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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

by 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
How do you price the services of a VC? It's hard to know how to price something with as wide a variance in quality as the services of a partner at a VC firm. 10% add value, 70% are neutral, and 20% destroy value. My big complaint is that VCs and other investors tend to practice what I call seagull management: they fly in, make a lot of noise, crap all over everything, and leave.
donaldc 17y ago
The value added by the VCs is the amount of money the venture capital fund makes above and beyond what one would make from investing the same amount of money, over the same time period, in something low/no risk like, say, U.S. Treasury bonds. If a venture fund does poorly, the value added may be negative. VC's should get a significant percentage of their value added. But 2% of the principle per year works out, over a ten-year period, to a good 20% of the principle, risk free. That sort of guaranteed return is sure to attract all the wrong sorts of people to be VCs.
- netsp 17y ago
  The protection against that should be consumer choice.
  - donaldc 17y ago
    In theory, yes. And in the great-great-grandparent of this comment, I'm essentially saying that I feel that the days are numbered for the 2% per year management fee. But equilibrium often takes some time to re-establish itself. After a situation changes, customs take time to catch up with the new reality. At the moment, it looks like the common practice of VC fees is lagging behind where it will wind up. Also, I think part of the problem is that the people making the decisions (the "consumers" of VC value-added, i.e. large endowments, pension funds, banks, etc.) generally also have no skin in the game. This means they have much less incentive to press for the absolute best deal they can get, common practice be damned, than they would were they investing their own money into these VC funds. This means that the change in common practice will take longer than it would were the consumers generally investing their own money.

by netsp 17y ago

BrandonWatson 17y ago

How do you price the services of a VC? It's hard to know how to price something with as wide a variance in quality as the services of a partner at a VC firm. 10% add value, 70% are neutral, and 20% destroy value. My big complaint is that VCs and other investors tend to practice what I call seagull management: they fly in, make a lot of noise, crap all over everything, and leave.

donaldc 17y ago

The value added by the VCs is the amount of money the venture capital fund makes above and beyond what one would make from investing the same amount of money, over the same time period, in something low/no risk like, say, U.S. Treasury bonds. If a venture fund does poorly, the value added may be negative. VC's should get a significant percentage of their value added. But 2% of the principle per year works out, over a ten-year period, to a good 20% of the principle, risk free. That sort of guaranteed return is sure to attract all the wrong sorts of people to be VCs.

netsp 17y ago
The protection against that should be consumer choice.
- donaldc 17y ago
  In theory, yes. And in the great-great-grandparent of this comment, I'm essentially saying that I feel that the days are numbered for the 2% per year management fee. But equilibrium often takes some time to re-establish itself. After a situation changes, customs take time to catch up with the new reality. At the moment, it looks like the common practice of VC fees is lagging behind where it will wind up. Also, I think part of the problem is that the people making the decisions (the "consumers" of VC value-added, i.e. large endowments, pension funds, banks, etc.) generally also have no skin in the game. This means they have much less incentive to press for the absolute best deal they can get, common practice be damned, than they would were they investing their own money into these VC funds. This means that the change in common practice will take longer than it would were the consumers generally investing their own money.