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> Remember: if VCs believed in what they were doing they would not take a 2% annual management fee and 20% of the upside. This makes no sense. Companies have

> Remember: if VCs believed in what they were doing they would not take a 2% annual management fee and 20% of the upside. This makes no sense. Companies have fees, junior associates have student loans, buldings require rent to be paid. This is a foolish sentiment, unless you would apply it to all employees everywhere. If startup employees truly believe in their company they would also take no salary at all and just live on ramen noodles. But if you think this through you realize that employees also have costs in their lives that they need money for. > Once you get this it’s all a lot easier: the job of a VC is not to invest in winners, that’s a bonus. > The job of a VC is to look respectable while losing other people’s money at the roulette wheel, and taking a margin for doing so. This really makes me question which VC firm you work at as you don't seem to understand how they work. If VC firms had no alpha then they wouldn't be able to raise a second fund at all. And you'd never see VC funds stick around. They fact that Y combinator exists for all these years and A16Z, sequoia, etc are all around for so long indicates that they are good at their job and their job is to make returns for the LPs. I work at a firm, i'd be happy to help you understand how these firms work as you seem to have a very outsiders view on it, i can help clear up alot of your blind spots if you want to talk!!

leashless 2y ago
VC as an asset class loses money. Within that loss, some companies do better than others. Whether that is skill, luck or finding some way to tilt the board in your favour (political influence for example) depends on who you ask. I have read that the statistics the distribution of success in the VC field was compatible with a random distribution with a very small skill bias. I do not know if that analysis was accurate and it will be 10 years out of date now. But that there are winners and losers does not mean that it is not a game of chance.
- b112 2y ago
  Do you know if those stats took into account massive economic events? Such as market crashes? Which tend to happen at least once a decade? People often have a point to make, and will often ignore such data to make it. To add to this, outside of honest intent prejudiced with personal bias, there are parties lookong to undermine any aspect of success the West has, by invalidating those successful models.
  - leashless 2y ago
    I don't understand what you are saying or asking. We can only measure against real world data.
  - hobs 2y ago
    If your strategy is successful 8/10 years and your lose enough money during the other 2 to be marked as unsuccessful, is that really a "successful model"?
- fairity 2y ago
  > VC as an asset class loses money. If you're actually open to changing your mind, provide the source for this claim. I think you'll find you're wrong by most reasonable definitions of "losing money".
MacsHeadroom 2y ago
> If startup employees truly believe in their company they would also take no salary at all and just live on ramen noodles. Yes.
pwillia7 2y ago
> If startup employees truly believe in their company they would also take no salary at all and just live on ramen noodles. Not if you have no capital -- You still have to eat and be housed and that costs a lot if you don't have family wealth or other income streams, even with a good salary. People also naturally have different levels of risk aversion. Not everyone can/should be putting it all on red every day. > This really makes me question which VC firm you work at as you don't seem to understand how they work. If VC firms had no alpha then they wouldn't be able to raise a second fund at all. And you'd never see VC funds stick around. You're looking at it at the 'fund' level not the individual businesses that make up the fund. To use the roulette example, if I bet specific numbers or splits, I will expect any one of those to certainly lose, but I just need one to hit to cover the rest. Since the individual bets here are human beings and companies and not chips on a table, there's definitely an element of what the top commenter said IMO.
- n2d4 2y ago
  > Not if you have no capital -- You still have to eat and be housed and that costs a lot if you don't have family wealth or other income streams, even with a good salary. That's exactly their point; this exact same logic can be applied to VCs, too.
  - pwillia7 2y ago
    Do you mean to the employees of VCs? LPs do have capital, that's why they're LPs. For the employees, the sentiment that you should bet on the sales pitch "I won't get you fired" over "I will make you wealthy beyond measure" still holds.
    - n2d4 2y ago
      The LPs pay 2% management fee so the employees make some money regardless of the outcome, just like startup founders want to make some money even if the startup fails.
  - sqeaky 2y ago
    If startups had capital to coast on they wouldn't needs VCs. If VCs didn't have capital to invest they wouldn't be VCs. One of these groups clearly has more money at the start of this arrangement and you seem to be ignoring the change in npower dynamic that creates.
mattmaroon 2y ago
Nobody who writes a comment like that wants to know why they’re wrong. “Money people bad” is their mantra. You’ll never change it, they’ve swallowed too much propaganda.
- leashless 2y ago
  Hardly, I'm a CEO.
  - jaysonelliot 2y ago
    Of a company with how many employees?
    - leashless 2y ago
      Seven years in business. Number of staff varies with the environment but we've had as many as 40 on all hands, mostly part-timers with specialised skills. It's not a very ordinary company. Too many lawyers.
  - n2d4 2y ago
    Is that supposed to mean something? Half of Hacker News is a startup CEO. By your own logic, you better pay yourself a $0 salary, $0 on secondaries, and invested all your personal savings into the project, because otherwise clearly you don't believe in your own company. Right? And I hope that is also true about every one of your employees?
    - leashless 2y ago
      Check the bio.
      - adwn 2y ago
        > Check the bio. > Mattereum Still none the wiser.
      - mattmaroon 2y ago

leashless 2y ago

VC as an asset class loses money. Within that loss, some companies do better than others. Whether that is skill, luck or finding some way to tilt the board in your favour (political influence for example) depends on who you ask. I have read that the statistics the distribution of success in the VC field was compatible with a random distribution with a very small skill bias. I do not know if that analysis was accurate and it will be 10 years out of date now. But that there are winners and losers does not mean that it is not a game of chance.

b112 2y ago
Do you know if those stats took into account massive economic events? Such as market crashes? Which tend to happen at least once a decade? People often have a point to make, and will often ignore such data to make it. To add to this, outside of honest intent prejudiced with personal bias, there are parties lookong to undermine any aspect of success the West has, by invalidating those successful models.
- leashless 2y ago
  I don't understand what you are saying or asking. We can only measure against real world data.
- hobs 2y ago
  If your strategy is successful 8/10 years and your lose enough money during the other 2 to be marked as unsuccessful, is that really a "successful model"?
fairity 2y ago
> VC as an asset class loses money. If you're actually open to changing your mind, provide the source for this claim. I think you'll find you're wrong by most reasonable definitions of "losing money".

MacsHeadroom 2y ago

> If startup employees truly believe in their company they would also take no salary at all and just live on ramen noodles. Yes.

pwillia7 2y ago

> If startup employees truly believe in their company they would also take no salary at all and just live on ramen noodles. Not if you have no capital -- You still have to eat and be housed and that costs a lot if you don't have family wealth or other income streams, even with a good salary. People also naturally have different levels of risk aversion. Not everyone can/should be putting it all on red every day. > This really makes me question which VC firm you work at as you don't seem to understand how they work. If VC firms had no alpha then they wouldn't be able to raise a second fund at all. And you'd never see VC funds stick around. You're looking at it at the 'fund' level not the individual businesses that make up the fund. To use the roulette example, if I bet specific numbers or splits, I will expect any one of those to certainly lose, but I just need one to hit to cover the rest. Since the individual bets here are human beings and companies and not chips on a table, there's definitely an element of what the top commenter said IMO.

n2d4 2y ago
> Not if you have no capital -- You still have to eat and be housed and that costs a lot if you don't have family wealth or other income streams, even with a good salary. That's exactly their point; this exact same logic can be applied to VCs, too.
- pwillia7 2y ago
  Do you mean to the employees of VCs? LPs do have capital, that's why they're LPs. For the employees, the sentiment that you should bet on the sales pitch "I won't get you fired" over "I will make you wealthy beyond measure" still holds.
  - n2d4 2y ago
    The LPs pay 2% management fee so the employees make some money regardless of the outcome, just like startup founders want to make some money even if the startup fails.
- sqeaky 2y ago
  If startups had capital to coast on they wouldn't needs VCs. If VCs didn't have capital to invest they wouldn't be VCs. One of these groups clearly has more money at the start of this arrangement and you seem to be ignoring the change in npower dynamic that creates.

mattmaroon 2y ago

Nobody who writes a comment like that wants to know why they’re wrong. “Money people bad” is their mantra. You’ll never change it, they’ve swallowed too much propaganda.

leashless 2y ago
Hardly, I'm a CEO.
- jaysonelliot 2y ago
  Of a company with how many employees?
  - leashless 2y ago
    Seven years in business. Number of staff varies with the environment but we've had as many as 40 on all hands, mostly part-timers with specialised skills. It's not a very ordinary company. Too many lawyers.
- n2d4 2y ago
  Is that supposed to mean something? Half of Hacker News is a startup CEO. By your own logic, you better pay yourself a $0 salary, $0 on secondaries, and invested all your personal savings into the project, because otherwise clearly you don't believe in your own company. Right? And I hope that is also true about every one of your employees?
  - leashless 2y ago
    Check the bio.
    - adwn 2y ago
      > Check the bio. > Mattereum Still none the wiser.
    - mattmaroon 2y ago