Thoughts and Contact Information
- For startups in regulated industries such as energy, healthcare, education, transportation, gaming, or fintech, understanding the regulatory landscape is crucial to avoid significant back-end costs.
- Bradley offers advisory services and can be contacted through touchventures.com or LinkedIn for strategic guidance.
- He hosts a podcast called Firewall and has a Substack, providing insights on industry regulations and trends.
- Bradley owns PTN Wear, an indie bookstore in Manhattan, which doubles as a free podcast studio and community event space, fostering industry dialogue and innovation.