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In a sense, all VCs are scouts, as very few are investing exclusively their own money. LPs give VCs money, VCs make investments and keep part of the proceeds.

In a sense, all VCs are scouts, as very few are investing exclusively their own money. LPs give VCs money, VCs make investments and keep part of the proceeds. Do we really know where Sequoia's money comes from? Does it matter? Is the entrepreneur misled by not knowing? If not, what's the difference? That we've assigned brand value to particular VC investors is, on balance, generally irrelevant to startup success. A brand-name firm is a nice feather in one's cap (and, as a former VC, occasionally an actual value-add), but it is by no means a guarantee of success or protection against failure. Who one's angels or VCs are is nice for the press, but it changes the likelihood of success/failure of the company only marginally. Google would have been Google no matter what firms were listed as owners in the S1. Disclosure: I've known Nick Mehta for 15 years. He is without question one of the smartest, most ethical people I know. Sequoia chose wisely in making him a "scout," and I would accept his investment (of his own or anyone's money) without reservation.

jpdoctor 14y ago
> Do we really know where Sequoia's money comes from? Does it matter? Yes. One type of LP are execs in companies that do acquisitions. When the acquisition is done, the LPs do not disclose their involvement or profit. This will continue until some shareholder lawsuit slams them for it, and even then it will probably continue. Edit: I should note that John Chambers has disclosed his profit in some acquisitions, and stated that he would donate his proceeds. He did not state that he would also donate the sizable tax deduction that he incurs from such a donation.
- hncommenter13 14y ago
  Sure, if an executive of an acquiror has an LP interest in a VC fund that owns shares in the acquired company (as in the CSCO example you mention), then the executive should disclose that to public investors and/or recuse himself from the consideration of the deal. But that's a protection for public shareholders of the acquiring corp, not a protection for the startup being acquired. (Public shareholders have a host of principal-agent problems to contend with, this among them; worse still is share repurchases to avoid option dilution, but that's another subject.) To the extent such disclosure makes an acquisition by CSCO less likely (as Chambers is reluctant to disclose his LP interest), then it's a potential concern for the startup. I'm not aware of that ever happening, however.
- anamax 14y ago
  > I should note that John Chambers has disclosed his profit in some acquisitions, and stated that he would donate his proceeds. He did not state that he would also donate the sizable tax deduction that he incurs from such a donation. Your last sentence suggests that he should have forgone the tax deduction associated with the donation. Why? He had a gain that he gave up by making the donation. The value of the deduction for making the donation is significantly less than that gain. Since making the donation means that he doesn't get the gain, why do you think that he should pay taxes associated with said gain? Taking the deduction leaves him at 0. Do you really think that he should lose money?
  - jpdoctor 14y ago
    > Why? Because shareholders do not employ executives to make acquisitions of terrible companies simply for their personal profit. > The value of the deduction for making the donation is significantly less than that gain. In CA, it is about 50% of the gain. > Taking the deduction leaves him at 0. No, it leaves him with profit of 50% of the gain.
    - anamax 14y ago
      > No, it leaves him with profit of 50% of the gain. We're talking about a gain that he donated.... You want him to pay taxes on that gain, to forgo the deduction for the donation. That leaves him in the hole. > In CA, it is about 50% of the gain. Not if it was long-term capital gains. CA gets 10% and the feds get 15% of the remainder. > Because shareholders do not employ executives to make acquisitions of terrible companies simply for their personal profit. Cisco's board apparently disagrees.

jpdoctor 14y ago

> Do we really know where Sequoia's money comes from? Does it matter? Yes. One type of LP are execs in companies that do acquisitions. When the acquisition is done, the LPs do not disclose their involvement or profit. This will continue until some shareholder lawsuit slams them for it, and even then it will probably continue. Edit: I should note that John Chambers has disclosed his profit in some acquisitions, and stated that he would donate his proceeds. He did not state that he would also donate the sizable tax deduction that he incurs from such a donation.

hncommenter13 14y ago
Sure, if an executive of an acquiror has an LP interest in a VC fund that owns shares in the acquired company (as in the CSCO example you mention), then the executive should disclose that to public investors and/or recuse himself from the consideration of the deal. But that's a protection for public shareholders of the acquiring corp, not a protection for the startup being acquired. (Public shareholders have a host of principal-agent problems to contend with, this among them; worse still is share repurchases to avoid option dilution, but that's another subject.) To the extent such disclosure makes an acquisition by CSCO less likely (as Chambers is reluctant to disclose his LP interest), then it's a potential concern for the startup. I'm not aware of that ever happening, however.
anamax 14y ago
> I should note that John Chambers has disclosed his profit in some acquisitions, and stated that he would donate his proceeds. He did not state that he would also donate the sizable tax deduction that he incurs from such a donation. Your last sentence suggests that he should have forgone the tax deduction associated with the donation. Why? He had a gain that he gave up by making the donation. The value of the deduction for making the donation is significantly less than that gain. Since making the donation means that he doesn't get the gain, why do you think that he should pay taxes associated with said gain? Taking the deduction leaves him at 0. Do you really think that he should lose money?
- jpdoctor 14y ago
  > Why? Because shareholders do not employ executives to make acquisitions of terrible companies simply for their personal profit. > The value of the deduction for making the donation is significantly less than that gain. In CA, it is about 50% of the gain. > Taking the deduction leaves him at 0. No, it leaves him with profit of 50% of the gain.
  - anamax 14y ago
    > No, it leaves him with profit of 50% of the gain. We're talking about a gain that he donated.... You want him to pay taxes on that gain, to forgo the deduction for the donation. That leaves him in the hole. > In CA, it is about 50% of the gain. Not if it was long-term capital gains. CA gets 10% and the feds get 15% of the remainder. > Because shareholders do not employ executives to make acquisitions of terrible companies simply for their personal profit. Cisco's board apparently disagrees.