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1. The value/measure of a VC to their bosses (their LP / investors) are whether or not they provide a good return. Period. Their bosses do not incentivize them

by jayliew 14y ago

1. The value/measure of a VC to their bosses (their LP / investors) are whether or not they provide a good return. Period. Their bosses do not incentivize them based on great interviewing skills. There is nothing to be "called out" for here. They could have the crappiest interviewing skills, as long as they make their investors money. This is not a contest on meritocracy, or skill, as it pertains to interviewing. 2. I'm sorry, but your response isn't even relevant to my response. I wasn't commenting on the VCs interviewing skills at all. I was commenting on nirvana's response. 3. This is the real world. In a perfect world, every candidate would be interviewed by the world's best interviewer that can see past all our weakness and only see all your strength (interviewees would want that, no?) Unfortunately, you work with what you have - not with what you wish you had. Cheers.

1123581321 14y ago
Regarding #1. The author of the essay left out that he and the other VCs have learned to identify behavior in the interview that equates to ability, or lack of ability, to make money. For example, the fidgeting he observes in response to a certain question indicates that the founder is less likely to make money because of an unaddressed problem, possibly unaddressable due to the founder's character or way of doing business. The essay jumps straight from interview behavior to a decision to not fund, leaving the reader to work out what is the assumption. There is simply no other reason the VC would consider such behavior important.
- notJim 14y ago
  > There is simply no other reason the VC would consider such behavior important. Unless maybe the VC is in irrational human being who has biases just like everyone else. Unless they've actually done studies on whether fidgeting is a good indication of company performance, this statement is ludicrous.
  - 1123581321 14y ago
    It's not a ludicrous statement. We must assume the VC wants to make money and thinks it is an indicator, just like we assume a plumber wants to fix pipes even if he uses a divination rod to find leaks. There is a difference between intent to be rational and actually making good decisions, and they don't have to go together.
- rexreed 14y ago
  The reality, as indicated in a recent Kauffman report is that the majority (actually, a super-majority) of venture capital forms perform poorly to the extent that they are not worth the management fees or continued investment. [1] This would indicate that VCs, on average, make poor judgement on the quality of their investments. The use of arbitrary indicators and qualitative characteristics as a primary decision factor for who they invest in or not would seem to be contributory to their overall poor performance. Perhaps VCs should learn to resist their early (and probably incorrect) assumptions about entrepreneurs based on age, nervousness, or other factors and instead look to the underlying premise of the business and existing capabilities of the management team. Or at least they should realize that they are not particularly good evaluators of those characteristics, based on their past performance, and factor that in accordingly. [1] http://www.kauffman.org/newsroom/institutional-limited-partners-must-accept-blame-for-poor-long-term-returns-from-venture-capital.aspx http://www.kauffman.org/newsroom/institutional-limited-partn...
  - 1123581321 14y ago
    We don't know the VCs have better indicators available. The mutual fund industry also interviews CEOs but largely invests based on data, and it has the same performance problems even among niche micro-cap funds.
    - jayliew 14y ago
      Someone comes up to you and say, "I have a GREAT idea, it's going to be the next Google / Facebook / Twitter / etc. I just need a CTO / web developer to build it. Quit your job, joined me full time now." Would you? If you've heard that a lot, you probably won't. There's nothing wrong per se - the person could be right, but it's more likely that he is wrong[1]. But something could be said about this person's approach to finding a co-founder, i.e. if he's going about his co-founder search this way, he's probably doing other more serious mistakes other battle-hardened entrepreneurs have learned the hard way. It's a mental decision-making shortcut. Don't get hung up over little things such as the OP's actual words, like the way the interviewee answers a questions, fidgets, etc. It's just a mental shortcut signal. Sure the OP could be wrong. But he could also be right. How do you know you're not wrong? VCs take a million meetings, make a million decisions, they have LOTS of data to test how well they're doing. They are not random schmucks. Clearly they think about this day and night. Is it possible that they're all wrong and you're right? Also - I'm not in VC so I can't comment from a position of being an insider, but consider this: if you were a stock trader with an uber stock trading algorithm, would you share it? No. I don't see why VCs would share their "algorithm" either. They're competing with the other VCs for deals in startups, and they each have their secret sauce. They also compete with each other for more investor money (from their LPs). Lastly, consider this: would any anti-spam vendor fully disclose all their algorithms to detect spam? No, that would be dumb, because then spammers would know exactly how to circumvent them. [1] Fact: most startups fail
- lusr 14y ago
  Surely there is a massive selection bias in this approach?
notJim 14y ago
1. Essentially, you are correct here, in that being biased against seemingly irrelevant details seems to work just fine for VCs. That being said, a) these biases may be preventing them from making optimal decisions (instead, they're making good enough decisions.) and b), I hold my peers to a certain standard of ethics like not discriminating against people. I suspect that VCs do too. 2. You said we should give credit for the OP giving feedback, and that VCs lie because they don't like getting snarky responses. I am arguing that a) this response is deserving of a response like nirvana's because it reveals that VCs make judgments based on unquestioned biases and irrelevant details, and b) VCs don't give feedback because it would reveal that their processes are biased and based on irrelevant details. 3. Good candidates do not want interviewers who look past all their flaws, and that's not what I was trying to say. Good candidates want relevant feedback. "You're too old to do this job" is not relevant feedback. "You don't understand $x well enough to do this job" is great feedback. Also, in the real world, there's bias and it sucks, and great candidates/founders will be aware of this, and work to combat it. That doesn't mean I'm going to throw up my hands and give up on trying to eliminate bias.

by jayliew 14y ago

1123581321 14y ago

Regarding #1. The author of the essay left out that he and the other VCs have learned to identify behavior in the interview that equates to ability, or lack of ability, to make money. For example, the fidgeting he observes in response to a certain question indicates that the founder is less likely to make money because of an unaddressed problem, possibly unaddressable due to the founder's character or way of doing business. The essay jumps straight from interview behavior to a decision to not fund, leaving the reader to work out what is the assumption. There is simply no other reason the VC would consider such behavior important.

notJim 14y ago
> There is simply no other reason the VC would consider such behavior important. Unless maybe the VC is in irrational human being who has biases just like everyone else. Unless they've actually done studies on whether fidgeting is a good indication of company performance, this statement is ludicrous.
- 1123581321 14y ago
  It's not a ludicrous statement. We must assume the VC wants to make money and thinks it is an indicator, just like we assume a plumber wants to fix pipes even if he uses a divination rod to find leaks. There is a difference between intent to be rational and actually making good decisions, and they don't have to go together.
rexreed 14y ago
The reality, as indicated in a recent Kauffman report is that the majority (actually, a super-majority) of venture capital forms perform poorly to the extent that they are not worth the management fees or continued investment. [1] This would indicate that VCs, on average, make poor judgement on the quality of their investments. The use of arbitrary indicators and qualitative characteristics as a primary decision factor for who they invest in or not would seem to be contributory to their overall poor performance. Perhaps VCs should learn to resist their early (and probably incorrect) assumptions about entrepreneurs based on age, nervousness, or other factors and instead look to the underlying premise of the business and existing capabilities of the management team. Or at least they should realize that they are not particularly good evaluators of those characteristics, based on their past performance, and factor that in accordingly. [1] http://www.kauffman.org/newsroom/institutional-limited-partners-must-accept-blame-for-poor-long-term-returns-from-venture-capital.aspx http://www.kauffman.org/newsroom/institutional-limited-partn...
- 1123581321 14y ago
  We don't know the VCs have better indicators available. The mutual fund industry also interviews CEOs but largely invests based on data, and it has the same performance problems even among niche micro-cap funds.
  - jayliew 14y ago
    Someone comes up to you and say, "I have a GREAT idea, it's going to be the next Google / Facebook / Twitter / etc. I just need a CTO / web developer to build it. Quit your job, joined me full time now." Would you? If you've heard that a lot, you probably won't. There's nothing wrong per se - the person could be right, but it's more likely that he is wrong[1]. But something could be said about this person's approach to finding a co-founder, i.e. if he's going about his co-founder search this way, he's probably doing other more serious mistakes other battle-hardened entrepreneurs have learned the hard way. It's a mental decision-making shortcut. Don't get hung up over little things such as the OP's actual words, like the way the interviewee answers a questions, fidgets, etc. It's just a mental shortcut signal. Sure the OP could be wrong. But he could also be right. How do you know you're not wrong? VCs take a million meetings, make a million decisions, they have LOTS of data to test how well they're doing. They are not random schmucks. Clearly they think about this day and night. Is it possible that they're all wrong and you're right? Also - I'm not in VC so I can't comment from a position of being an insider, but consider this: if you were a stock trader with an uber stock trading algorithm, would you share it? No. I don't see why VCs would share their "algorithm" either. They're competing with the other VCs for deals in startups, and they each have their secret sauce. They also compete with each other for more investor money (from their LPs). Lastly, consider this: would any anti-spam vendor fully disclose all their algorithms to detect spam? No, that would be dumb, because then spammers would know exactly how to circumvent them. [1] Fact: most startups fail
lusr 14y ago
Surely there is a massive selection bias in this approach?

notJim 14y ago

1. Essentially, you are correct here, in that being biased against seemingly irrelevant details seems to work just fine for VCs. That being said, a) these biases may be preventing them from making optimal decisions (instead, they're making good enough decisions.) and b), I hold my peers to a certain standard of ethics like not discriminating against people. I suspect that VCs do too. 2. You said we should give credit for the OP giving feedback, and that VCs lie because they don't like getting snarky responses. I am arguing that a) this response is deserving of a response like nirvana's because it reveals that VCs make judgments based on unquestioned biases and irrelevant details, and b) VCs don't give feedback because it would reveal that their processes are biased and based on irrelevant details. 3. Good candidates do not want interviewers who look past all their flaws, and that's not what I was trying to say. Good candidates want relevant feedback. "You're too old to do this job" is not relevant feedback. "You don't understand $x well enough to do this job" is great feedback. Also, in the real world, there's bias and it sucks, and great candidates/founders will be aware of this, and work to combat it. That doesn't mean I'm going to throw up my hands and give up on trying to eliminate bias.