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Articles like this, which paint VCs with perjorative stereotypes (e.g. "Golf games get abbreviated.") are not helpful. As long as you consider the VC an "other"

by pge 15y ago

Articles like this, which paint VCs with perjorative stereotypes (e.g. "Golf games get abbreviated.") are not helpful. As long as you consider the VC an "other" - a different species from you, you won't be able to work constructively with one. Anytime we paint another group of people as an "other" whether because of race or culture or whatever, we do our selves a disservice and encourage conflict and misunderstanding. We're all people, and we're all pretty much the same. A VC is just an entrepreneur whose line of business is money management instead of software development. If you want to understand the differences between money management and software development and what that means for how VCs try to build a successful business in that industry, go talk to VCs. But approach the conversation as a peer and fellow entrepreneur, not as someone trying to understand an alien.

michaelochurch 15y ago
Anytime we paint another group of people as an "other" whether because of race or culture or whatever, we do our selves a disservice and encourage conflict and misunderstanding. It goes both ways, though. VCs still make entrepreneurs pay the VCs' own (!) legal fees, they still roll out criminal terms like participating preferred and multiple liquidation preferences ("because fuck you, that's why") which are essentially legitimized extortion, and they still take months to make decisions that could be made in under a week with appropriate masculinity. Terms and behaviors like that emphasize the separation: you're not among us, and this is what you'll deal with for the right to breathe the same air as we do. Why do they get away with this? Because most of them look out for each other, not entrepreneurs. Because if you don't take that "deal" with the 4x liquidation preference and participating preferred, the VC offering it is going to call up 6 other VCs and damage your reputation and they will lose interest as well (the extortion factor). The two-class world still exists, and unless you worked directly with Mark Zuckerberg, VCs are of a higher class than entrepreneurs and they don't even want to share an elevator with you. It shouldn't be that way, but it is. Yes, being an entrepreneur is more fun when things are going smashingly well, but VCs don't have to worry about their kids' school bills when things aren't going well. Plus, VCs can always become entrepreneurs and have a leg up (from the connections and inside track they established while in VC) when they do so. The 25th-percentile outcome for a VC is that he doesn't make partner but gets an executive position at a portfolio company. The 25th-percentile outcome for an entrepreneur is, for a hint, not the option to go into VC for a few years.
patio11 15y ago
I'm hearing echoes of my liberal arts education in that first paragraph. For what it's worth, if you otherize the VC but understand what 2 and 20 means, you will successfully predict the behavior of a VC much, much, much more often than someone who has a deep personal relationship on a human level with his VC but who does not understand the math in this post. This is not a hypothetical. Many entrepreneurs have become friends with entrepreneurs-specializing-in-money-management before. Then their friend e.g. blocks a sale (want to hear a story about that? Find any five experienced people in the Valley -- I think you'll hear about three) and the entrepreneur is dumbfounded. This was not dumbfounding behavior -- it is predictable like the sun rising in the east.
- pge 15y ago
  Totally agree- I didnt mean not to understand the incentives, I just meant don't paint all VCs as a group as having a certain set of values or goals. Everyone, whether VC or entrepreneur, acts in response to a combination of the incentives in front of them and the rewards they value. If you understand a person's goals and the incentives in front of them, you can often predict what they are going to do reasonably accurately. Whether entrepreneur or VC, some people want a lifestyle business; some people want fame; some people want fortune; some people want to solve hard problems; some people want to create meaningful change in the world; etc. Different industries offer different ways to achieve any of those goals with varying levels of risk. By all means, do everything you can with any business partner, whether a colleague, a VC, or a potential acquirer to understand what their goals are, and what behavior they are incentivized towards in their effort to reach that goal.
jpdoctor 15y ago
Since you're a VC, you might do well to write an article explaining what the VC hit rate is (so they understand the percentages), IRRs, and what the carry and take are. It would help young entrepreneurs understand exactly how you are making money off of their work, which would promote greater understanding when it comes time to make tough decisions from both sides.
- ahoyhere 15y ago
  NB: you're responding to "pge" not "pg" -- pretty sure they're not the same people.
  - jpdoctor 15y ago
    It's pretty clear that pge is also a VC.
    - pge 15y ago
      Yes - as I've noted in other posts, I'm a partner at a VC firm. Your suggestion is a good one - I've already started putting something together. There have been some pretty good tutorials on the web in the last few years, so I'm a little worried the work is redundant, but I'll see if I can put something together that is reasonably comprehensive but concise. We're also a large firm, so I can't get everyone here to agree to share any of our data publicly, which I would like to do, since it would make it easier to use real numbers.
danshapiro 15y ago
I'm disappointed you got downvoted for this, because I think it's a legitimate viewpoint. I actually showed this article to a few VC friends in draft form for feedback. I got mostly positive comments, with one person who was upset at the "golf games" wisecrack (to be fair - that comment was born of a very specific, very frustrating experience with one person). I think an important point of context is that I've raised money from 6+ funds, work closely with many VCs, and count several of them as friends. "Otherizing" is a legitimate point of criticism for general social discourse. But this article had a very specific goal: to take a number of widely-seen behaviors, and explain them in economic terms. I used light language to do that, but I think it's a crucial point of understanding that most entrepreneurs lack. In fact, I think much of the criticism of VCs is born from a misunderstanding of what they're about. So while you're right that we're all human beings who can live in harmony together, I think there's more useful analysis past "they're entrepreneurs too". And I think if most entrepreneurs sit down with VCs, they'll have better things to talk to them about than fund structures and carry terms. I'm just weird in that I find that stuff fascinating!

by pge 15y ago

michaelochurch 15y ago

Anytime we paint another group of people as an "other" whether because of race or culture or whatever, we do our selves a disservice and encourage conflict and misunderstanding. It goes both ways, though. VCs still make entrepreneurs pay the VCs' own (!) legal fees, they still roll out criminal terms like participating preferred and multiple liquidation preferences ("because fuck you, that's why") which are essentially legitimized extortion, and they still take months to make decisions that could be made in under a week with appropriate masculinity. Terms and behaviors like that emphasize the separation: you're not among us, and this is what you'll deal with for the right to breathe the same air as we do. Why do they get away with this? Because most of them look out for each other, not entrepreneurs. Because if you don't take that "deal" with the 4x liquidation preference and participating preferred, the VC offering it is going to call up 6 other VCs and damage your reputation and they will lose interest as well (the extortion factor). The two-class world still exists, and unless you worked directly with Mark Zuckerberg, VCs are of a higher class than entrepreneurs and they don't even want to share an elevator with you. It shouldn't be that way, but it is. Yes, being an entrepreneur is more fun when things are going smashingly well, but VCs don't have to worry about their kids' school bills when things aren't going well. Plus, VCs can always become entrepreneurs and have a leg up (from the connections and inside track they established while in VC) when they do so. The 25th-percentile outcome for a VC is that he doesn't make partner but gets an executive position at a portfolio company. The 25th-percentile outcome for an entrepreneur is, for a hint, not the option to go into VC for a few years.

patio11 15y ago

I'm hearing echoes of my liberal arts education in that first paragraph. For what it's worth, if you otherize the VC but understand what 2 and 20 means, you will successfully predict the behavior of a VC much, much, much more often than someone who has a deep personal relationship on a human level with his VC but who does not understand the math in this post. This is not a hypothetical. Many entrepreneurs have become friends with entrepreneurs-specializing-in-money-management before. Then their friend e.g. blocks a sale (want to hear a story about that? Find any five experienced people in the Valley -- I think you'll hear about three) and the entrepreneur is dumbfounded. This was not dumbfounding behavior -- it is predictable like the sun rising in the east.

pge 15y ago
Totally agree- I didnt mean not to understand the incentives, I just meant don't paint all VCs as a group as having a certain set of values or goals. Everyone, whether VC or entrepreneur, acts in response to a combination of the incentives in front of them and the rewards they value. If you understand a person's goals and the incentives in front of them, you can often predict what they are going to do reasonably accurately. Whether entrepreneur or VC, some people want a lifestyle business; some people want fame; some people want fortune; some people want to solve hard problems; some people want to create meaningful change in the world; etc. Different industries offer different ways to achieve any of those goals with varying levels of risk. By all means, do everything you can with any business partner, whether a colleague, a VC, or a potential acquirer to understand what their goals are, and what behavior they are incentivized towards in their effort to reach that goal.

jpdoctor 15y ago

Since you're a VC, you might do well to write an article explaining what the VC hit rate is (so they understand the percentages), IRRs, and what the carry and take are. It would help young entrepreneurs understand exactly how you are making money off of their work, which would promote greater understanding when it comes time to make tough decisions from both sides.

ahoyhere 15y ago
NB: you're responding to "pge" not "pg" -- pretty sure they're not the same people.
- jpdoctor 15y ago
  It's pretty clear that pge is also a VC.
  - pge 15y ago
    Yes - as I've noted in other posts, I'm a partner at a VC firm. Your suggestion is a good one - I've already started putting something together. There have been some pretty good tutorials on the web in the last few years, so I'm a little worried the work is redundant, but I'll see if I can put something together that is reasonably comprehensive but concise. We're also a large firm, so I can't get everyone here to agree to share any of our data publicly, which I would like to do, since it would make it easier to use real numbers.

danshapiro 15y ago

I'm disappointed you got downvoted for this, because I think it's a legitimate viewpoint. I actually showed this article to a few VC friends in draft form for feedback. I got mostly positive comments, with one person who was upset at the "golf games" wisecrack (to be fair - that comment was born of a very specific, very frustrating experience with one person). I think an important point of context is that I've raised money from 6+ funds, work closely with many VCs, and count several of them as friends. "Otherizing" is a legitimate point of criticism for general social discourse. But this article had a very specific goal: to take a number of widely-seen behaviors, and explain them in economic terms. I used light language to do that, but I think it's a crucial point of understanding that most entrepreneurs lack. In fact, I think much of the criticism of VCs is born from a misunderstanding of what they're about. So while you're right that we're all human beings who can live in harmony together, I think there's more useful analysis past "they're entrepreneurs too". And I think if most entrepreneurs sit down with VCs, they'll have better things to talk to them about than fund structures and carry terms. I'm just weird in that I find that stuff fascinating!