A lot of software/online venture activity these days is going “small time”. Instead of investing millions in startups, some venture firms are placing multiple small bets with small teams.  Sub-ventures, which we’ll discuss soon more in depth after setting the tone here, differ slightly from the small bets placed by venture capital firms, and they differ greatly from the traditional model for venture capital.

I participated in the first Startup Weekend, in Boulder, CO, where the idea was that you could gather together a group of about 100 people from different specialties, work really hard for a weekend, and come out Sunday night with a fully formed company.  That first one failed, but the idea caught fire, and there have now been dozens of them.  The success rate is tagged at about 20% – success here meaning still operational – which isn’t too bad considering most of the people attending the events are employed full time elsewhere.

Another idea out of Boulder is Techstars, which I nearly participated in but got edged out in the final round.  This idea took 10 small teams and gave them a few thousand dollars per founder to get a fundable company together over the course of a summer.  Three of the funded companies have been sold to date – Brightkite, SocialThing and Intense Debate, and several more have gone on to receive venture backing.  While Techstars teams receive top-notch mentoring and a contact base to die for, the total initial investment is only up to $18,000.  Assuming the companies sold for well over $500,000 and most only had two very young founders, that’s a pretty good ROI.

Contrast these successful ideas to the “typical” venture backed model we saw 10 years ago.  Most ventures then required investments of several million dollars, hiring at least 10 people, and developing a product from scratch with much more limited software tools.

Now, software tools for rapidly prototyping and getting to full deployment are readily available.  Languages and platforms have advanced so much that putting together an application can be done well and quickly with far more limited resources.  The power of the Internet makes it possible for these quickly developed applications to be viewed and used by millions of rabid fans hungry for the next big (or fun or funny) thing.

And this brings us to an idea I’m pursuing now called “sub-ventures”, which are a hybrid of the super-small and super-sized venture capital models we are seeing out there.  I see four main differences from the super-sized model and one critical difference from the super-small ventures.

Here are the points we’ll cover:

1. Execution Risks.
2. Capital Requirements.
3. Open Source vs. Proprietary Software.
4. Exit Strategy.

In subsequent posts, I’ll go through these differences and we’ll see where we might learn something about creating ventures with low risks and high returns based on the model.  I’m putting together at least one of these right now, and others will follow…so stay tuned.