13 ms·

An Engineer's View of Venture Capitalists (2001)

178 points by sebg 5y ago

sealeck 5y ago
I could be misreading, but I believe that this article is from 2001, not 2011?
- 1cvmask 5y ago
  It is from 2001
ChrisArchitect 5y ago
why submit again after yesterday? Other old, previous discussion: 14 years ago https://news.ycombinator.com/item?id=113655 https://news.ycombinator.com/item?id=113655 8 years ago https://news.ycombinator.com/item?id=6369357 https://news.ycombinator.com/item?id=6369357
- m_ke 5y ago
  Most of it is still relevant and most people on here are not old enough to have browsed HN 14 years ago.
  - ChrisArchitect 5y ago
    not saying it's not relevant, not expecting ppl to have seen it, but there's discussion there in those threads and it doesn't really need to be re-upped/repeated convos. Can enjoy it without commenting/upvoting it.
_vufv 5y ago
> The VC connects wealthy investors to nerds. There are few alternatives. You can self-fund by consulting and by setting aside money for your venture. That doesn't work. It would've been great if an explanation was given for this opinion. Why wouldn't this work? From my limited experience it works fairly well.
- jpmattia 5y ago
  You have to remember this article was written in 2001, when most "big" ventures were hardware and therefore very capital intensive. Google shattered that idea: Larry and Sergei retained an extraordinary percentage up through the IPO because they didn't "need" the VC money, and they were doing quite well without it. Many of us from the period looked at that result, took it to an extreme, and proceeded to self-bootstrap our next endeavors.
  - jasode 5y ago
    >Larry and Sergei retained an extraordinary percentage up through the IPO because they didn't "need" the VC money, and they were doing quite well without it. Fyi... Google got VCs Sequoia Capital & KPCB $25 million around June 1999 which was about ~9 months after they started in Sept 1998. Before the VC funding, they also got a group of seed investments from Stanford professors and other individuals (Andy Bechtolsheim, Jeff Bezos, NBA star Shaq, etc.)
    - jpmattia 5y ago
      Again, the context is important: You need to look at the percentages retained in those funding rounds relative to what was happening at the time. Their low capital needs, which gained them leverage, and the following high return spawned a generation of bootstrapped software startups. And since the VC pot of money is finite, hardware startups (the domain of the article's author) became quite unfashionable by the standards of the 90s.
      - jasode 5y ago
        > Their low capital needs and following high return is what spawned a generation of bootstrapped software startups. I don't see how "$25 million from a VC" would be interpreted by outsiders as inspiration for bootstrapping. Doesn't "bootstrapping" mean self-funding from revenue instead of investors? Google didn't have meaningful revenue & profits until 2002. I think the best way to apply "bootstrapping" (the way most people think of that term) to Larry & Sergei would be the early phase of 1996 to 1998 where they used Stanford's computers & datacenter for $0 cost to build a MVP search engine "Backrub". But a lot of startup founders can't apply that to their situation because they are not in PhD programs with the university providing a "pseudo AWS" for $0. (Stanford did share credit in the pagerank patent so they got license $$$ from Google in return.) EDIT reply to: >, and realized that Google did not actually need the money. What do you mean by they "didn't need the money"? How would the early Google survive for 3+ years with no revenue? Immediately after the June 1999 $25 million, they hired an ex-Grateful Dead celebrity chef to cook free meals for their employees and rent datacenter space. If Google didn't have any revenue, what money is there other than that $25 million to pay salaries of the chef, the employees, food, datacenters? That's the opposite of "bootstrapping". Are you using that word in a different way?
sidpatil 5y ago
Dupe: https://news.ycombinator.com/item?id=29183657 https://news.ycombinator.com/item?id=29183657
- pvg 5y ago
  they have to have comments to hn-count as hn-dupes
1cvmask 5y ago
The part on VCs being risk averse when it comes to innovation is quite common: One company I worked with had an innovative idea for a firewall: build it with programmable logic and it works at wire speed. Wire speed meant no buffering, no data storage, and therefore no need for a microprocessor or for an IP (Internet Protocol) address. Simple installation, simple management, but so different that experts--even those from programmable logic companies--didn't understand it. To them, proposing a firewall without a microprocessor and an IP address was like proposing a car without an engine. No funding. Back to work at a big company. Worse for them; worse for us. The industry loses. Progress is delayed.
- h2odragon 5y ago
  For a while there some folks (cant recall the name) had a IPv4 firewall system based on DOS, with a similar idea of being an "out of band" filter that was not part of the network being filtered. Fact is, it's simple enough to do that with any OS and equally as hard to certify that the separations are actual and have no leaks. Now they're writing whole server/response chains in eBPF and stuff same idea but inverted, perhaps.
- buro9 5y ago
  > One company I worked with had an innovative idea for a firewall: build it with programmable logic and it works at wire speed Ah, that's the idea I had at Cloudflare and we then built it as Firewall Rules. Externally it looks like it's a HTTP feature only and just a WAF type tool, but internally it's an extremely fast matcher that can work on any traffic and at different OSI layers so it forms part of the DDoS protection, bot protection, magic transit, etc. It's also in things like the URI rewrite... because fundamentally it's all just "match things" and associate actions with the matched things, usually the actions are deny, rate limit, allow, challenge... but no reason the actions can't be to transform, duplicate, log, etc too. Just wireshark like matching at the equivalent of wire speed (for what that means at whatever layer you're working on) without having to have buffering or that pcap phase normally associated with firewalls or wireshark. The same wireshark-like rules can also be translated into SQL easily enough, so it's possible to run a firewall rule over the logs and see what would've matched (it isn't perfect, logging isn't that complete... but for the most common scenarios it works well enough). This work is OSS, the language syntax and a table matcher (used for the HTTP part) is all here https://github.com/cloudflare/wirefilter/tree/cloudflare https://github.com/cloudflare/wirefilter/tree/cloudflare and it's in Rust. For other systems the rule may be translated to eBPF for the matching part, etc. A blog post with an overview is here https://blog.cloudflare.com/how-we-made-firewall-rules/ https://blog.cloudflare.com/how-we-made-firewall-rules/ .
timdaub 5y ago
Awesome take. I've recently come to understand that the same problematic exists in the cryptosphere too. Here, the token holders act recklessly towards the engineers creating the value: https://timdaub.github.io/2021/10/21/on-chain-the-emperor-wears-no-clothes/ https://timdaub.github.io/2021/10/21/on-chain-the-emperor-we...
- ghaff 5y ago
  Or less charitably, the engineers are not in on the grift.
- deleted 5y ago
  [deleted]
nynx 5y ago
Capitalism often avoids real innovation and sticks to the safe path. I suspect we’d be technologically a lot farther along in important ways without it.
- binbag 5y ago
  I wouldn't be so sure. How do you allocate resources and pick the best prospects in your alternative, presumably centrally directed, economy?
  - nynx 5y ago
    Centrally directed economy? No, that most likely wouldn't work. There is a lot of room for free-market economies that are very much not capitalist.
    - rytill 5y ago
      Can you help me learn more about this? I'm genuinely curious and don't know what kinds of things you have in mind.
  - Banana699 5y ago
    This whole argument (it isn't yet really, but it's developing into a very familiar one) is a huge waste of breath IMHO, suitable more for heat than light. For one thing, "Capitalism" vs. "Central Planning" are strawmen abstracted from competing families of concrete approaches that, while similar in very broad strokes enough to justify the strawmen abstractions, are wildly different in specifics. The "Capitalism" of Singapore, Switzerland, and USA are so wildly different underneath the superficial names and slogans that any discussion of them that views them as basically the same is necessarily going nowhere. Sometimes humans' amazing ability to recognize very loose patterns just turns out to be a foot gun like that. For another, Innovation (or risk-taking ventures or whatever you want to call it really) is an institution thing, a culture if you will, the challenge of building an institution goes way far beyond what type of managment you choose for it. DARPA and NASA are both bureaucratic bodies that produced amazing innovations and took incredibly risky ventures, Nokia and Xerox were once risk-taking cowboys that got averse and stagnated. The canned response to this is always 'Yes but you can always found your own company and eat their lunch, that's why capitalism is superior', this is wildly wrong on a lot of things, but the most jarring blindspot is that it assumes all innovations have the capacity to carve out a market from the established. This isn't true in general, it just so happened that digital cameras, personal computers or smartphones are so amazing they can jumpstart a new market out of thin air and take on existing companies head-on, but what if you have a search engine innovation that can make search 50% better (less spam and SEO trash, more discoverability, etc..), a 50% better search is an amazing innovation, but good luck going against Google with that and that alone. If nothing else, they will just buy you and put you in the drawer if you make too much of a fuss. This problem is standard in evolutionary approaches to optimization. Despite the wildly different specifics of things that humans call 'Capitalism', they all share a very broad faith in the power of competition as an optimization process and a constraint-driven solution discovery algorithm. Well, that's called Evolution, and it heckin sucks sometimes. There are probably millions upon millions of good biological designs that got extinct because they weren't lucky enough to carve out a niche out of the chaos. Evolution is basically saying 'If you don't like how it is, make your own species and eat their lunch' to the beings playing it, but sometimes, a lot of times, insanely good mutations aren't enough to build a new species, or they can build a new species but it will be eaten in a heartbeat by the established ones for reasons unrelated to its efficiency. Just look at the human eye, there is an incredibly dumb design flaw where fibers connecting it to the brain warp around in a funny way and cause a blind spot in its midst, the brain corrects it automatically by simply lying to itself (I mean, uhh, 'Interpolating'). This wasn't enough to drive humans extinct, you might object that this is okay because Evolution is actually optimizing for survivability, not the best eye, so a species that manages to survive despite a dumb flaw in its sensor suite is just par for the course. But this a huge problem for competition-driven innovation, because we actually want to optimize for the best eye, a dumb design flaw in the eyes of a stagnant behemoth that refuses to die like Google is a very bad thing for us. Innovation is just an insanely hard problem no matter how you look at it, and it's always solved in real life by ad-hoc competition-planning hybrids that is always fragile to stagnation, to which it eventually (almost always) falls prey. The Capitalism-CentralPlanning debate, if it's to be productive at all, should just stick to standard boring economic issues (ideally by discussing concrete approaches, not vague semantic clouds), because innovation is just a red herring that supports neither party of the debate.
specialist 5y ago
"Venture funds are big: ... The VCs running a $1 billion fund don't have the time to manage one thousand $1 million investments. VCs collude: ... I attended a recent talk by a VC luminary, who gloated over the state of the venture industry, after money for technology start-ups was scarce. Here's my summary of the VC's view: "A year ago there was too much money available, so there was too much competition to fund good ideas. ... Valuations are reasonable and, with few rivals in each sector, new markets will develop--as they might not have with many rivals." This is nonsense. ... I'm not talking about market size or market opportunity...; I'm talking about rates of innovation." -- What's this called? What do economists call it? Why isn't it obvious? -- Attempt to restate problem: Large investors prefer fewer, larger deals. Because of attention scarcity and transaction costs. Today, we have excess idle capital under performing AND zillions of unfunded ideas, unending needful work not being done. This applies to all investors. VCs, governments, megacorps, etc. The genius of Y Combinator is reducing transaction costs, enabling more ideas to get funded efficiently. How do we (society) do A LOT more of that? How do we make broad portfolios the norm? -- Policy platform statement: Lacking other ideas for how to connect capital with small to modest investments, I support wealth redistribution. Radical repeated cashectomies and stifling regulations for the current 0.1%. Radical laissez faire and near free capital (zero interest loans, grants, government largess) to seed small, young business development. Ridiculous, audacious, ambitious moon shot programs. X-Prizes, stipulate that all funds must allocate some fraction to high risk high reward efforts, genius grants, a firehose of funding for academia, arts, culture, community building, whatever. Basically recreate the New Deal's CCC. Set some benchmark, like target funding of say 1% of GDP. Naturally, I support UBI, universal health care, free childcare, jubilee style bankruptcy protections, and so forth. For the very pragmatic reason of unlocking human potential by reducing (removing) individual risk.
- phkahler 5y ago
  >> Large investors prefer fewer, larger deals. Because of attention scarcity and transaction costs. >> Today, we have excess idle capital under performing AND zillions of unfunded ideas, unending needful work not being done. That might be a consequence of the concentration of wealth that's been happening. Not only does a VC have limited attention, but there aren't many ideas that need billions of dollars to fund. It might be better for startups to have twice as many rich guys with half as much money. OTOH maybe there's a way for them to spread it around more with a layer of oversite? But they'd need trusted oversite, and I'm guessing that's hard for them to find.
hhaha88 5y ago
Our culture likes to believe workers are free of state intervention, quotas like Soviet Russia. But here we have yet another story of how the rich, protected by government, guide our agency. America is a subtle con like that. The rich are protected by government, and then dictate economic agency and priority. Effectively government has granted others the power to do what it cannot officially.
- Robotbeat 5y ago
  I think you’re exaggerating the level of agency the government has here or actual intent versus unintended consequence, but I think you’re right about the effects. One reason I think elon has been wildly successful is not that he’s way smarter than everyone else but just that he’s a physicist/engineer-type that actually managed to become rich enough to control his businesses and dictate priority. A rich guy who is actually technically smart (as well as relatively competent business-wise) and at least in the early days did a very good job of identifying/listening to/empowering people smarter than him on some task (in part because he had the broad physics background to grok what they were talking about). There are doubtless a lot of other Elons out there, but we just haven’t empowered them. Maybe also some that are a bit more emotionally stable.
  - hhaha88 5y ago
    I’m saying the government purposely puts no agency into the issue of inequality. That, rather than allow the story government could, we require people to cater to unelected elders who judge and manage our agency even though none of us signed a contract at birth recognizing our agreement with the arrangement. We’re talked into after the fact; or we can die. It’s legalized shakedowns for lunch money. You’re getting hung up on technicals. I’m challenging the story that the US is free of oppressive behavior because it’s not government performing the behavior. I don’t have a contract requiring me to believe Zuckerberg is a billionaire, his forces can assign net worth to me though? Take PGs four quadrants of conformity. Why stop at 4? Did he run out of numbers? There are billions of people on the planet; why not an essay that suggests then a billion quadrants of conformity? The effort means little to PG, just a few different letters. Why does his boundary matter? If we’re allowed to filter as we choose why not filter you all out? Is that the political narrative we want to foster on Main Street? 5% of the population hunts; this contemporary logistics system provides for everyone. Following billionaires who filter out those who don’t conform to their preferred of their 4 categories … why not filter out a minority of billionaires through hefty taxation to empower all the Elons we aren’t. Pre-Reagan taxation empowered a lot of these guys families, then they changed the rules. Change them back.
CalChris 5y ago
At least two of my friends have had their ideas stolen and funded separately. The first startup I ever worked for, one of the founders had done diligence for a VC and stole the idea. The founder, knowing the VC, was by definition a bankable exec.
- geophile 5y ago
  Variation: The "VC pet" (love that term) steals an idea. That's how care.com started: http://archive.boston.com/business/technology/articles/2009/11/22/websites_rivalry_provides_lessons_in_sharing_or_not_sharing_strategic_secrets http://archive.boston.com/business/technology/articles/2009/...
  - CalChris 5y ago
    Yeah, it is more accurate than Entrepreneur In Residence.
    - geophile 5y ago
      I refer to my cat as Feline in Residence.
silentsea90 5y ago
Wasn't Rubrik started as a stolen idea from a VC pitch by Cohesity? I have heard this rumor but I am asking, not claiming.
mbesto 5y ago
> The engineers building the future deserve a fair equity share in the value they create; today they don't get one. I understand that this is from 2001, but oh boy has this changed drastically. For arguably the first time in history founders of businesses operate controlling interest of their stock on the public market. More billionaires have been minted from tech companies in the last 15 years. Not only have engineers gotten their fair share, their power is now being questioned (see Musk, Zuck, etc.).
- loldk 5y ago
  What can we do to make sure you don't stop being correct?
- JohnJamesRambo 5y ago
  It was too low in 2001 and has now swung too far the other way. https://en.wikipedia.org/wiki/Mean_reversion_(finance) https://en.wikipedia.org/wiki/Mean_reversion_(finance) Like most things, the gray area in the middle with checks and balances is probably best.
- akshayshah 5y ago
  You're right: funding is extremely founder-friendly right now. From my perspective, though, the original article is talking about everyday engineers (the "technical team"). If you're an early, senior engineer at a startup, you might be offered 1% of the company. Over the early years of the company, you're often critical to the success and velocity of product development - usually just as critical as the technical cofounder. After four years, your company is acquired for $1B! Your 1% has been diluted to 0.75%, so you walk away with $7.5M. After long-term capital gains, you pocket a bit more than $6M. Objectively, you're now very wealthy - if you're still relatively young, this is enough money to buy a nice house, fund your retirement, and do some angel investing, even in the most expensive cities in the US. Meanwhile, the technical cofounder walks away from the same story with $200M tax-free. That's dynastic wealth. Does the founder's additional year of work justify this difference? What about the partner from your primary VC, who's likely to personally take home tens of millions despite doing nothing more than investing other people's money and sitting in the occasional meeting? This is the rosiest scenario - the engineer, founder, and VC all earn life-altering amounts of money. Things get much worse if you're a less senior engineer, you're hired after the first large round of funding, or (especially) the company's exit isn't as good. In all those situations, the founder and VC still get a life-altering windfall, while the senior engineer might barely get enough to retroactively bring their salary up to market rate.
erik_landerholm 5y ago
The world is so different now and a lot of that change was spurred on or created directly by YC. super thankful, raising money still sucks, but it really sucked back then.
nakedshorts 5y ago
How have things changed since 2001? My opinions only: 1. VCs don't sign nondisclosure agreements: yes you will be laughed out the door if you demand one. 2. VCs are sheep: yes, make sure your startup hits one of the hot buzzwords (metaverse, ai, etc) to maximize interest. 3. VCs aren't technical: diligence these days is even more of a joke than it was back then. 4. VCs don't take risks: second time founders can get funding just off their name, yes. 5. Venture funds are big: IMO, there's way too much capital chasing too little talent these days. 6. VCs collude: absolutely, make sure you don't tell VCs other firms you're talking to before the term sheet. 7. VCs don't say no: very annoying, they'll string you along forever. 8. Your idea, your work, their company: biggest change since 20 years ago. Founders have way way more leverage these days. You can negotiate insane valuations (and therefore tiny dilution) compared to even 5 years ago. You can also fight harder for provisions that maintain board control in favor of the founders. The risk of a VC being seen as "founder unfriendly" is way higher than fighting you, a single company out of 100s in their portfolio.
binbag 5y ago
It's a good article but some parts of it don't ring true, or perhaps things have changed since it was written (in 2001). For example, the investor director a VC appoints to a board does not generally get any stock options - just a fee for attending board meetings (generally paid to the VC firm, not the individual). It also feels unlikely that a VC today would appoint their own CEO - it does happen, but it is far more likely that they would either back the existing management team or not invest at all, such is their view of how critical the team's quality is to the company's prospects. The author also describes the VC and its appointed CEO taking ~75% of the company. I've never seen anything like that happen - investors usually end up with about ~30% stake, regardless of what funding phase you are at. The paragraph about the 'down round' scenario is bizarre. There would need to have been serious failures in the company's/founder's legal work to allow this type of retrospective revaluation to occur. I've never heard of anything like this. I guess the reason for these oddities is because the landscape was very different in 2001, when we were just emerging from the dot com boom, but I'm not sure. Can anyone else comment? Anyway, overall it's a really good article, and the final parts ('Fixing the problem') was pretty insightful, since things like this have actually happened since then.
- pge 5y ago
  The down round situation was probably the result of anti-dilution protection, meaning it was baked into the previous rounds documents, not something that was renegotiated. Anti-dilution protection basically says that if the company closes a Series B financing at a price lower than the price of the Series A, the Series A investors get an adjustment to their fully-diluted ownership (ie get additional ownership). In the worst case, the Series A shares are effectively repriced to the Series B price, but most often the adjustment is much less. These terms would be part of the Series A term sheet and deal documents, not something that is raised when the Series B occurs.
  - binbag 5y ago
    Exactly, so the legal team and the founders didn't do a good deal. They agreed to those terms. Nothing was "re-negotiated" as the article said.
- 5y ago
fmajid 5y ago
The glut of capital (too many investor dollars chasing too few opportunities) has changed the balance of power quite a bit since.
akshayshah 5y ago
For founders, a lot has changed about VC funding since this article was written - much of the VC criticism still rings true, but founders often end up with much larger ownership shares and better funding terms. IMO, YC catalyzed a lot of that change. I don't always agree with every partner's latest think piece, but I appreciate the changes they've brought to startup funding.
varispeed 5y ago
The problem that VC has become a new normal is the asymmetry between how big corporations and wealthy people are taxed versus employees. It's not uncommon that a millionaires effective tax rate will be in single digits, whereas an engineer may be paying even as much as 55% of tax and that even before local taxes and bills. The taxation needs to be rebalanced otherwise you create those new gods who gatekeep who can run with their business idea and who cannot. I'd say VC is a result of improper regulation of capitalism and the fact that corporations and wealthy individuals through lobbying and corruption were able to amass wealth that is anomalous. The solutions for this won't be pretty.
winterplace 5y ago
Related: - https://spectrum.ieee.org/u/nick-tredennick https://spectrum.ieee.org/u/nick-tredennick - https://en.wikipedia.org/wiki/Nick_Tredennick https://en.wikipedia.org/wiki/Nick_Tredennick - https://www.researchgate.net/profile/Nick-Tredennick https://www.researchgate.net/profile/Nick-Tredennick - Dropbox: https://news.ycombinator.com/item?id=29175816 https://news.ycombinator.com/item?id=29175816 - Amplitude IPO AMA: https://news.ycombinator.com/item?id=28696641 https://news.ycombinator.com/item?id=28696641 - Understanding Startup Offers: https://news.ycombinator.com/item?id=28644653 https://news.ycombinator.com/item?id=28644653 - Early Employee: https://news.ycombinator.com/item?id=29176216 https://news.ycombinator.com/item?id=29176216 - Unicorn Startup Equity: https://news.ycombinator.com/item?id=13426494 https://news.ycombinator.com/item?id=13426494 - Michael Seibel, Twitch: https://news.ycombinator.com/item?id=29175453 https://news.ycombinator.com/item?id=29175453
varelse 5y ago
This is a great essay. And I have kept more than one employee working with me at BigCo by explaining the odds of success of the expected return for being an engineer vs a TLA at startups. It actually used to be work to make this case but now the case makes itself. And bonus you're just being honest. In one case where the person was offered a CTO spot I encouraged him to leave. The company failed and that's okay but at least it was an interesting opportunity as opposed to indentured servitude. The real dilemma is that when your ideas are revolutionary you really have to bootstrap them yourself because VC has no interest in them despite all the platitudes and happy talk. And this essay nails that very thing.
dang 5y ago
Past threads: An Engineer's View of Venture Capitalists (2001) - https://news.ycombinator.com/item?id=6369357 https://news.ycombinator.com/item?id=6369357 - Sept 2013 (54 comments) An Engineer's View of Venture Capitalists - https://news.ycombinator.com/item?id=113655 https://news.ycombinator.com/item?id=113655 - Feb 2008 (26 comments)
doctor_eval 5y ago
Well this certainly hit a nerve with me: > They told me: "We think you should resign." I left; the problems didn't. When there is a conflict between the engineering and money talent, the money is going to win. It doesn’t matter if you’re right, if you’re not rich and connected. I wish I’d understood this, and done more to nurture a direct relationship with my VC instead of letting the angel handle that side of things.
rq1 5y ago
Vulture Capitalists.
root-z 5y ago
Parts that I enjoyed particularly: > "It's too bad someone is building a resort hotel so close to your house," I said. "That's my new house," he said. > I wanted to publicly thank more than a dozen people for help on this essay, but they all said "NO!"
Pokepokalypse 5y ago
I'd just like to relate my experience with VC's and startups. I worked at a non-silicon-valley startup in the 1990's. After a couple of years of growth and success, a new investor came in, and bought the company; supposedly to "prepare" us for an IPO. (we all had stock options). I think this was around 1995. The new investment group removed the team of founders, (all engineers), to a role running the engineering team, and they hired "A professional" CEO to replace them, in the role of business management. He was actually a pretty good guy and seemed to really be dedicated to helping our team grow and succeed. Lo and behold, about 3 months later, they announced a "merger". Lots of "synergy" with the new company; which was smaller, but wanting to build a major player in our market. They were based in Scotts Valley; so now, we were a Silicon Valley startup. Our CEO was then sort of "demoted" to being the site-manager. The next thing that happened, was that our "parent" company bought our largest competitor. There was more gung-ho pep talk about how our products had no overlap, and that it would be a vertical integration, and we had so much work to do that there would be no layoffs. Business deals, changes, rebranding initiatives flew hot and heavy for the next few months. Our CEO was sent on a 2 week trip to China, to work on a reseller agreement. He left on a Friday. On Monday morning, we were all just reading our emails, and getting our coffee, preparing to start the day. Outside the window, looking at the parking lot, there was a row of 6 men, walking out of their rental cars, towards our building. They were recognized by some of our team, as high-level managers from the "parent" company. They strode across the parking lot looking like gangsters on their way to a hit. Shortly after they came in, the email was sent. It said that there would be a meeting, and if your name was on list A, to go to one conference room, and if your name was on list B, to go to a different conference room. I was in the "lucky" group: There was a stack of 2" thick manila envelopes on the table. Basically, our buy-out offers, which included a deal to agree to stay-on for 6 months, and wind-down operations at this site. That was about 10% of us. The rest were laid off and told to go home. Additionally, the key staff who were asked to stay, were offered relocation packages. I took mine. Which turned out really nice for me: because the new location ended up being a much better job market, and a boost to my career (eventually), and also, I got to hold on to my options until they were actually worth something, compared to the "unlucky" ones who were just offered a pittance for their shares. I wasn't happy or proud to have had to keep working with these people, but it did actually work out for me. Probably the worst part was how arrogant and dismissive this group of men were, to our team. Frankly, they were dicks, as they laid off tech workers, in a region where there really wasn't a strong tech industry. Later, we found that the CEO had been sent on a completely bogus trip. There was no deal. They just wanted him out of the way, so that the deal could be done while he was on a 14 hour flight. He could have objected, but by the time that would have had any effect, the damage (to our engineering team) had been done. Some of the key players were on the phone and had new jobs by the end of the day on Monday. The ones who were laid off, had signed agreements. There was just no way the deal could have been reversed had the executive staff at our site objected, and the ones who could have objected, were bought-off. And that's my account of how VC's work. The product we had made was, indeed, continued, under management of our competitor. They never went public; they were later bought by another company, and our options were converted to their stock. A few years later, they were bought by another company, in a similarly stinky deal, involving blackmail of a board member. (he had some skeletons in his closet, and when they outed him, they really fucked him over HARD). That's when I left. And decided I hated working in the private sector.

178 points by sebg 5y ago

sealeck 5y ago

I could be misreading, but I believe that this article is from 2001, not 2011?

1cvmask 5y ago
It is from 2001

ChrisArchitect 5y ago

why submit again after yesterday? Other old, previous discussion: 14 years ago https://news.ycombinator.com/item?id=113655 https://news.ycombinator.com/item?id=113655 8 years ago https://news.ycombinator.com/item?id=6369357 https://news.ycombinator.com/item?id=6369357

m_ke 5y ago
Most of it is still relevant and most people on here are not old enough to have browsed HN 14 years ago.
- ChrisArchitect 5y ago
  not saying it's not relevant, not expecting ppl to have seen it, but there's discussion there in those threads and it doesn't really need to be re-upped/repeated convos. Can enjoy it without commenting/upvoting it.

_vufv 5y ago

> The VC connects wealthy investors to nerds. There are few alternatives. You can self-fund by consulting and by setting aside money for your venture. That doesn't work. It would've been great if an explanation was given for this opinion. Why wouldn't this work? From my limited experience it works fairly well.

jpmattia 5y ago
You have to remember this article was written in 2001, when most "big" ventures were hardware and therefore very capital intensive. Google shattered that idea: Larry and Sergei retained an extraordinary percentage up through the IPO because they didn't "need" the VC money, and they were doing quite well without it. Many of us from the period looked at that result, took it to an extreme, and proceeded to self-bootstrap our next endeavors.
- jasode 5y ago
  >Larry and Sergei retained an extraordinary percentage up through the IPO because they didn't "need" the VC money, and they were doing quite well without it. Fyi... Google got VCs Sequoia Capital & KPCB $25 million around June 1999 which was about ~9 months after they started in Sept 1998. Before the VC funding, they also got a group of seed investments from Stanford professors and other individuals (Andy Bechtolsheim, Jeff Bezos, NBA star Shaq, etc.)
  - jpmattia 5y ago
    Again, the context is important: You need to look at the percentages retained in those funding rounds relative to what was happening at the time. Their low capital needs, which gained them leverage, and the following high return spawned a generation of bootstrapped software startups. And since the VC pot of money is finite, hardware startups (the domain of the article's author) became quite unfashionable by the standards of the 90s.
    - jasode 5y ago
      > Their low capital needs and following high return is what spawned a generation of bootstrapped software startups. I don't see how "$25 million from a VC" would be interpreted by outsiders as inspiration for bootstrapping. Doesn't "bootstrapping" mean self-funding from revenue instead of investors? Google didn't have meaningful revenue & profits until 2002. I think the best way to apply "bootstrapping" (the way most people think of that term) to Larry & Sergei would be the early phase of 1996 to 1998 where they used Stanford's computers & datacenter for $0 cost to build a MVP search engine "Backrub". But a lot of startup founders can't apply that to their situation because they are not in PhD programs with the university providing a "pseudo AWS" for $0. (Stanford did share credit in the pagerank patent so they got license $$$ from Google in return.) EDIT reply to: >, and realized that Google did not actually need the money. What do you mean by they "didn't need the money"? How would the early Google survive for 3+ years with no revenue? Immediately after the June 1999 $25 million, they hired an ex-Grateful Dead celebrity chef to cook free meals for their employees and rent datacenter space. If Google didn't have any revenue, what money is there other than that $25 million to pay salaries of the chef, the employees, food, datacenters? That's the opposite of "bootstrapping". Are you using that word in a different way?

sidpatil 5y ago

Dupe: https://news.ycombinator.com/item?id=29183657 https://news.ycombinator.com/item?id=29183657

pvg 5y ago
they have to have comments to hn-count as hn-dupes

1cvmask 5y ago

The part on VCs being risk averse when it comes to innovation is quite common: One company I worked with had an innovative idea for a firewall: build it with programmable logic and it works at wire speed. Wire speed meant no buffering, no data storage, and therefore no need for a microprocessor or for an IP (Internet Protocol) address. Simple installation, simple management, but so different that experts--even those from programmable logic companies--didn't understand it. To them, proposing a firewall without a microprocessor and an IP address was like proposing a car without an engine. No funding. Back to work at a big company. Worse for them; worse for us. The industry loses. Progress is delayed.

h2odragon 5y ago
For a while there some folks (cant recall the name) had a IPv4 firewall system based on DOS, with a similar idea of being an "out of band" filter that was not part of the network being filtered. Fact is, it's simple enough to do that with any OS and equally as hard to certify that the separations are actual and have no leaks. Now they're writing whole server/response chains in eBPF and stuff same idea but inverted, perhaps.
buro9 5y ago
> One company I worked with had an innovative idea for a firewall: build it with programmable logic and it works at wire speed Ah, that's the idea I had at Cloudflare and we then built it as Firewall Rules. Externally it looks like it's a HTTP feature only and just a WAF type tool, but internally it's an extremely fast matcher that can work on any traffic and at different OSI layers so it forms part of the DDoS protection, bot protection, magic transit, etc. It's also in things like the URI rewrite... because fundamentally it's all just "match things" and associate actions with the matched things, usually the actions are deny, rate limit, allow, challenge... but no reason the actions can't be to transform, duplicate, log, etc too. Just wireshark like matching at the equivalent of wire speed (for what that means at whatever layer you're working on) without having to have buffering or that pcap phase normally associated with firewalls or wireshark. The same wireshark-like rules can also be translated into SQL easily enough, so it's possible to run a firewall rule over the logs and see what would've matched (it isn't perfect, logging isn't that complete... but for the most common scenarios it works well enough). This work is OSS, the language syntax and a table matcher (used for the HTTP part) is all here https://github.com/cloudflare/wirefilter/tree/cloudflare https://github.com/cloudflare/wirefilter/tree/cloudflare and it's in Rust. For other systems the rule may be translated to eBPF for the matching part, etc. A blog post with an overview is here https://blog.cloudflare.com/how-we-made-firewall-rules/ https://blog.cloudflare.com/how-we-made-firewall-rules/ .

timdaub 5y ago

Awesome take. I've recently come to understand that the same problematic exists in the cryptosphere too. Here, the token holders act recklessly towards the engineers creating the value: https://timdaub.github.io/2021/10/21/on-chain-the-emperor-wears-no-clothes/ https://timdaub.github.io/2021/10/21/on-chain-the-emperor-we...

ghaff 5y ago
Or less charitably, the engineers are not in on the grift.
deleted 5y ago
[deleted]

nynx 5y ago

Capitalism often avoids real innovation and sticks to the safe path. I suspect we’d be technologically a lot farther along in important ways without it.

binbag 5y ago
I wouldn't be so sure. How do you allocate resources and pick the best prospects in your alternative, presumably centrally directed, economy?
- nynx 5y ago
  Centrally directed economy? No, that most likely wouldn't work. There is a lot of room for free-market economies that are very much not capitalist.
  - rytill 5y ago
    Can you help me learn more about this? I'm genuinely curious and don't know what kinds of things you have in mind.
- Banana699 5y ago
  This whole argument (it isn't yet really, but it's developing into a very familiar one) is a huge waste of breath IMHO, suitable more for heat than light. For one thing, "Capitalism" vs. "Central Planning" are strawmen abstracted from competing families of concrete approaches that, while similar in very broad strokes enough to justify the strawmen abstractions, are wildly different in specifics. The "Capitalism" of Singapore, Switzerland, and USA are so wildly different underneath the superficial names and slogans that any discussion of them that views them as basically the same is necessarily going nowhere. Sometimes humans' amazing ability to recognize very loose patterns just turns out to be a foot gun like that. For another, Innovation (or risk-taking ventures or whatever you want to call it really) is an institution thing, a culture if you will, the challenge of building an institution goes way far beyond what type of managment you choose for it. DARPA and NASA are both bureaucratic bodies that produced amazing innovations and took incredibly risky ventures, Nokia and Xerox were once risk-taking cowboys that got averse and stagnated. The canned response to this is always 'Yes but you can always found your own company and eat their lunch, that's why capitalism is superior', this is wildly wrong on a lot of things, but the most jarring blindspot is that it assumes all innovations have the capacity to carve out a market from the established. This isn't true in general, it just so happened that digital cameras, personal computers or smartphones are so amazing they can jumpstart a new market out of thin air and take on existing companies head-on, but what if you have a search engine innovation that can make search 50% better (less spam and SEO trash, more discoverability, etc..), a 50% better search is an amazing innovation, but good luck going against Google with that and that alone. If nothing else, they will just buy you and put you in the drawer if you make too much of a fuss. This problem is standard in evolutionary approaches to optimization. Despite the wildly different specifics of things that humans call 'Capitalism', they all share a very broad faith in the power of competition as an optimization process and a constraint-driven solution discovery algorithm. Well, that's called Evolution, and it heckin sucks sometimes. There are probably millions upon millions of good biological designs that got extinct because they weren't lucky enough to carve out a niche out of the chaos. Evolution is basically saying 'If you don't like how it is, make your own species and eat their lunch' to the beings playing it, but sometimes, a lot of times, insanely good mutations aren't enough to build a new species, or they can build a new species but it will be eaten in a heartbeat by the established ones for reasons unrelated to its efficiency. Just look at the human eye, there is an incredibly dumb design flaw where fibers connecting it to the brain warp around in a funny way and cause a blind spot in its midst, the brain corrects it automatically by simply lying to itself (I mean, uhh, 'Interpolating'). This wasn't enough to drive humans extinct, you might object that this is okay because Evolution is actually optimizing for survivability, not the best eye, so a species that manages to survive despite a dumb flaw in its sensor suite is just par for the course. But this a huge problem for competition-driven innovation, because we actually want to optimize for the best eye, a dumb design flaw in the eyes of a stagnant behemoth that refuses to die like Google is a very bad thing for us. Innovation is just an insanely hard problem no matter how you look at it, and it's always solved in real life by ad-hoc competition-planning hybrids that is always fragile to stagnation, to which it eventually (almost always) falls prey. The Capitalism-CentralPlanning debate, if it's to be productive at all, should just stick to standard boring economic issues (ideally by discussing concrete approaches, not vague semantic clouds), because innovation is just a red herring that supports neither party of the debate.

specialist 5y ago

"Venture funds are big: ... The VCs running a $1 billion fund don't have the time to manage one thousand $1 million investments. VCs collude: ... I attended a recent talk by a VC luminary, who gloated over the state of the venture industry, after money for technology start-ups was scarce. Here's my summary of the VC's view: "A year ago there was too much money available, so there was too much competition to fund good ideas. ... Valuations are reasonable and, with few rivals in each sector, new markets will develop--as they might not have with many rivals." This is nonsense. ... I'm not talking about market size or market opportunity...; I'm talking about rates of innovation." -- What's this called? What do economists call it? Why isn't it obvious? -- Attempt to restate problem: Large investors prefer fewer, larger deals. Because of attention scarcity and transaction costs. Today, we have excess idle capital under performing AND zillions of unfunded ideas, unending needful work not being done. This applies to all investors. VCs, governments, megacorps, etc. The genius of Y Combinator is reducing transaction costs, enabling more ideas to get funded efficiently. How do we (society) do A LOT more of that? How do we make broad portfolios the norm? -- Policy platform statement: Lacking other ideas for how to connect capital with small to modest investments, I support wealth redistribution. Radical repeated cashectomies and stifling regulations for the current 0.1%. Radical laissez faire and near free capital (zero interest loans, grants, government largess) to seed small, young business development. Ridiculous, audacious, ambitious moon shot programs. X-Prizes, stipulate that all funds must allocate some fraction to high risk high reward efforts, genius grants, a firehose of funding for academia, arts, culture, community building, whatever. Basically recreate the New Deal's CCC. Set some benchmark, like target funding of say 1% of GDP. Naturally, I support UBI, universal health care, free childcare, jubilee style bankruptcy protections, and so forth. For the very pragmatic reason of unlocking human potential by reducing (removing) individual risk.

phkahler 5y ago
>> Large investors prefer fewer, larger deals. Because of attention scarcity and transaction costs. >> Today, we have excess idle capital under performing AND zillions of unfunded ideas, unending needful work not being done. That might be a consequence of the concentration of wealth that's been happening. Not only does a VC have limited attention, but there aren't many ideas that need billions of dollars to fund. It might be better for startups to have twice as many rich guys with half as much money. OTOH maybe there's a way for them to spread it around more with a layer of oversite? But they'd need trusted oversite, and I'm guessing that's hard for them to find.

hhaha88 5y ago

Our culture likes to believe workers are free of state intervention, quotas like Soviet Russia. But here we have yet another story of how the rich, protected by government, guide our agency. America is a subtle con like that. The rich are protected by government, and then dictate economic agency and priority. Effectively government has granted others the power to do what it cannot officially.

Robotbeat 5y ago
I think you’re exaggerating the level of agency the government has here or actual intent versus unintended consequence, but I think you’re right about the effects. One reason I think elon has been wildly successful is not that he’s way smarter than everyone else but just that he’s a physicist/engineer-type that actually managed to become rich enough to control his businesses and dictate priority. A rich guy who is actually technically smart (as well as relatively competent business-wise) and at least in the early days did a very good job of identifying/listening to/empowering people smarter than him on some task (in part because he had the broad physics background to grok what they were talking about). There are doubtless a lot of other Elons out there, but we just haven’t empowered them. Maybe also some that are a bit more emotionally stable.
- hhaha88 5y ago
  I’m saying the government purposely puts no agency into the issue of inequality. That, rather than allow the story government could, we require people to cater to unelected elders who judge and manage our agency even though none of us signed a contract at birth recognizing our agreement with the arrangement. We’re talked into after the fact; or we can die. It’s legalized shakedowns for lunch money. You’re getting hung up on technicals. I’m challenging the story that the US is free of oppressive behavior because it’s not government performing the behavior. I don’t have a contract requiring me to believe Zuckerberg is a billionaire, his forces can assign net worth to me though? Take PGs four quadrants of conformity. Why stop at 4? Did he run out of numbers? There are billions of people on the planet; why not an essay that suggests then a billion quadrants of conformity? The effort means little to PG, just a few different letters. Why does his boundary matter? If we’re allowed to filter as we choose why not filter you all out? Is that the political narrative we want to foster on Main Street? 5% of the population hunts; this contemporary logistics system provides for everyone. Following billionaires who filter out those who don’t conform to their preferred of their 4 categories … why not filter out a minority of billionaires through hefty taxation to empower all the Elons we aren’t. Pre-Reagan taxation empowered a lot of these guys families, then they changed the rules. Change them back.

CalChris 5y ago

At least two of my friends have had their ideas stolen and funded separately. The first startup I ever worked for, one of the founders had done diligence for a VC and stole the idea. The founder, knowing the VC, was by definition a bankable exec.

geophile 5y ago
Variation: The "VC pet" (love that term) steals an idea. That's how care.com started: http://archive.boston.com/business/technology/articles/2009/11/22/websites_rivalry_provides_lessons_in_sharing_or_not_sharing_strategic_secrets http://archive.boston.com/business/technology/articles/2009/...
- CalChris 5y ago
  Yeah, it is more accurate than Entrepreneur In Residence.
  - geophile 5y ago
    I refer to my cat as Feline in Residence.

silentsea90 5y ago

Wasn't Rubrik started as a stolen idea from a VC pitch by Cohesity? I have heard this rumor but I am asking, not claiming.

mbesto 5y ago

> The engineers building the future deserve a fair equity share in the value they create; today they don't get one. I understand that this is from 2001, but oh boy has this changed drastically. For arguably the first time in history founders of businesses operate controlling interest of their stock on the public market. More billionaires have been minted from tech companies in the last 15 years. Not only have engineers gotten their fair share, their power is now being questioned (see Musk, Zuck, etc.).

loldk 5y ago
What can we do to make sure you don't stop being correct?
JohnJamesRambo 5y ago
It was too low in 2001 and has now swung too far the other way. https://en.wikipedia.org/wiki/Mean_reversion_(finance) https://en.wikipedia.org/wiki/Mean_reversion_(finance) Like most things, the gray area in the middle with checks and balances is probably best.
akshayshah 5y ago
You're right: funding is extremely founder-friendly right now. From my perspective, though, the original article is talking about everyday engineers (the "technical team"). If you're an early, senior engineer at a startup, you might be offered 1% of the company. Over the early years of the company, you're often critical to the success and velocity of product development - usually just as critical as the technical cofounder. After four years, your company is acquired for $1B! Your 1% has been diluted to 0.75%, so you walk away with $7.5M. After long-term capital gains, you pocket a bit more than $6M. Objectively, you're now very wealthy - if you're still relatively young, this is enough money to buy a nice house, fund your retirement, and do some angel investing, even in the most expensive cities in the US. Meanwhile, the technical cofounder walks away from the same story with $200M tax-free. That's dynastic wealth. Does the founder's additional year of work justify this difference? What about the partner from your primary VC, who's likely to personally take home tens of millions despite doing nothing more than investing other people's money and sitting in the occasional meeting? This is the rosiest scenario - the engineer, founder, and VC all earn life-altering amounts of money. Things get much worse if you're a less senior engineer, you're hired after the first large round of funding, or (especially) the company's exit isn't as good. In all those situations, the founder and VC still get a life-altering windfall, while the senior engineer might barely get enough to retroactively bring their salary up to market rate.

erik_landerholm 5y ago

The world is so different now and a lot of that change was spurred on or created directly by YC. super thankful, raising money still sucks, but it really sucked back then.

nakedshorts 5y ago

How have things changed since 2001? My opinions only: 1. VCs don't sign nondisclosure agreements: yes you will be laughed out the door if you demand one. 2. VCs are sheep: yes, make sure your startup hits one of the hot buzzwords (metaverse, ai, etc) to maximize interest. 3. VCs aren't technical: diligence these days is even more of a joke than it was back then. 4. VCs don't take risks: second time founders can get funding just off their name, yes. 5. Venture funds are big: IMO, there's way too much capital chasing too little talent these days. 6. VCs collude: absolutely, make sure you don't tell VCs other firms you're talking to before the term sheet. 7. VCs don't say no: very annoying, they'll string you along forever. 8. Your idea, your work, their company: biggest change since 20 years ago. Founders have way way more leverage these days. You can negotiate insane valuations (and therefore tiny dilution) compared to even 5 years ago. You can also fight harder for provisions that maintain board control in favor of the founders. The risk of a VC being seen as "founder unfriendly" is way higher than fighting you, a single company out of 100s in their portfolio.

binbag 5y ago

It's a good article but some parts of it don't ring true, or perhaps things have changed since it was written (in 2001). For example, the investor director a VC appoints to a board does not generally get any stock options - just a fee for attending board meetings (generally paid to the VC firm, not the individual). It also feels unlikely that a VC today would appoint their own CEO - it does happen, but it is far more likely that they would either back the existing management team or not invest at all, such is their view of how critical the team's quality is to the company's prospects. The author also describes the VC and its appointed CEO taking ~75% of the company. I've never seen anything like that happen - investors usually end up with about ~30% stake, regardless of what funding phase you are at. The paragraph about the 'down round' scenario is bizarre. There would need to have been serious failures in the company's/founder's legal work to allow this type of retrospective revaluation to occur. I've never heard of anything like this. I guess the reason for these oddities is because the landscape was very different in 2001, when we were just emerging from the dot com boom, but I'm not sure. Can anyone else comment? Anyway, overall it's a really good article, and the final parts ('Fixing the problem') was pretty insightful, since things like this have actually happened since then.

pge 5y ago
The down round situation was probably the result of anti-dilution protection, meaning it was baked into the previous rounds documents, not something that was renegotiated. Anti-dilution protection basically says that if the company closes a Series B financing at a price lower than the price of the Series A, the Series A investors get an adjustment to their fully-diluted ownership (ie get additional ownership). In the worst case, the Series A shares are effectively repriced to the Series B price, but most often the adjustment is much less. These terms would be part of the Series A term sheet and deal documents, not something that is raised when the Series B occurs.
- binbag 5y ago
  Exactly, so the legal team and the founders didn't do a good deal. They agreed to those terms. Nothing was "re-negotiated" as the article said.
5y ago

fmajid 5y ago

The glut of capital (too many investor dollars chasing too few opportunities) has changed the balance of power quite a bit since.

akshayshah 5y ago

For founders, a lot has changed about VC funding since this article was written - much of the VC criticism still rings true, but founders often end up with much larger ownership shares and better funding terms. IMO, YC catalyzed a lot of that change. I don't always agree with every partner's latest think piece, but I appreciate the changes they've brought to startup funding.

varispeed 5y ago

The problem that VC has become a new normal is the asymmetry between how big corporations and wealthy people are taxed versus employees. It's not uncommon that a millionaires effective tax rate will be in single digits, whereas an engineer may be paying even as much as 55% of tax and that even before local taxes and bills. The taxation needs to be rebalanced otherwise you create those new gods who gatekeep who can run with their business idea and who cannot. I'd say VC is a result of improper regulation of capitalism and the fact that corporations and wealthy individuals through lobbying and corruption were able to amass wealth that is anomalous. The solutions for this won't be pretty.

winterplace 5y ago

Related: - https://spectrum.ieee.org/u/nick-tredennick https://spectrum.ieee.org/u/nick-tredennick - https://en.wikipedia.org/wiki/Nick_Tredennick https://en.wikipedia.org/wiki/Nick_Tredennick - https://www.researchgate.net/profile/Nick-Tredennick https://www.researchgate.net/profile/Nick-Tredennick - Dropbox: https://news.ycombinator.com/item?id=29175816 https://news.ycombinator.com/item?id=29175816 - Amplitude IPO AMA: https://news.ycombinator.com/item?id=28696641 https://news.ycombinator.com/item?id=28696641 - Understanding Startup Offers: https://news.ycombinator.com/item?id=28644653 https://news.ycombinator.com/item?id=28644653 - Early Employee: https://news.ycombinator.com/item?id=29176216 https://news.ycombinator.com/item?id=29176216 - Unicorn Startup Equity: https://news.ycombinator.com/item?id=13426494 https://news.ycombinator.com/item?id=13426494 - Michael Seibel, Twitch: https://news.ycombinator.com/item?id=29175453 https://news.ycombinator.com/item?id=29175453

varelse 5y ago

This is a great essay. And I have kept more than one employee working with me at BigCo by explaining the odds of success of the expected return for being an engineer vs a TLA at startups. It actually used to be work to make this case but now the case makes itself. And bonus you're just being honest. In one case where the person was offered a CTO spot I encouraged him to leave. The company failed and that's okay but at least it was an interesting opportunity as opposed to indentured servitude. The real dilemma is that when your ideas are revolutionary you really have to bootstrap them yourself because VC has no interest in them despite all the platitudes and happy talk. And this essay nails that very thing.

dang 5y ago

Past threads: An Engineer's View of Venture Capitalists (2001) - https://news.ycombinator.com/item?id=6369357 https://news.ycombinator.com/item?id=6369357 - Sept 2013 (54 comments) An Engineer's View of Venture Capitalists - https://news.ycombinator.com/item?id=113655 https://news.ycombinator.com/item?id=113655 - Feb 2008 (26 comments)

doctor_eval 5y ago

Well this certainly hit a nerve with me: > They told me: "We think you should resign." I left; the problems didn't. When there is a conflict between the engineering and money talent, the money is going to win. It doesn’t matter if you’re right, if you’re not rich and connected. I wish I’d understood this, and done more to nurture a direct relationship with my VC instead of letting the angel handle that side of things.

rq1 5y ago

Vulture Capitalists.

root-z 5y ago

Parts that I enjoyed particularly: > "It's too bad someone is building a resort hotel so close to your house," I said. "That's my new house," he said. > I wanted to publicly thank more than a dozen people for help on this essay, but they all said "NO!"

Pokepokalypse 5y ago

I'd just like to relate my experience with VC's and startups. I worked at a non-silicon-valley startup in the 1990's. After a couple of years of growth and success, a new investor came in, and bought the company; supposedly to "prepare" us for an IPO. (we all had stock options). I think this was around 1995. The new investment group removed the team of founders, (all engineers), to a role running the engineering team, and they hired "A professional" CEO to replace them, in the role of business management. He was actually a pretty good guy and seemed to really be dedicated to helping our team grow and succeed. Lo and behold, about 3 months later, they announced a "merger". Lots of "synergy" with the new company; which was smaller, but wanting to build a major player in our market. They were based in Scotts Valley; so now, we were a Silicon Valley startup. Our CEO was then sort of "demoted" to being the site-manager. The next thing that happened, was that our "parent" company bought our largest competitor. There was more gung-ho pep talk about how our products had no overlap, and that it would be a vertical integration, and we had so much work to do that there would be no layoffs. Business deals, changes, rebranding initiatives flew hot and heavy for the next few months. Our CEO was sent on a 2 week trip to China, to work on a reseller agreement. He left on a Friday. On Monday morning, we were all just reading our emails, and getting our coffee, preparing to start the day. Outside the window, looking at the parking lot, there was a row of 6 men, walking out of their rental cars, towards our building. They were recognized by some of our team, as high-level managers from the "parent" company. They strode across the parking lot looking like gangsters on their way to a hit. Shortly after they came in, the email was sent. It said that there would be a meeting, and if your name was on list A, to go to one conference room, and if your name was on list B, to go to a different conference room. I was in the "lucky" group: There was a stack of 2" thick manila envelopes on the table. Basically, our buy-out offers, which included a deal to agree to stay-on for 6 months, and wind-down operations at this site. That was about 10% of us. The rest were laid off and told to go home. Additionally, the key staff who were asked to stay, were offered relocation packages. I took mine. Which turned out really nice for me: because the new location ended up being a much better job market, and a boost to my career (eventually), and also, I got to hold on to my options until they were actually worth something, compared to the "unlucky" ones who were just offered a pittance for their shares. I wasn't happy or proud to have had to keep working with these people, but it did actually work out for me. Probably the worst part was how arrogant and dismissive this group of men were, to our team. Frankly, they were dicks, as they laid off tech workers, in a region where there really wasn't a strong tech industry. Later, we found that the CEO had been sent on a completely bogus trip. There was no deal. They just wanted him out of the way, so that the deal could be done while he was on a 14 hour flight. He could have objected, but by the time that would have had any effect, the damage (to our engineering team) had been done. Some of the key players were on the phone and had new jobs by the end of the day on Monday. The ones who were laid off, had signed agreements. There was just no way the deal could have been reversed had the executive staff at our site objected, and the ones who could have objected, were bought-off. And that's my account of how VC's work. The product we had made was, indeed, continued, under management of our competitor. They never went public; they were later bought by another company, and our options were converted to their stock. A few years later, they were bought by another company, in a similarly stinky deal, involving blackmail of a board member. (he had some skeletons in his closet, and when they outed him, they really fucked him over HARD). That's when I left. And decided I hated working in the private sector.