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VC is generally designed for big bets and big payoffs (invest in 10 risky bets in the hope that 1 pays off to cover your losses on the other 9). Less risky vent

by exelius 11y ago

VC is generally designed for big bets and big payoffs (invest in 10 risky bets in the hope that 1 pays off to cover your losses on the other 9). Less risky ventures with smaller payoffs take longer to grow, and don't satisfy the payoff requirements of the VC model. That doesn't mean they're bad companies, but there's definitely a funding gap for the type of company that will require $3M in investment up front and be worth $10M in 5 years. That's still a great return, but right now it's the domain of private equity.

TeMPOraL 11y ago
VCs themselves aren't the problem. Big bets are fine. The problem is acquihiring. It's: - good for founders - they get a big fat paycheck and a chance for a job in a big company - good for VCs - a payoff, even if small, is better than no payoff at all, so they want their 9 not-so-good startups to be bought - good for the buying company - they can literally just kill the competition by throwing money at them, + they get some proven and experienced employees, which may be worth it given the unreliability of the standard hiring process Care to guess who this deal is not good for? Startups are (and are being heavily marketed as) a get-rich-quick scheme. Most of the people involved are self-selected to follow this process. And all this talk about providing value to the users? That's the part of the scheme where you get used.
- exelius 11y ago
  VCs are totally the problem here. It's not that VCs are bad people who want to screw over users, but their business model requires them to get payback on their bets, even if it's small. It can be hard to know up front if an idea is viable as a hockey-stick software company or if customer acquisition is much, much harder - often because you don't know who your target customer will be specifically until you've iterated a few times. And many times, there's no other exit option for the VCs. Does it suck for users? Absolutely - which is why companies often have lots of apprehension about being early adopters of a startup's technology. It's why B2B startups are really hard, and why they tend not to hockey-stick because the customer acquisition costs are high and don't shrink with scale. It's up to the founders to convince their VCs to pass on the acquihire because they think the company still has hockey-stick potential. Zuckerberg did this a number of times - it was still really arrogant, but it paid off for Facebook and shows why founders need a bit of arrogance to be successful. It's a lot harder to do this if you're running a startup that doesn't have a lot of market traction.
  - coldtea 11y ago
    >VCs are totally the problem here. It's not that VCs are bad people who want to screw over users, but their business model requires them to get payback on their bets, even if it's small. Doesn't that make them bad though? I mean it's like saying "It's not that the mafia are bad people who want to screw over people, but their business model requires them to blackmail and occasionally kill" (not comparing levels of "badness" of course, merely showing the problem in said reasoning). It's not like following a particular "business model" is not a decision people get to make. And if people take the VC model that favours acquihires, then they very much have decided to do stuff that screws with users.
  - nostrademons 11y ago
    I think most VCs would rather see the company stick it out and go for the hockey-stick & IPO. An acquihire is a blip on their returns; it's basically worthless. They're usually arranged as a courtesy to founders, so that if you work your butt off for 3 years, do everything right, and still don't find success, you don't leave with hard feelings toward the other people you worked with. You get acquihires when the assumptions behind the company's business model have been proven false and there's basically no way to solve it other than rebooting the company. Arguably this is an argument to not take VC until you've got the hockey-stick trajectory, so you can pivot & reboot at will without dissolving an existing organization. But even this sucks for customers, if you have any.
  - angryasian 11y ago
    Another thing that should be mentioned is that most VC's have a close relationship with bigger tech companies. Its a way to move money out of the public markets and back into private. There are multiple implications with this type of behavior.
- snewman 11y ago
  This may be a contrarian view, but: I'm not convinced it's good for the buying company. Good engineers are hard to find, but this is an awfully expensive way to hire; you may not keep the good people for very long; and if you're the kind of company that has a really hard time hiring good people, you may not also be very good at getting engagement and productivity out of the people you acquihired. My view on acquihires is that to some extent it's a trick the acquiring company plays on itself. Some manager is getting to hire a few good people using money (the acquisitions budget) they wouldn't otherwise have access to.
  - exelius 11y ago
    Acquihires are more about hiring functioning teams composed of engineers and executives who are used to working with each other. That's a lot more expensive to build than just the salaries; and you can generally take that team and throw them at a problem with a reasonable expectation they'll accomplish something. Also, there's generally some amount of IP and customer data involved as well.
    - georgemcbay 11y ago
      "you can generally take that team and throw them at a problem with a reasonable expectation they'll accomplish something" For about 6 months to a year, after which time most of them have left, or have gone into "waiting for the golden handcuffs to come off" zombie-worker mode on a project they have no inherent interest in. Totally anecdotal but the couple of acquihires I've seen from the inside have gone like this and it seems to be the natural state of them based on what I've heard second-hand from others.
      - enos_feedler 11y ago
        I agree with this based on the 20 or so people I've known to go through this process to join a large company (amazon, google, etc). I've heard first-hand accounts of people even re-negotiating deals just to get out of the golden handcuffs they thought they could tolerate but couldn't. I understand this sounds a bit hoaky and I would love to give names and companies here, but obviously can't.

by exelius 11y ago

TeMPOraL 11y ago

VCs themselves aren't the problem. Big bets are fine. The problem is acquihiring. It's: - good for founders - they get a big fat paycheck and a chance for a job in a big company - good for VCs - a payoff, even if small, is better than no payoff at all, so they want their 9 not-so-good startups to be bought - good for the buying company - they can literally just kill the competition by throwing money at them, + they get some proven and experienced employees, which may be worth it given the unreliability of the standard hiring process Care to guess who this deal is not good for? Startups are (and are being heavily marketed as) a get-rich-quick scheme. Most of the people involved are self-selected to follow this process. And all this talk about providing value to the users? That's the part of the scheme where you get used.

exelius 11y ago
VCs are totally the problem here. It's not that VCs are bad people who want to screw over users, but their business model requires them to get payback on their bets, even if it's small. It can be hard to know up front if an idea is viable as a hockey-stick software company or if customer acquisition is much, much harder - often because you don't know who your target customer will be specifically until you've iterated a few times. And many times, there's no other exit option for the VCs. Does it suck for users? Absolutely - which is why companies often have lots of apprehension about being early adopters of a startup's technology. It's why B2B startups are really hard, and why they tend not to hockey-stick because the customer acquisition costs are high and don't shrink with scale. It's up to the founders to convince their VCs to pass on the acquihire because they think the company still has hockey-stick potential. Zuckerberg did this a number of times - it was still really arrogant, but it paid off for Facebook and shows why founders need a bit of arrogance to be successful. It's a lot harder to do this if you're running a startup that doesn't have a lot of market traction.
- coldtea 11y ago
  >VCs are totally the problem here. It's not that VCs are bad people who want to screw over users, but their business model requires them to get payback on their bets, even if it's small. Doesn't that make them bad though? I mean it's like saying "It's not that the mafia are bad people who want to screw over people, but their business model requires them to blackmail and occasionally kill" (not comparing levels of "badness" of course, merely showing the problem in said reasoning). It's not like following a particular "business model" is not a decision people get to make. And if people take the VC model that favours acquihires, then they very much have decided to do stuff that screws with users.
- nostrademons 11y ago
  I think most VCs would rather see the company stick it out and go for the hockey-stick & IPO. An acquihire is a blip on their returns; it's basically worthless. They're usually arranged as a courtesy to founders, so that if you work your butt off for 3 years, do everything right, and still don't find success, you don't leave with hard feelings toward the other people you worked with. You get acquihires when the assumptions behind the company's business model have been proven false and there's basically no way to solve it other than rebooting the company. Arguably this is an argument to not take VC until you've got the hockey-stick trajectory, so you can pivot & reboot at will without dissolving an existing organization. But even this sucks for customers, if you have any.
- angryasian 11y ago
  Another thing that should be mentioned is that most VC's have a close relationship with bigger tech companies. Its a way to move money out of the public markets and back into private. There are multiple implications with this type of behavior.
snewman 11y ago
This may be a contrarian view, but: I'm not convinced it's good for the buying company. Good engineers are hard to find, but this is an awfully expensive way to hire; you may not keep the good people for very long; and if you're the kind of company that has a really hard time hiring good people, you may not also be very good at getting engagement and productivity out of the people you acquihired. My view on acquihires is that to some extent it's a trick the acquiring company plays on itself. Some manager is getting to hire a few good people using money (the acquisitions budget) they wouldn't otherwise have access to.
- exelius 11y ago
  Acquihires are more about hiring functioning teams composed of engineers and executives who are used to working with each other. That's a lot more expensive to build than just the salaries; and you can generally take that team and throw them at a problem with a reasonable expectation they'll accomplish something. Also, there's generally some amount of IP and customer data involved as well.
  - georgemcbay 11y ago
    "you can generally take that team and throw them at a problem with a reasonable expectation they'll accomplish something" For about 6 months to a year, after which time most of them have left, or have gone into "waiting for the golden handcuffs to come off" zombie-worker mode on a project they have no inherent interest in. Totally anecdotal but the couple of acquihires I've seen from the inside have gone like this and it seems to be the natural state of them based on what I've heard second-hand from others.
    - enos_feedler 11y ago
      I agree with this based on the 20 or so people I've known to go through this process to join a large company (amazon, google, etc). I've heard first-hand accounts of people even re-negotiating deals just to get out of the golden handcuffs they thought they could tolerate but couldn't. I understand this sounds a bit hoaky and I would love to give names and companies here, but obviously can't.