6 ms·

How Much VCs Make

33 points by elsewhen 6y ago

rdlecler1 6y ago
The Vc partnership structure incentivizes small teams against large AUM. If you’re a team of three, if you bring on those two associates that’ll be $100k less in your pocket every year. May not be the best structure to generate returns for LPs, however the obligatory GP commit by LPs and the financial burden this creates, pretty much guarantees that this won’t change.
- batmenace 6y ago
  It incentivizes small teams, but in the sense that you want the smallest team possible to generate the highest returns. If that one extra associate can help you screen exponentially more deals, they'll still be more than worth it in the long run.
  - temp667 6y ago
    IF you know the associate and trust them and think they will screen the right way - the small team can often be folks who know / trust each other. It can be hard to add someone particularly outside your standard networks.
fab1an 6y ago
It's interesting (in a "responsible conspiracy theorizing" kind of way) to note that there has been very little innovation in this space (with the exception of the very recent emergence of 'rolling funds'.) The VC model that funded Apple in the 80s is afaik pretty much the same to what Lemkin describes in the post for today.
- jliptzin 6y ago
  How many different ways of giving people money to start businesses could there be?
  - Judgmentality 6y ago
    There's loans vs equity, structuring the company differently (C corp vs B corp), creating different legal incentives for employees to stay on (letting employees exercise their options more than 90 days after a departure, letting employees exercise their options during a follow-on investment round), the YC SAFE is relatively new if we're going back to the 80's... There's a ton of ways to make things better, it's just never better for the investor (since the investor wants control).
- b20000 6y ago
  I don't think it's the same. Apple would have never gotten funded today.
  - qppo 6y ago
    Sure they would. Apple wasn't a particularly special company when they were funded, new computer companies were a dime a dozen.
    - b20000 6y ago
      I disagree. It was a time when there wasn't much around to invest in and computers were "hot" and "new", and something everyone wanted to become a part of.
  - simonebrunozzi 6y ago
    Interesting comment - care to elaborate on why Apple would have never been funded? Also, are you referring to the initial starting capital, or a later stage Apple?
    - ampdepolymerase 6y ago
      A hardware startup ran by people with minimal experience in shipping hardware.
      - simonebrunozzi 6y ago
        That doesn't mean much. An angel investor could have still liked the idea.
        ampdepolymerase 6y ago
        The thread is talking about VCs though.
        b20000 6y ago
        have you ever tried raising money from an angel investor for a hardware startup?
simonebrunozzi 6y ago
I have been an operating partner at an investment firm / VC firm for the past ~1.5 years, and have co-founded a micro-VC firm [0] with two other friends 6 years ago. This is to give you a sense of my limited, but higher-than-zero experience in the field. It seems to me that VCs gain mostly from informational asymmetry, and from some form of arbitrage. Most VCs are punished or rewarded over the course of several years, that's why reputation and "fame" are still fairly important in the VC world. Lately I've been thinking about how I would start a new VC firm knowing what I know now, and how I would make it different (better) than any other VC firm out there. It actually is a very, very interesting mental exercise. I don't have an answer for you (btw, if you'd like to brainstorm this with me, feel free to reach out, contact details are in my HN profile), but I'd probably start by asking several startup founders what they would like in an ideal VC firm. I would then ask several LPs, even though I suspect this aspect boils down to "convince me you're going to make me more money". Anyway... thoughts? Things I should read? People I should talk to? [0]: http://m14t.com/ http://m14t.com/
- hactually 6y ago
  Co-founder in Aus here - keen to chat about the idea -- information asymmetry and deal flow are absolutely key -- but there's no email on your profile. Get in touch if you'd like to set up some time though
  - simonebrunozzi 6y ago
    My bad - updated profile, email is my HN username at gmail.
cryptica 6y ago
I can't believe one of the VCs in the video said "Why shouldn't we have manager selection and security selection with algorithms?" Because algorithms are not destroying our society fast enough... We need to also let them decide how to allocate capital.
- dternyak 6y ago
  Just to play devil's advocate, why shouldn't we in fact allow algorithms to determine how to allocate capital? Legendary investors like Warren Buffet use "value" investing as a methodology to drive returns. Isn't that an algorithm?
  - cryptica 6y ago
    Algorithms lack the creativity to drive innovation. They only make returns by concentrating wealth. This is disastrous and why we have so many problems now. The problem is that with modern monetary policy, this strategy has worked pretty well in terms of delivering returns on capital by capturing a lot of the newly created credit which is constantly injected into the economy through loans. The algorithms have just figured out a way to profitably suck the credit out of the economy instead of putting it to work on useful things. Algorithms (especially those which rely on AI) are well known for exploiting weaknesses in their environment (often with unexpected results). This is exactly what this is and it's totally artificial.
- liveoneggs 6y ago
  HFT
aminicam 6y ago
How do VC salaries compare to salaries in PE? AFAIK VC is a much more 'hot' field with more people seemingly clamoring to get in, but I wonder if they make as much or more in private equity

33 points by elsewhen 6y ago

The Vc partnership structure incentivizes small teams against large AUM. If you’re a team of three, if you bring on those two associates that’ll be $100k less in your pocket every year. May not be the best structure to generate returns for LPs, however the obligatory GP commit by LPs and the financial burden this creates, pretty much guarantees that this won’t change.

batmenace 6y ago
It incentivizes small teams, but in the sense that you want the smallest team possible to generate the highest returns. If that one extra associate can help you screen exponentially more deals, they'll still be more than worth it in the long run.
- temp667 6y ago
  IF you know the associate and trust them and think they will screen the right way - the small team can often be folks who know / trust each other. It can be hard to add someone particularly outside your standard networks.

fab1an 6y ago

It's interesting (in a "responsible conspiracy theorizing" kind of way) to note that there has been very little innovation in this space (with the exception of the very recent emergence of 'rolling funds'.) The VC model that funded Apple in the 80s is afaik pretty much the same to what Lemkin describes in the post for today.

jliptzin 6y ago
How many different ways of giving people money to start businesses could there be?
- Judgmentality 6y ago
  There's loans vs equity, structuring the company differently (C corp vs B corp), creating different legal incentives for employees to stay on (letting employees exercise their options more than 90 days after a departure, letting employees exercise their options during a follow-on investment round), the YC SAFE is relatively new if we're going back to the 80's... There's a ton of ways to make things better, it's just never better for the investor (since the investor wants control).
b20000 6y ago
I don't think it's the same. Apple would have never gotten funded today.
- qppo 6y ago
  Sure they would. Apple wasn't a particularly special company when they were funded, new computer companies were a dime a dozen.
  - b20000 6y ago
    I disagree. It was a time when there wasn't much around to invest in and computers were "hot" and "new", and something everyone wanted to become a part of.
- simonebrunozzi 6y ago
  Interesting comment - care to elaborate on why Apple would have never been funded? Also, are you referring to the initial starting capital, or a later stage Apple?
  - ampdepolymerase 6y ago
    A hardware startup ran by people with minimal experience in shipping hardware.
    - simonebrunozzi 6y ago
      That doesn't mean much. An angel investor could have still liked the idea.
      - ampdepolymerase 6y ago
        The thread is talking about VCs though.
      - b20000 6y ago
        have you ever tried raising money from an angel investor for a hardware startup?

simonebrunozzi 6y ago

I have been an operating partner at an investment firm / VC firm for the past ~1.5 years, and have co-founded a micro-VC firm [0] with two other friends 6 years ago. This is to give you a sense of my limited, but higher-than-zero experience in the field. It seems to me that VCs gain mostly from informational asymmetry, and from some form of arbitrage. Most VCs are punished or rewarded over the course of several years, that's why reputation and "fame" are still fairly important in the VC world. Lately I've been thinking about how I would start a new VC firm knowing what I know now, and how I would make it different (better) than any other VC firm out there. It actually is a very, very interesting mental exercise. I don't have an answer for you (btw, if you'd like to brainstorm this with me, feel free to reach out, contact details are in my HN profile), but I'd probably start by asking several startup founders what they would like in an ideal VC firm. I would then ask several LPs, even though I suspect this aspect boils down to "convince me you're going to make me more money". Anyway... thoughts? Things I should read? People I should talk to? [0]: http://m14t.com/ http://m14t.com/

hactually 6y ago
Co-founder in Aus here - keen to chat about the idea -- information asymmetry and deal flow are absolutely key -- but there's no email on your profile. Get in touch if you'd like to set up some time though
- simonebrunozzi 6y ago
  My bad - updated profile, email is my HN username at gmail.

cryptica 6y ago

I can't believe one of the VCs in the video said "Why shouldn't we have manager selection and security selection with algorithms?" Because algorithms are not destroying our society fast enough... We need to also let them decide how to allocate capital.

dternyak 6y ago
Just to play devil's advocate, why shouldn't we in fact allow algorithms to determine how to allocate capital? Legendary investors like Warren Buffet use "value" investing as a methodology to drive returns. Isn't that an algorithm?
- cryptica 6y ago
  Algorithms lack the creativity to drive innovation. They only make returns by concentrating wealth. This is disastrous and why we have so many problems now. The problem is that with modern monetary policy, this strategy has worked pretty well in terms of delivering returns on capital by capturing a lot of the newly created credit which is constantly injected into the economy through loans. The algorithms have just figured out a way to profitably suck the credit out of the economy instead of putting it to work on useful things. Algorithms (especially those which rely on AI) are well known for exploiting weaknesses in their environment (often with unexpected results). This is exactly what this is and it's totally artificial.
liveoneggs 6y ago
HFT

aminicam 6y ago

How do VC salaries compare to salaries in PE? AFAIK VC is a much more 'hot' field with more people seemingly clamoring to get in, but I wonder if they make as much or more in private equity