4 ms·

The VC Model, The Funded, and The Problem With Associates

18 points by BrandonWatson 17y ago

alanthonyc 17y ago
"Go build something people want." I love this post. Although I have no experience with VC's, what he is describing is a phenomenon I see all the time in my everyday life. I work in IT and there is no shortage of people who have some "great idea" but are unwilling to put in any effort to build it out. They would prefer getting somebody else to do the work for them. Unfortunately for them, the "techie guys" who can actually do the work know the raw deal they would be getting. The big difference between these run-of-the-mill idea guys and VC is basically the size of their wallet. However, the entitlement (read "lazy") mentality remains the same. I've even noticed this same phenomenon among some non-IT friends who think that if they could just come up with some brilliant idea, they could retire rich. They would just need somebody else to do the work for them once they found their idea.
- BrandonWatson 17y ago
  You bring up a very interesting point, and one of my top rules of things not to do if you want to avoid failing. Don't sit around on the couch talking about the startup you are going to do "someday." People come up with too many excuses not to do something (economy, finances, wife, kids, etc). It's much easier to talk about the way things conspired against you, than to put your nuts on the table and risk failure.
  - deleted 17y ago
    [deleted]
  - alanthonyc 17y ago
    I would go even further and say that a lot of people prefer to just talk (and complain) about things rather than actually do anything. Pisses me off.
  - sutro 17y ago
    I once tried putting my nuts on the table during a pitch to some VCs. It didn't work out so well.
    - BrandonWatson 17y ago
      I once told a VC (after they intimated that they wanted to replace me as CEO) that it felt like they gave me a nutpunch. The VC didn't understand the phrase, and I actually had to explain it. Years later, it's how they greet me - "hey, nutpuncher!"
donaldc 17y ago
The 2% per-year annual management fee for vc funds makes me think of the 6% real estate commission. They both seem arbitrary, archaic, and ultimately doomed.
- BrandonWatson 17y ago
  The difference is (and I can already feel the flames coming on this one) any idiot can get their real estate license, so the supply of agents can eventually impact that number. Forming a fund is prohibitively expensive (legal fees), never mind actually convincing someone to give you their money. There's some protections that are afforded by that supply imbalance. The issue is further exacerbated by the fact that the hot deals go to the "best" firms, which allows them to prop up their performance...that's not necessarily true with house sales.
  - donaldc 17y ago
    I'm not in any way meaning to imply that real estate agent and vc partner have similar competency requirements or barriers to entry. Rather, I'm implying that the fees of both are now highly out of sync with the current reality, where neither listing houses nor getting startup investment capital are as under the control of these middlemen as they used to be. Furthermore, in both cases the fees bear no relation to the value-added provided by the real estate agent or the vc partner on the particular deals they make. This is the aspect that feels especially archaic to me.
    - netsp 17y ago
      What exactly do you mean by value added? How do you think they should price their services? At least with VC's (as opposed to index funds or others) the cost of investing rises with the amount investing. They can't double their position in their portfolio if their investors suddenly doubled. They would need to go out and invest in more companies.
      - BrandonWatson 17y ago

18 points by BrandonWatson 17y ago

"Go build something people want." I love this post. Although I have no experience with VC's, what he is describing is a phenomenon I see all the time in my everyday life. I work in IT and there is no shortage of people who have some "great idea" but are unwilling to put in any effort to build it out. They would prefer getting somebody else to do the work for them. Unfortunately for them, the "techie guys" who can actually do the work know the raw deal they would be getting. The big difference between these run-of-the-mill idea guys and VC is basically the size of their wallet. However, the entitlement (read "lazy") mentality remains the same. I've even noticed this same phenomenon among some non-IT friends who think that if they could just come up with some brilliant idea, they could retire rich. They would just need somebody else to do the work for them once they found their idea.

BrandonWatson 17y ago
You bring up a very interesting point, and one of my top rules of things not to do if you want to avoid failing. Don't sit around on the couch talking about the startup you are going to do "someday." People come up with too many excuses not to do something (economy, finances, wife, kids, etc). It's much easier to talk about the way things conspired against you, than to put your nuts on the table and risk failure.
- deleted 17y ago
  [deleted]
- alanthonyc 17y ago
  I would go even further and say that a lot of people prefer to just talk (and complain) about things rather than actually do anything. Pisses me off.
- sutro 17y ago
  I once tried putting my nuts on the table during a pitch to some VCs. It didn't work out so well.
  - BrandonWatson 17y ago
    I once told a VC (after they intimated that they wanted to replace me as CEO) that it felt like they gave me a nutpunch. The VC didn't understand the phrase, and I actually had to explain it. Years later, it's how they greet me - "hey, nutpuncher!"

donaldc 17y ago

The 2% per-year annual management fee for vc funds makes me think of the 6% real estate commission. They both seem arbitrary, archaic, and ultimately doomed.

BrandonWatson 17y ago
The difference is (and I can already feel the flames coming on this one) any idiot can get their real estate license, so the supply of agents can eventually impact that number. Forming a fund is prohibitively expensive (legal fees), never mind actually convincing someone to give you their money. There's some protections that are afforded by that supply imbalance. The issue is further exacerbated by the fact that the hot deals go to the "best" firms, which allows them to prop up their performance...that's not necessarily true with house sales.
- donaldc 17y ago
  I'm not in any way meaning to imply that real estate agent and vc partner have similar competency requirements or barriers to entry. Rather, I'm implying that the fees of both are now highly out of sync with the current reality, where neither listing houses nor getting startup investment capital are as under the control of these middlemen as they used to be. Furthermore, in both cases the fees bear no relation to the value-added provided by the real estate agent or the vc partner on the particular deals they make. This is the aspect that feels especially archaic to me.
  - netsp 17y ago
    What exactly do you mean by value added? How do you think they should price their services? At least with VC's (as opposed to index funds or others) the cost of investing rises with the amount investing. They can't double their position in their portfolio if their investors suddenly doubled. They would need to go out and invest in more companies.
    - BrandonWatson 17y ago