It's been a slow summer on the blogging front . . . but I've got a couple of posts on better articulating a fund's value proposition and surmounting fundraising challenges that I'm going to put up right after Labor Day.  I'm just trying to be helpful . . . providing a public service and whatnot.

In the interim, I thought I'd share an iPhone pic that I took at a July 4th concert not far from St. Johnsbury, Vermont.  Of course, that town is named for Hector St. John de Crevecoeur, author of the seminal 1782 work, Letters From An American Farmer.  In that book, de Crevecoeur famously asks: "what then is this new man, this American?"  His answer presages the two centuries of progress that followed:

"Here individuals of all races are melted into a new race of man, whose labors and posterity will one day cause great changes in the world. Americans are the western pilgrims."

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Speaking of great changes in the world, here's a link to a Q&A at PEHub on micro-cap VC I did this morning:  http://bit.ly/cTUPwB

We’ve spent a lot of time lately discussing micro-VCs, including last week’s news on Floodgate ($73m fund close) and 500 Startups (new $30m fund being raised). So I spent some time discussing the phenomenon with Chris Douvos, who invests in mico-VC funds through his role as a managing director with The Investment Fund for Foundations:

How long have you been investing in micro-VC funds, or super-angel, funds??

We’ve been active in this space since around 2005, and have invested over time in several of the archetypal managers.

Who are those archetypical managers?

Well, the main one is someone we actually haven’t given money to: Ron Conway. He’s created a fantastic ecosystem. But we’ve backed some of the people who have taken types of things he does and refined them a bit. For example, one of our earliest investments was in First Round. We think those guys have brought an aggressively thoughtful approach to the challenges of investing in seed-stage companies.

I love the O’Reilly AlphaTech guys, whose differential is that they’re leveraging the larger O’Reilly ecosystem. In the case of O’Reilly or First Round or Floodgate, they’ve created brands around themselves that magnetizes interesting people. That helps them punch above their weight.

How do you define a micro-VC fund?

I was at a Silicon Valley Bank shindig the other day, and people were talking about segmenting the space. “Who is a super-angel compared to a seed-stage VC, etc…”

To me, what initially attracted me to the space is that it was about people who had found that the arithmetic was on their side. They were recognizing some really meaningful trends at certain types of startups – capital efficiency and the fast cycling of ideas at IT/Internet companies – and were typically people with some sort of entrepreneurial background with a bit of investing experience thrown in.  They saw a capital gap that they could fill by being nimble in the sense of traditional angels, but also bring a level of activity and DNA-setting that was the hallmark of more institutionally-focused funds.

The idea wasn’t necessarily to supplant VCs, but to be a value-added early processor of companies. The startups would be far better off for having this earlier participation, and then traditional VCs would bring their own skills to the table.

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But, lots of those traditional VCs are now launching seed programs of their own. Are you worried that they’re going to overcrowd the seed market?

Warren Buffett famously said that innovators are followed by imitators followed by idiots. Every interesting financial play has that dynamic. We saw a lot of innovation in 2004 to 2006, and now there are a lot of people imitating. Many of them can make lots of money doing so, and are good in their own right. What I worry about is getting to the idiot stage, where people without the right qualifications or backgrounds try exploiting a perceived availability of capital.

So where do you come down on the “micro-VC bubble” argument?

Without sounding too Pollyanna, I think that the competitive dynamic has changed, but I don’t think there’s a bubble yet. And I think it would be difficult for there to be a bubble because the environment is so target-rich.

When we talk about VC, everyone focuses on big outcomes and how few of them there are. But the arithmetic of the micro-VC space is such that you can have outstanding venture returns with extremely modest exits. This translates into giving yourself dozens – maybe even hundreds — of good opportunities per year, rather than just a few.

Is it possible, however, that many of those current targets are only there because the larger economy sucks, thus creating many entrepreneurs who otherwise would have corporate jobs?

That’s a great question. In our experience, we typically see more people who are really committed to entrepreneurship than refugees from  large companies who feel the opportunity cost of their time has gone way down.  If you look at the portfolios of our micro-VCs, the crazy “walk through walls” gene is over-expressed.

Is there a “proper” amount of money for a micro-VC partner to manage?

The answer to that question is a function of their stance toward follow-on investing…

Ok, let’s assume they let a bunch of early bets go, but double or triple down on the strongest ones?

Then the short answer is that there’s an emerging consensus of $30 million per partner. Is that the right number? I’m not sure.

One of the challenges is that we’re in the second or third inning of this ballgame. We really don’t know what the right strategy is, and there may be multiple right strategies. Some will invest early and not follow on aggressively. Others will want to protect their ownership, and will need more capital per deal per partner.

A lot of these guys are going to have to seriously think about reserves and ownership and community. This is not a community that’s been marked so far by sharp elbows, but in time it may become a feature of the landscape.

Every micro-VC fund I’ve seen focuses on IT/Internet/mobile technologies. Have you seen any that involve botech or cleantech or another non-IT sector?

The value proposition is IT, because of the macro trends we discussed earlier. But we are seeing folks across the spectrum pay a lot more attention to capital-efficient companies. We’ve seen capital-efficient cleantech funds. And capital-efficient healthcare funds. So it’s definitely a pervasive thing in the atmosphere. But I think it’s most dynamic and most fluid in the IT world.

Also, it’s important to remember that capital efficiency is only half the story. The other half is about how fast you now can test cycle ideas. That’s hard to do in biotech, where you have the regulatory gauntlet to run, or cleantech, which has long sales cycles with large concentrated end users. So that’s good for IT, although the flipside is that you’ll have the endemic challenge of low barriers to entry.