10 ms·

Well, Fred is missing that not only he has seen thousand of pitches, but the more mature the industry gets (media plus ecosystem), everybody has more data at ha

Well, Fred is missing that not only he has seen thousand of pitches, but the more mature the industry gets (media plus ecosystem), everybody has more data at hand and an opinion. Ironically his partner Albert Wenger is writing about it - Zero Marginal Cost Society etc. In other words: Compared to 5 years ago, the VC business model is about to see similiar effects the consulting industry experienced - they simply don't have any advantage anymore plus they are competing with much more and bigger (i.e. corporate) players. One other misconception: To be honest, I think the only people that are regarding his and other VC's writing, are people from the industry that are maybe one "hierarchy level" (or magnitude of fund size) smaller then them. Associates in accelerators etc. that are praising his genius or create the social media buzz but are actually just trying to hitch hike on his credibility. It's like pedding on each other's back because they regard each other as insiders, but actually they have lost base with hardcore tech innovation a long time ago (since moving into their ivory tower of we know so so much more then average Joe) Edit: ...especially since their bad gone bets become more and more obvious

haney 10y ago
While there is an abundance of information available about companies that allows those of us not sitting in pitch meetings every day to gain insight into their growth there is still a material amount of private information that VCs get to see. I've been in meetings with our investors where they are able to throw out information about other companies CAC or other unit economic information as well as in the trenches information about customer acquisition/growth strategies. Those aren't the kinds of things a company is going to put on their blog. They definitely have privileged information.
- randomnames 10y ago
  Sure, sure, that´s why they are still in business -- but as more information are available for everybody, their competitive advantage is getting smaller and smaller. Plus 1: If you are not poised to be provided with infos provided by somebody that wants to sell something, as instead much more crowdsourced channels, certainly you have a different, i.e. much more biased view, on the world. Think: People will only speak with them, once they are ready for funding. Whereas people at different points in the ecosystem have a much more direct access. Plus 2: Humans are poised to a survivor bias. It´s in the human psych to perceive only what accommodates your own world view. You made 5 bets on a business model that becomes outdated, it will you take x times longer to change your opinion. Especially as you always will try to justify your decisions as VC towards their LPs.
  - mahyarm 10y ago
    Do you mean crowdsourced data as something on the level of business insider articles and amazon reviews or similar? VCs invest in new small companies where there often isnt much public info at all to go on. As a potential investor you can demand a lot of info that even employees cant get that can help evaluate the business.
    - haney 10y ago
      The insider stuff is definitely what's interesting, for example there are quick facts that help you calibrate your assumptions that are very hard to come by. They're usually the things that companies don't want to talk about. They write articles about the things they're doing well, it's not common to get real time "yeah these are the problems they're still figuring out, maybe you should avoid copying their strategy" info.
    - randomnames 10y ago
      Mattermark / Crunchbase / evidence in their product itself ... Thing is, eventually, that ventures are much faster in a public spotlight as tech gets easier.. I agree on everything re startups only shedding a positive light on their business - but if you are following a company disclosing x users in year 1 and y users in year 2 (especially as they start fundraising /PR), it is no rocket science anymore. Two more Google searches and you know the market size etc. --- VCs used to have proprietary infos, that´s why they were put onto stages to talk about their "magic" insights. But that has changed imho.
      - nostrademons 10y ago
        I'm a little skeptical of the accuracy of the info released to the public. Thing is, companies lie when they talk to the press. Or they release a number with no context behind it, which will be interpreted differently by outsiders than insiders. Or the press makes up a number when the company refuses to release it. Or the company chooses not to get press coverage for an event that's pretty important. When I've had inside information about a story that later breaks in the tech press, I'm always shocked at how differently it's perceived by readers of the article vs. how I experienced it. Among startups & major feature launches I've been party to, I've seen: executives that flat-out say that they're not working on a product category when there's been a whole department devoted to it for a year; startups that were founded 1.5 years before the dates listed in Crunchbase/Wikipedia; reporters that count the number of people they meet in a visit and report that as a the "team size", because the company refuses to release that info; funding rounds that never make it to the press; acquisitions that are reported as "for an undisclosed sum" but actually are less than the founders would've made if they'd taken a salaried job at the company; project start dates that are actually when the project was staffed up to its current size and ignore the year or so that a small team spent working on the problem (or the 3-4 years that other small teams spent working on the problem); and algorithms or other technologies that are widely reported as being the core of the company's success, but actually aren't even used by the company. I figure that if such a high percentage of what I do know about is misreported, most of what I don't know about but hear from the tech media is probably wrong too. Ironically, the effect of having a little inside information isn't to make me feel well informed; it's to make me realize how uninformed everyone else is, often including top decision-makers at companies.
inputcoffee 10y ago
Well, two things: 1. It is also about the money, not just the data. A regular person may not have $300 million to put into Uber. 2. It is one thing to say that many people have access to data, but it is another to know which ones use that data effectively. The point of the VC is that they are trained to do so. Sure there might be a college kid at UT Austin who has great insight but how would I know which one it is without talking to all of them?
- randomnames 10y ago
  1) USV last found has $175m under management - their average ticket will be around $1-5m Series A and $5-15m in follow-up rounds. ($300m is what PE does...) The reason they are still getting money is the image they are upholding together with their echoing fanbase. 2) Sure they are trained, but similar does the UT Austin kid find out about business models and applies to YC then, to go go right away to the A players. Don´t get me wrong -- nothing against content marketing or USV. But the market tectonics have changed. If you are a relatively small fund like USV, you technically cannot afford anymore to preach from the high horse. On one hand-side the VC whales are eating you lunch and on the other hand-side corporate investors can invest much more than you. Put to simple terms: USV didn't grow fast enough and are now stuck in the middle. They cannot do enough (small) deals to leverage an average of their bets and on the other hand side, entrepreneurs are much smarter. How many people are at USV, 8 maybe? By all science, they have no chance to be smarter than the (much more connected) market anymore. Edit: typos
  - inputcoffee 10y ago
    1) I was thinking of GV's investment in Uber as an example. (Not a PE firm). But the point still stands, the Austin kid isn't going to swing $1-5m. Even if they were brilliant. 2)You missed the point about the training. The point isn't that they are trained. The point is that we know that they are trained. There might be dozens of people better than the traditional VCs at identifying the right opportunity but who are they and how do we find them? The last half of your response makes me think I may have missed the original point. I thought the original point was that the VC skill set is being democratized because data is more freely available. My two points were meant to be reasons why that may not be the case. This point about being in the middle between very large and small players might be right. I have to think on it, but it was not what I thought I was commenting on.
jdoliner 10y ago
I think you missed the articles main point about how VCs use the information and experiences that they have. It's not just that they're better at picking good investments, they are somewhat better but as you correctly point out information is becoming more and more available so others will be able to catch up. The real value of their experiences is that after they invest they continue to help the company succeed with advice, introductions and a million other things. As an entrepreneur that's the value I'm looking for when selecting an investor. Even if you've read everything online and know with 100% certainty which companies are going to succeed you've still got to get them to take your money or your information is worthless. Entrepreneurs will only ever take money from a person like that if they're desperate, if they can get money from a "real" investor who'll bring value beyond just the money. In short, I think you're claim that we're going to see an evening of the playing field is wrong. If anything I think we'll see even more concentrated results as more and more people decide that anyone can be a VC and fail.

haney 10y ago

While there is an abundance of information available about companies that allows those of us not sitting in pitch meetings every day to gain insight into their growth there is still a material amount of private information that VCs get to see. I've been in meetings with our investors where they are able to throw out information about other companies CAC or other unit economic information as well as in the trenches information about customer acquisition/growth strategies. Those aren't the kinds of things a company is going to put on their blog. They definitely have privileged information.

randomnames 10y ago
Sure, sure, that´s why they are still in business -- but as more information are available for everybody, their competitive advantage is getting smaller and smaller. Plus 1: If you are not poised to be provided with infos provided by somebody that wants to sell something, as instead much more crowdsourced channels, certainly you have a different, i.e. much more biased view, on the world. Think: People will only speak with them, once they are ready for funding. Whereas people at different points in the ecosystem have a much more direct access. Plus 2: Humans are poised to a survivor bias. It´s in the human psych to perceive only what accommodates your own world view. You made 5 bets on a business model that becomes outdated, it will you take x times longer to change your opinion. Especially as you always will try to justify your decisions as VC towards their LPs.
- mahyarm 10y ago
  Do you mean crowdsourced data as something on the level of business insider articles and amazon reviews or similar? VCs invest in new small companies where there often isnt much public info at all to go on. As a potential investor you can demand a lot of info that even employees cant get that can help evaluate the business.
  - haney 10y ago
    The insider stuff is definitely what's interesting, for example there are quick facts that help you calibrate your assumptions that are very hard to come by. They're usually the things that companies don't want to talk about. They write articles about the things they're doing well, it's not common to get real time "yeah these are the problems they're still figuring out, maybe you should avoid copying their strategy" info.
  - randomnames 10y ago
    Mattermark / Crunchbase / evidence in their product itself ... Thing is, eventually, that ventures are much faster in a public spotlight as tech gets easier.. I agree on everything re startups only shedding a positive light on their business - but if you are following a company disclosing x users in year 1 and y users in year 2 (especially as they start fundraising /PR), it is no rocket science anymore. Two more Google searches and you know the market size etc. --- VCs used to have proprietary infos, that´s why they were put onto stages to talk about their "magic" insights. But that has changed imho.
    - nostrademons 10y ago
      I'm a little skeptical of the accuracy of the info released to the public. Thing is, companies lie when they talk to the press. Or they release a number with no context behind it, which will be interpreted differently by outsiders than insiders. Or the press makes up a number when the company refuses to release it. Or the company chooses not to get press coverage for an event that's pretty important. When I've had inside information about a story that later breaks in the tech press, I'm always shocked at how differently it's perceived by readers of the article vs. how I experienced it. Among startups & major feature launches I've been party to, I've seen: executives that flat-out say that they're not working on a product category when there's been a whole department devoted to it for a year; startups that were founded 1.5 years before the dates listed in Crunchbase/Wikipedia; reporters that count the number of people they meet in a visit and report that as a the "team size", because the company refuses to release that info; funding rounds that never make it to the press; acquisitions that are reported as "for an undisclosed sum" but actually are less than the founders would've made if they'd taken a salaried job at the company; project start dates that are actually when the project was staffed up to its current size and ignore the year or so that a small team spent working on the problem (or the 3-4 years that other small teams spent working on the problem); and algorithms or other technologies that are widely reported as being the core of the company's success, but actually aren't even used by the company. I figure that if such a high percentage of what I do know about is misreported, most of what I don't know about but hear from the tech media is probably wrong too. Ironically, the effect of having a little inside information isn't to make me feel well informed; it's to make me realize how uninformed everyone else is, often including top decision-makers at companies.

inputcoffee 10y ago

Well, two things: 1. It is also about the money, not just the data. A regular person may not have $300 million to put into Uber. 2. It is one thing to say that many people have access to data, but it is another to know which ones use that data effectively. The point of the VC is that they are trained to do so. Sure there might be a college kid at UT Austin who has great insight but how would I know which one it is without talking to all of them?

randomnames 10y ago
1) USV last found has $175m under management - their average ticket will be around $1-5m Series A and $5-15m in follow-up rounds. ($300m is what PE does...) The reason they are still getting money is the image they are upholding together with their echoing fanbase. 2) Sure they are trained, but similar does the UT Austin kid find out about business models and applies to YC then, to go go right away to the A players. Don´t get me wrong -- nothing against content marketing or USV. But the market tectonics have changed. If you are a relatively small fund like USV, you technically cannot afford anymore to preach from the high horse. On one hand-side the VC whales are eating you lunch and on the other hand-side corporate investors can invest much more than you. Put to simple terms: USV didn't grow fast enough and are now stuck in the middle. They cannot do enough (small) deals to leverage an average of their bets and on the other hand side, entrepreneurs are much smarter. How many people are at USV, 8 maybe? By all science, they have no chance to be smarter than the (much more connected) market anymore. Edit: typos
- inputcoffee 10y ago
  1) I was thinking of GV's investment in Uber as an example. (Not a PE firm). But the point still stands, the Austin kid isn't going to swing $1-5m. Even if they were brilliant. 2)You missed the point about the training. The point isn't that they are trained. The point is that we know that they are trained. There might be dozens of people better than the traditional VCs at identifying the right opportunity but who are they and how do we find them? The last half of your response makes me think I may have missed the original point. I thought the original point was that the VC skill set is being democratized because data is more freely available. My two points were meant to be reasons why that may not be the case. This point about being in the middle between very large and small players might be right. I have to think on it, but it was not what I thought I was commenting on.

jdoliner 10y ago

I think you missed the articles main point about how VCs use the information and experiences that they have. It's not just that they're better at picking good investments, they are somewhat better but as you correctly point out information is becoming more and more available so others will be able to catch up. The real value of their experiences is that after they invest they continue to help the company succeed with advice, introductions and a million other things. As an entrepreneur that's the value I'm looking for when selecting an investor. Even if you've read everything online and know with 100% certainty which companies are going to succeed you've still got to get them to take your money or your information is worthless. Entrepreneurs will only ever take money from a person like that if they're desperate, if they can get money from a "real" investor who'll bring value beyond just the money. In short, I think you're claim that we're going to see an evening of the playing field is wrong. If anything I think we'll see even more concentrated results as more and more people decide that anyone can be a VC and fail.