6 ms·

It's a sign of this guy's inexperience that he treats VCs as if they were all the same. In fact one of the most distinctive things about the VC world is how mu

by pg 18y ago

It's a sign of this guy's inexperience that he treats VCs as if they were all the same. In fact one of the most distinctive things about the VC world is how much variation there is in it. Partners at the top firms are clever and honest and expect to make money mostly from the fund's returns. Whereas the bottom half are basically in the business of generating management fees.

wheels 18y ago
An essay topic I'd find really interesting: A field guide to VC evaluation Your last essay was rather apt for where we're at right now (just getting into the fundraising waters), but terms like someone reputable are kind of hard to gauge -- especially in the somewhat inbred world of investment when you don't know who's buddies with whom and as such whose opinions are worthwhile. Here a lot of companies seem to be run by serial entrepreneurs, which often seem to be a little too buddied up with investors to side with first-timers when trying to shake out info about what dealing with them is like.
- pg 18y ago
  That would be a short essay. You just have to judge whether they're smart and honest. The reason that's hard is not that you need special techniques to do it, but that it's hard to judge someone during a brief meeting when they're also judging you. We just tell YC founders to ask us, and that probably is the most effective way to judge a VC: ask people who know him.
fallentimes 18y ago
Just like hedge funds.
comatose_kid 18y ago
DFJ is often considerd a top firm, but reading the first chapter of Founders at Work (Sabeer Bhatia's experience with DFJ) sure made me feel like they were out to screw Hotmail's founders.
- pg 18y ago
  That did sound pretty bad. But I think top VCs are more careful now, because word of any misdeeds spreads so much faster. E.g. I could not imagine a Greylock partner today pulling the kind of trick Philip Greenspun describes them pulling on Ars Digita.
  - prakash 18y ago
    apparently there is at least one: Photobucket’s Sale To Fox: How VC Insiders Made Big Personal Returns http://www.paidcontent.org/entry/419-photobuckets-sale-to-fox-how-vc-insiders-made-big-personal-returns/ http://www.paidcontent.org/entry/419-photobuckets-sale-to-fo...
    - ashu 18y ago
      And this screwed the founders, how? This article is w.r.t. VC partners robbing their Limited Partners of the investment opportunity. And even at that, as many others have pointed out, it's somewhat deliberately slanderous.
      - prakash 18y ago
        AFAIK the founders were ok, but the folks that put in money into this VC's fund probably got screwed. So, how can you really trust these guys? I am sure buxfer wouldn't raise money from these guys whatever the terms.
    - ivankirigin 18y ago
      I just read the WSJ story on this, and the venture firms typical investments differed from the Photobucket investment. Photobucket was much smaller than their usual portfolio companies and needed much less money than the venture firm usually gave. I think that's a pretty solid excuse, though it looks bad on the face of it because the return was so good.
      - prakash 18y ago
condor 18y ago
That is true, however I think it's fair to make the point that all Venture Capital firms have the same structural incentive to treat companies (equity) as products, to be traded in a marketplace, and consequently are primarily focused on the net worth (capital gain) return from trading that equity versus the ongoing value-added by the operating business (dividend). I think that's where the 'taste-for-blood' comes from. That fundamental incentive affects how institutional VCs view the founders of a company (less so as partners and more so as employees in a sense). I think that's what this guy is reacting too, rightly or wrongly.
- pg 18y ago
  How many technology companies do you know that pay significant dividends? That just tends not to be how tech companies operate. It's not an artifact of VC investment.
  - condor 18y ago
    Thats true. I think newer (last 15 years) tech company's have been able to not offer dividends and still attract investors (even low capex, software co's that don't necessarily need to reinvest), but the types of investors (venture investors) they attract are naturally then interested in capital gains, and thats only achieved by trading that equity. I could be wrong, but traders tend not to think past the point of their expected holding, and since their only return is on sale of the equity, prefer for that to happen earlier rather than later.
IsaacSchlueter 18y ago
Also, what's wrong with the question "how do we get to 100 apps?" In the VC's position, I might have asked the same thing. In his position, I'd have been impressed by that question. In most creative endeavors, quantity leads almost inevitably to quality. If there is some change in technique, or some application of capital, that would let your company crank out LOTS of apps instead of a few mostly-pretty good apps, then the VC is absolutely right to suggest it. Write so many apps that you can throw away that bottom 50%, and not even notice. John Lennon and Paul McCartney became expert songwriters by writing an incredible quantity of songs. There are creative ways to leverage talent. What's stopping all those "mediocre" developers from building apps? I'd bet that at least 1 in 10 of them are better at it than you or they think, or at least, would be with a little practice. How do you take advantage of that? It's up to you to know how to set up virtuous spirals, not the VC. If you can't do that, then why should they give you money?
- netcan 18y ago
  That's also the reason you're getting VC money. Because you have something to do with it. If you answer 'I can't grow' (can't find programmers). You are saying: no need for investment. If you say: I don't need VC money and still get it, that's a bubble.

by pg 18y ago

wheels 18y ago

An essay topic I'd find really interesting: A field guide to VC evaluation Your last essay was rather apt for where we're at right now (just getting into the fundraising waters), but terms like someone reputable are kind of hard to gauge -- especially in the somewhat inbred world of investment when you don't know who's buddies with whom and as such whose opinions are worthwhile. Here a lot of companies seem to be run by serial entrepreneurs, which often seem to be a little too buddied up with investors to side with first-timers when trying to shake out info about what dealing with them is like.

pg 18y ago
That would be a short essay. You just have to judge whether they're smart and honest. The reason that's hard is not that you need special techniques to do it, but that it's hard to judge someone during a brief meeting when they're also judging you. We just tell YC founders to ask us, and that probably is the most effective way to judge a VC: ask people who know him.

fallentimes 18y ago

Just like hedge funds.

comatose_kid 18y ago

DFJ is often considerd a top firm, but reading the first chapter of Founders at Work (Sabeer Bhatia's experience with DFJ) sure made me feel like they were out to screw Hotmail's founders.

pg 18y ago
That did sound pretty bad. But I think top VCs are more careful now, because word of any misdeeds spreads so much faster. E.g. I could not imagine a Greylock partner today pulling the kind of trick Philip Greenspun describes them pulling on Ars Digita.
- prakash 18y ago
  apparently there is at least one: Photobucket’s Sale To Fox: How VC Insiders Made Big Personal Returns http://www.paidcontent.org/entry/419-photobuckets-sale-to-fox-how-vc-insiders-made-big-personal-returns/ http://www.paidcontent.org/entry/419-photobuckets-sale-to-fo...
  - ashu 18y ago
    And this screwed the founders, how? This article is w.r.t. VC partners robbing their Limited Partners of the investment opportunity. And even at that, as many others have pointed out, it's somewhat deliberately slanderous.
    - prakash 18y ago
      AFAIK the founders were ok, but the folks that put in money into this VC's fund probably got screwed. So, how can you really trust these guys? I am sure buxfer wouldn't raise money from these guys whatever the terms.
  - ivankirigin 18y ago
    I just read the WSJ story on this, and the venture firms typical investments differed from the Photobucket investment. Photobucket was much smaller than their usual portfolio companies and needed much less money than the venture firm usually gave. I think that's a pretty solid excuse, though it looks bad on the face of it because the return was so good.
    - prakash 18y ago

condor 18y ago

That is true, however I think it's fair to make the point that all Venture Capital firms have the same structural incentive to treat companies (equity) as products, to be traded in a marketplace, and consequently are primarily focused on the net worth (capital gain) return from trading that equity versus the ongoing value-added by the operating business (dividend). I think that's where the 'taste-for-blood' comes from. That fundamental incentive affects how institutional VCs view the founders of a company (less so as partners and more so as employees in a sense). I think that's what this guy is reacting too, rightly or wrongly.

pg 18y ago
How many technology companies do you know that pay significant dividends? That just tends not to be how tech companies operate. It's not an artifact of VC investment.
- condor 18y ago
  Thats true. I think newer (last 15 years) tech company's have been able to not offer dividends and still attract investors (even low capex, software co's that don't necessarily need to reinvest), but the types of investors (venture investors) they attract are naturally then interested in capital gains, and thats only achieved by trading that equity. I could be wrong, but traders tend not to think past the point of their expected holding, and since their only return is on sale of the equity, prefer for that to happen earlier rather than later.

IsaacSchlueter 18y ago

Also, what's wrong with the question "how do we get to 100 apps?" In the VC's position, I might have asked the same thing. In his position, I'd have been impressed by that question. In most creative endeavors, quantity leads almost inevitably to quality. If there is some change in technique, or some application of capital, that would let your company crank out LOTS of apps instead of a few mostly-pretty good apps, then the VC is absolutely right to suggest it. Write so many apps that you can throw away that bottom 50%, and not even notice. John Lennon and Paul McCartney became expert songwriters by writing an incredible quantity of songs. There are creative ways to leverage talent. What's stopping all those "mediocre" developers from building apps? I'd bet that at least 1 in 10 of them are better at it than you or they think, or at least, would be with a little practice. How do you take advantage of that? It's up to you to know how to set up virtuous spirals, not the VC. If you can't do that, then why should they give you money?

netcan 18y ago
That's also the reason you're getting VC money. Because you have something to do with it. If you answer 'I can't grow' (can't find programmers). You are saying: no need for investment. If you say: I don't need VC money and still get it, that's a bubble.