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For every example of a VC saving a company (other than the actual investment), there are a dozen about a VC destroying one. Let's also actually analyze the eco

For every example of a VC saving a company (other than the actual investment), there are a dozen about a VC destroying one. Let's also actually analyze the economics of this success case to show how it's still silly. Let's say the VC got a 15% discount for being smart(1). Let's say the VC owns 20% of the company. At a $200M valuation, the founders paid $6M to get smart investors as opposed to dumb money. For this $6M, they got an introduction at a pivotal point in the company. The salary of the COO of Yelp is $3.3M year (2) and most of that was stock compensation. For $6M, you could have your choice of COOs from top tech companies. IMO, that $6M could've been spent much more efficiently. (1) This is a big assumption and you can play around with the numbers but if "smart" money doesn't get a better valuation than dumb money, there's no value to being a smart investor and the extra effort wouldn't make it worth it. 15% is also pretty conservative as you can feel free to look at the difference in VC valued companies vs how Sovereign Wealth Funds valued them. (2) https://www1.salary.com/Jed-Nachman-Salary-Bonus-Stock-Options-for-YELP-INC.html https://www1.salary.com/Jed-Nachman-Salary-Bonus-Stock-Optio...

varsketiz 6y ago
Well, you made a lot of assumptions here. For example that a COO from a good tech company in the US would come to a small EU country to save a failing startup. Also, we needed some pretty specific knowledge to succeed and we did not even know we were missing it. Our company checks with people working in the org to see if we want to take money from particular investors. We have rejected investors in the past because the values of the investors were different from ours. We take money from investors that we can align on the mission. I mean, there are so many more criteria than money - values, mission, control of the company (are we free to run the company as we like?), preference treatment (how much preference you give VC's on their stock? How much are you willing to reduce the risk of the investor by taking their terms?). We used to value such things and we continue to do so. I'm happy we paid a premium and would do so again. I look at it the other way round - if you compromise on values / mission / control / other things that are important to you and people in the organisation - you can get more money. I mean, but how did we get into a hole if we took all this smart VC money? We followed some of their advice (as well as our own misguided ideas). If we failed back then, we would have been just another company "destroyed by smart VC's".
- dumbfoundded 6y ago
  I think I'm much more cynical about investors than you. Employees are very different from investors. Employees dedicate most of their waking hours to make your company better while using that money to provide for their families. Investors spend maybe a couple hours every quarter making sure their investment is successful. The vast majority of investors do not depend on a single bet or really care that much if a single bet loses. As a founder, how you treat investors and employees should be very different. For me in particular, I see investors as a necessary evil. I see employees contentment and fulfillment as a chief responsibility.

varsketiz 6y ago

Well, you made a lot of assumptions here. For example that a COO from a good tech company in the US would come to a small EU country to save a failing startup. Also, we needed some pretty specific knowledge to succeed and we did not even know we were missing it. Our company checks with people working in the org to see if we want to take money from particular investors. We have rejected investors in the past because the values of the investors were different from ours. We take money from investors that we can align on the mission. I mean, there are so many more criteria than money - values, mission, control of the company (are we free to run the company as we like?), preference treatment (how much preference you give VC's on their stock? How much are you willing to reduce the risk of the investor by taking their terms?). We used to value such things and we continue to do so. I'm happy we paid a premium and would do so again. I look at it the other way round - if you compromise on values / mission / control / other things that are important to you and people in the organisation - you can get more money. I mean, but how did we get into a hole if we took all this smart VC money? We followed some of their advice (as well as our own misguided ideas). If we failed back then, we would have been just another company "destroyed by smart VC's".

dumbfoundded 6y ago
I think I'm much more cynical about investors than you. Employees are very different from investors. Employees dedicate most of their waking hours to make your company better while using that money to provide for their families. Investors spend maybe a couple hours every quarter making sure their investment is successful. The vast majority of investors do not depend on a single bet or really care that much if a single bet loses. As a founder, how you treat investors and employees should be very different. For me in particular, I see investors as a necessary evil. I see employees contentment and fulfillment as a chief responsibility.