11 ms·

Andreessen: Beware Non-Silicon Valley Investors Bearing High Valuations

79 points by goronbjorn 13y ago

jval 13y ago
2024: a post-industrial dystopia where the global economy runs on a cryptocurrency called 'Bitcoin', people wear computers on their faces and the Wall Street Journal has been reduced to reprinting tweets as news.
- catshirt 13y ago
  the only real prediction here is that bitcoin will be a standard global currency :)
  - ChrisGaudreau 13y ago
    Pretty sure that honor goes to Dogecoin, but nice try. :)
    - leoc 13y ago
      Everywhere you go, the face of the Leader placed high on giant placards and banners...
    - paul_f 13y ago
      Nah, it will be a competition between GoogBucks and iMoney. With Google eventually winning. They always do.
      - gress 13y ago
        They'll win, but they won't make any money from it and nobody else will. This will keep happening with industry after industry, until there is nobody to buy advertising from Google. Then society will fall.
- apu 13y ago
  the Wall Street Journal has been reduced to reprinting tweets as news Why 2024? I've already seen this happening for the last few years, where the established press takes original content/reporting/etc. from online sources (blogs/etc.) with scant attribution.
  - vidarh 13y ago
    I particularly "love" [1] articles where they take screenshots of a bunch of tweets, and present them with interspersed commentary, rather than actually writing a coherent narrative. Guess it makes it easier to recruit "journalists" when you don't need to worry about whether most of them finished high-school. [1] for certain values of "love"
    - mjcohen 12y ago
      I often enjoy these kind of articles, especially when the interpolated comments give me information and ways to look at things I did not previously have.
- benjamincburns 13y ago
  You missed out on so many upvotes by not going with 2048...
- declan 12y ago
  Good line! But in reality -- speaking as a former journalist and a founder of a new SF bay area startup that's in the same business -- news organizations have done this kind of thing forever. One journalistic function is ingesting a tremendous amount of information, then filter it -- so people reading the WSJ's venture capital blog can bookmark it and read only articles that are relevant. A generation ago it might have been highlighting the best news stories in the trade press. Today it's subscribing to the Twitter feeds of dozens or hundreds of VCs (including Marc A.). Highlighting the best ones provides a valuable service. Of course the HN-relevant question then becomes: can this be better done, or equally well done for less $$$, algorithmically. :)
dmk23 13y ago
Translation: A16Z does not like competition doing to them what they've been doing to older VC firms
- spamizbad 13y ago
  Really? I'm not seeing too many companies in A16Z's portfolio where they're the sole investor.
  - dmk23 13y ago
    That's not the point, A16Z is the lead on their key deals. The lead sets the price/terms and has significant control over who else gets access...
    - trhway 13y ago
      some of the SV VC have been taking such lead/guide role wrt. newly coming external money. A16Z seems to have decided to fight the wave instead of riding it.
    - adambenayoun 13y ago
      pmarca only highlighted a practice that he thinks is unethical. Lure a startup into accepting a term sheet at a crazy high valuation and get them into a no-shop clause. Once they break off with other investors, renegotiate the terms on the term sheets to a lower valuation. Since you're in a no-shop clause, you have no leverage over the VC and you have 2 options: Accept the lower valuation because there are no competition or reject the term sheet and start over. I bet lot of companies go with option A. In the valley this is unacceptable and I am sure if someone would do that thing, companies wouldn't deal with that VC. a16z sets price on the key deals but they don't renegotiate the terms later on as a tactic. This is the _key_ difference.
  - arfliw 13y ago
    Actually, they are the sole investor in lots of companies - and have stated they don't mind doing that. Two I can think of off the top are Github and Rapgenius. There are more.
trhway 13y ago
disruption of SV VC. Heard from other sources about "old" out-of-state money frequent visits to SV lately. They have and talking scale, in all senses. Good. Would fuel next wave of the boom and gives a chance to SV to not become a final destination for squeaky clean Russian money.
bruce511 13y ago
The problem Marc has is that he is in a position to better understand a VC issue, but then has less credibility if reporting on it comes from him. This is true in many other situations as well, and indeed I personally have been in the same situation. Often the nuances of some business are best understood by those competing for that business. And let's be honest, for most of us the nuances of the VC world are poorly understood outside of actual VC companies. Sure, the basics are understood, but as with any business the specialists know more than the generalist. So let's hypothesize that Marc understands this nuance, and wants to alert people to the issue. Clearly the warning benefits him at the same time as benefiting those being warned. Does he then speak out, or keep quiet? To frame the question in a general sense, in situations where you have a credibility problem, do you go ahead anyway, or keep quiet and let others take the fall? What would you do? As far as i can tell it's a no-win situation. I was in a similar position last year, and chose to write the warning anyway. I disclosed the conflict of interest - even though, like in this case the connection was obvious. To those being warned. Predictably I got a fair bit of negative response, but I like to think, if nothing else, it helped people at least take a bit more time to evaluate the situation.(I got some positive responses as well.) So hats off to Marc. He'll get pilloried here, and elsewhere, but maybe one day if I go looking for VC funding, this is one more tidbit of knowledge that I'll have, which I probably wouldn't get anywhere else unless I learned it the hard way. Full disclosure: I have no connection to Marc or any other VC. I don't know what his motive is, suffice to say that it could be either, and assuming the worst is not necessarily valid.
- apu 13y ago
  Well said. More generally, it is often difficult to disentangle someone's motives & beliefs (and therefore the things they say) from their occupation. After all, the more deeply you believe in something, the more likely it is you will try to make it happen, the limit of which is making it your primary career. Suppose someone working at a travel website writes a post about the problems with the existing travel industry. A large percentage of commenters will then pipe in with, "of course she'd say that, she works at a rival firm!" But is that the causation? Suppose an "independent" person writes the same blog post. The reactions to the blogpost would have been different in that case, even if that person later goes on to start a travel firm. In other words, is the causation: 1. start/work at travel firm -> try to encourage people to switch to them -> write blog post 2. dissatisfaction with travel firms -> write blog post -> decide to start competitor (And of course there are many other possible causation chains.) Yet most commenters seem to assume that (1) is not only the most likely option, but often the only possible explanation.
abalone 13y ago
Rule #1: Beware any VC bearing advice on how to negotiate with VCs. If his claim is true that non-Silicon-Valley investors are applying unethical leverage, why are the valuations still sky high? This claim would make more sense if there were a bunch of companies taking non-SV investments at strangely low valuations. Or are there hidden unfavorable terms that Andreessen is hinting at? Is there any evidence of that? Exempt evidence I would assume the default position that this is advice calculated to reduce competition with Silicon Valley VCs.
- amirmc 13y ago
  > "... why are the valuations still sky high?" It's a tactic to get the company into the 'no-shop' stage of a deal, where they've agreed (and probably signed legal paperwork) to say that they won't talk to other investors. Once in that stage, the investor is free to begin renegotiation of key terms. Valuation is rarely the only item on the table. Consider, board seats, liquidation prefs, change of control, etc. there are myriad ways that a company can end up (inadvertently) screwing itself.
  - abalone 13y ago
    Sure, but valuation is probably the biggest one. Why aren't we seeing lower valued companies then with non-SV investors? The whole point of Andreessen's comment is that companies would have little choice. It doesn't follow that valuation, the biggest term, would be magically exempt from this renegotiation tactic.
    - amirmc 13y ago
      > "Sure, but valuation is probably the biggest one." No, it's really not. If someone offered me a sky-high valuation but demanded 15 board seats I would be pretty foolish to blindly accept. I'd have just given up control of the company. Or what about the specifics of any anti-dilution provisions? > "The whole point of Andreessen's comment is that companies would have little choice. It doesn't follow that valuation, the biggest term, would be magically exempt from this renegotiation tactic." If valuation is not the most important term to the investor, then it's it's not the one they have to play hardball with. It's possible that the companies are simply blinkered by the vanity around huge numbers and not paying attention to the other factors. In any case, if I want to later on assume more control of the company I can offer a ridiculous (and unsupportable) valuation and then exploit other mechanisms via a subsequent down-round to attain a larger share for myself. Some people might call this unethical, others might call it business-as-usual.
7Figures2Commas 13y ago
Breaking news: big fish in smaller pool worried about arrival of bigger fish from larger pool. Details at 10.
higherpurpose 13y ago
Beware Silicon Valley investors who will invest in your company a lot of money initially, and then force your hand to sell to the companies where they are board members.
amirmc 13y ago
For those claiming that Marc is acting in his own self interest, well of course he is. You should also bear in mind that he's advising his own portfolio to be highly skeptical of such deals. What he's getting at in (imho) a rather roundabout way is that deals with these other firms are likely to be 'non-standard' as compared to those with 'SV' firms. You don't have to go very far back to see that people can get caught by surprise in such arrangements. Just look at the Skype options scandal of a few years ago, which was a Private Equity deal (they just have a different view of 'normal' regarding options). I've no idea what hedge funds are doing by investing in companies but I'd be wary of the terms. http://www.businessinsider.com/skype-scandal-silver-lake-2011-6 http://www.businessinsider.com/skype-scandal-silver-lake-201...
jroseattle 13y ago
Overall, I have no problem with Marc's suggestions from a credibility/benefit POV, and I don't think he's making those comments to further any strategic position for himself. "People in SV generally consider this unethical and abusive." But this comment stood out to me. In my interpretation, this translates to Marc saying the civility and integrity of the benevolent overlords of Sili Valley are the true standard bearers of how to operate in the technology capital business. Further, anyone who doesn't follow that protocol is out of bounds. Marc even calls out how the market will take care of this problem and that tech companies will need to do their own due diligence on investors. The implication: tech companies are obviously not smart enough to do that on their own, so I better let them know. Really...if any company taking on significant investment doesn't execute their own due diligence on their investors, well you get what you get.
- tankenmate 13y ago
  Sure, but how do you do effective due diligence on the likes of Goldman Sachs, Morgan Stanley, et alia? They have so many deal makers, partners and deals going that it can be nigh on impossible to get a grapple on how that affects the term sheets that you received. My gut tells me you should deal with companies that make most of their money from the finance market you are getting your capital from, are of a similar relative size in their market as you are to yours, and if possible have a similar head count (which is almost impossible as a start up); these are the rules I tend to make when hitching my horse to someone else's service wagon, be it finance, legal, comms etc. Obviously it is much harder to meet these goals as a small business.
  - jroseattle 13y ago
    > how do you do effective due diligence on the likes of Goldman Sachs, Morgan Stanley... Is this a suggestion that due diligence is a futile exercise? If my company is taking hundreds of millions of dollars in investment, I will be damn sure proper due diligence is executed on all participants -- including Goldman, Stanley, etc. Because they are such high flyers, it should technically be easier to execute said due diligence.
kyleblarson 13y ago
Are non Silicon Valley dollars less green?
foobarqux 12y ago
Are there any actual examples of this happening? The article gives examples of investments by PE firms but not predatory behavior.
blazespin 12y ago
It was all sound advice up until he said non silicon Valley. That positively dripped of prejudice. There are lots of terrible SV VC. Note I am a massive pmarca fan boy.
perlpimp 12y ago
I thought reason to get investors is two way street and money is only one of the reasons to get funding from an investor. Getting funding might mean opening a door to new relationships and contacts that would otherwise be unavailable to a company. So yes getting lots of money from a first that mostly invests in some rather different area might just not lead to lucrative deals, life changing contacts one might get if the VC firm might have for the company otherwise. my 2c
ams6110 12y ago
With general investment firms like T. Rowe Price, BlackRock, Morgan Stanley, doing SV venture deals, is that a sign of a bubble in tech valuations? Typically by the time "main street" investors get interested, the growth potential is all but tapped out. Or so I've heard.
adamhooper 12y ago
This certainly won't win Marc any friends in the "non-SV" private equity shops and will certainly cause many to question his motives. However, what has happened over the last several years to the credit of PG/YC [1], Naval/Nivi @AngelList/Venture Hacks et al is to create a much more transparent and founder friendly fundraising environment here in SV. With transparency comes accountability and reputations can quickly spread both for the good and bad. The "culture" of fundraising in SV is one with more open communication of how investors behave. Word spreads quickly in the valley and kudos to Marc for raising the flag on what have most likely been firsthand experiences with such issues. Not many individual founders/companies are in positions to see broad market behavior over a broad data set like a16z portfolio companies. So what's the downside of taking a "sky-high valuation" and then getting re-traded after you've told other, potentially better firms w/lower valuations, that you're going into exclusive negotiations? I see the options as follows: 1) non-SV investor holds their word, does confirmatory DD and company ends up executing a great deal at terms better than other firms or; 2) said investor comes back and re-trades any number of terms (valuation, control, preferences, board seats etc) and company feels stuck thereby having to take the now worse deal or; 3) investor re-trades and company walks. Result #1 is potentially great, #2 could be a pretty bad deal but in the end company has the capital, and #3 could be a killer - company is now damaged goods and has to come back to other firms, tail between the legs asking for another shot. This happens all the time in the investment real estate world where I came from and I see a ton of parallels here. Oftentimes there is a full marketing process that ends in a best and final bidding process. A buyer is selected based on the terms/price/timing of their offer and they begin their DD process. Buyers that behave and honor the terms with only material changes coming due to material issues uncovered in DD earn great reputations and their offers are usually considered first from the seller's perspective. Buyers that go into contract and come back with ridiculous re-trades very quickly reach the bottom of the pack going forward on all future deals. So as a seller, you either take the now far inferior deal, or walk from the lesser deal and chance going back out to market as damaged goods. Not a good situation. Again, sure there are some self-serving motives in Marc bringing this issue up, but as a founder of a company leading our fundraising, I certainly appreciate being aware of all the issues currently in the market. As fickle and at times irrational fundraising can be for startups, the more knowledge we can arm ourselves with the better. [1] - http://ycombinator.com/hdp.html http://ycombinator.com/hdp.html
bedhead 12y ago
Andreessen is basically just a troll, I'm tired of him.
mathattack 12y ago
I have heard anecdotal stories of very bad post-investment behavior from non-traditional investors. My impression is that mainstream tech investors assume they will all see each other again. There are some challenges with this, but is solves the prisoner's dilemma. They won't overtly screw their investees, or word will get out. This isn't the case with some of the other sharks throwing money around. I have heard horror stories of shakedowns based on obscure clauses inserted into term sheets by PE investors. I have heard stories of these investors abusing the founders as they take full control of the companies, because it is in their legal right. If the endgame is great company, or a high long term valuation, going with the wrong short term financing just to get a higher sounding valuation is foolish.

79 points by goronbjorn 13y ago

jval 13y ago

2024: a post-industrial dystopia where the global economy runs on a cryptocurrency called 'Bitcoin', people wear computers on their faces and the Wall Street Journal has been reduced to reprinting tweets as news.

catshirt 13y ago
the only real prediction here is that bitcoin will be a standard global currency :)
- ChrisGaudreau 13y ago
  Pretty sure that honor goes to Dogecoin, but nice try. :)
  - leoc 13y ago
    Everywhere you go, the face of the Leader placed high on giant placards and banners...
  - paul_f 13y ago
    Nah, it will be a competition between GoogBucks and iMoney. With Google eventually winning. They always do.
    - gress 13y ago
      They'll win, but they won't make any money from it and nobody else will. This will keep happening with industry after industry, until there is nobody to buy advertising from Google. Then society will fall.
apu 13y ago
the Wall Street Journal has been reduced to reprinting tweets as news Why 2024? I've already seen this happening for the last few years, where the established press takes original content/reporting/etc. from online sources (blogs/etc.) with scant attribution.
- vidarh 13y ago
  I particularly "love" [1] articles where they take screenshots of a bunch of tweets, and present them with interspersed commentary, rather than actually writing a coherent narrative. Guess it makes it easier to recruit "journalists" when you don't need to worry about whether most of them finished high-school. [1] for certain values of "love"
  - mjcohen 12y ago
    I often enjoy these kind of articles, especially when the interpolated comments give me information and ways to look at things I did not previously have.
benjamincburns 13y ago
You missed out on so many upvotes by not going with 2048...
declan 12y ago
Good line! But in reality -- speaking as a former journalist and a founder of a new SF bay area startup that's in the same business -- news organizations have done this kind of thing forever. One journalistic function is ingesting a tremendous amount of information, then filter it -- so people reading the WSJ's venture capital blog can bookmark it and read only articles that are relevant. A generation ago it might have been highlighting the best news stories in the trade press. Today it's subscribing to the Twitter feeds of dozens or hundreds of VCs (including Marc A.). Highlighting the best ones provides a valuable service. Of course the HN-relevant question then becomes: can this be better done, or equally well done for less $$$, algorithmically. :)

dmk23 13y ago

Translation: A16Z does not like competition doing to them what they've been doing to older VC firms

spamizbad 13y ago
Really? I'm not seeing too many companies in A16Z's portfolio where they're the sole investor.
- dmk23 13y ago
  That's not the point, A16Z is the lead on their key deals. The lead sets the price/terms and has significant control over who else gets access...
  - trhway 13y ago
    some of the SV VC have been taking such lead/guide role wrt. newly coming external money. A16Z seems to have decided to fight the wave instead of riding it.
  - adambenayoun 13y ago
    pmarca only highlighted a practice that he thinks is unethical. Lure a startup into accepting a term sheet at a crazy high valuation and get them into a no-shop clause. Once they break off with other investors, renegotiate the terms on the term sheets to a lower valuation. Since you're in a no-shop clause, you have no leverage over the VC and you have 2 options: Accept the lower valuation because there are no competition or reject the term sheet and start over. I bet lot of companies go with option A. In the valley this is unacceptable and I am sure if someone would do that thing, companies wouldn't deal with that VC. a16z sets price on the key deals but they don't renegotiate the terms later on as a tactic. This is the _key_ difference.
- arfliw 13y ago
  Actually, they are the sole investor in lots of companies - and have stated they don't mind doing that. Two I can think of off the top are Github and Rapgenius. There are more.

trhway 13y ago

disruption of SV VC. Heard from other sources about "old" out-of-state money frequent visits to SV lately. They have and talking scale, in all senses. Good. Would fuel next wave of the boom and gives a chance to SV to not become a final destination for squeaky clean Russian money.

bruce511 13y ago

The problem Marc has is that he is in a position to better understand a VC issue, but then has less credibility if reporting on it comes from him. This is true in many other situations as well, and indeed I personally have been in the same situation. Often the nuances of some business are best understood by those competing for that business. And let's be honest, for most of us the nuances of the VC world are poorly understood outside of actual VC companies. Sure, the basics are understood, but as with any business the specialists know more than the generalist. So let's hypothesize that Marc understands this nuance, and wants to alert people to the issue. Clearly the warning benefits him at the same time as benefiting those being warned. Does he then speak out, or keep quiet? To frame the question in a general sense, in situations where you have a credibility problem, do you go ahead anyway, or keep quiet and let others take the fall? What would you do? As far as i can tell it's a no-win situation. I was in a similar position last year, and chose to write the warning anyway. I disclosed the conflict of interest - even though, like in this case the connection was obvious. To those being warned. Predictably I got a fair bit of negative response, but I like to think, if nothing else, it helped people at least take a bit more time to evaluate the situation.(I got some positive responses as well.) So hats off to Marc. He'll get pilloried here, and elsewhere, but maybe one day if I go looking for VC funding, this is one more tidbit of knowledge that I'll have, which I probably wouldn't get anywhere else unless I learned it the hard way. Full disclosure: I have no connection to Marc or any other VC. I don't know what his motive is, suffice to say that it could be either, and assuming the worst is not necessarily valid.

apu 13y ago
Well said. More generally, it is often difficult to disentangle someone's motives & beliefs (and therefore the things they say) from their occupation. After all, the more deeply you believe in something, the more likely it is you will try to make it happen, the limit of which is making it your primary career. Suppose someone working at a travel website writes a post about the problems with the existing travel industry. A large percentage of commenters will then pipe in with, "of course she'd say that, she works at a rival firm!" But is that the causation? Suppose an "independent" person writes the same blog post. The reactions to the blogpost would have been different in that case, even if that person later goes on to start a travel firm. In other words, is the causation: 1. start/work at travel firm -> try to encourage people to switch to them -> write blog post 2. dissatisfaction with travel firms -> write blog post -> decide to start competitor (And of course there are many other possible causation chains.) Yet most commenters seem to assume that (1) is not only the most likely option, but often the only possible explanation.

abalone 13y ago

Rule #1: Beware any VC bearing advice on how to negotiate with VCs. If his claim is true that non-Silicon-Valley investors are applying unethical leverage, why are the valuations still sky high? This claim would make more sense if there were a bunch of companies taking non-SV investments at strangely low valuations. Or are there hidden unfavorable terms that Andreessen is hinting at? Is there any evidence of that? Exempt evidence I would assume the default position that this is advice calculated to reduce competition with Silicon Valley VCs.

amirmc 13y ago
> "... why are the valuations still sky high?" It's a tactic to get the company into the 'no-shop' stage of a deal, where they've agreed (and probably signed legal paperwork) to say that they won't talk to other investors. Once in that stage, the investor is free to begin renegotiation of key terms. Valuation is rarely the only item on the table. Consider, board seats, liquidation prefs, change of control, etc. there are myriad ways that a company can end up (inadvertently) screwing itself.
- abalone 13y ago
  Sure, but valuation is probably the biggest one. Why aren't we seeing lower valued companies then with non-SV investors? The whole point of Andreessen's comment is that companies would have little choice. It doesn't follow that valuation, the biggest term, would be magically exempt from this renegotiation tactic.
  - amirmc 13y ago
    > "Sure, but valuation is probably the biggest one." No, it's really not. If someone offered me a sky-high valuation but demanded 15 board seats I would be pretty foolish to blindly accept. I'd have just given up control of the company. Or what about the specifics of any anti-dilution provisions? > "The whole point of Andreessen's comment is that companies would have little choice. It doesn't follow that valuation, the biggest term, would be magically exempt from this renegotiation tactic." If valuation is not the most important term to the investor, then it's it's not the one they have to play hardball with. It's possible that the companies are simply blinkered by the vanity around huge numbers and not paying attention to the other factors. In any case, if I want to later on assume more control of the company I can offer a ridiculous (and unsupportable) valuation and then exploit other mechanisms via a subsequent down-round to attain a larger share for myself. Some people might call this unethical, others might call it business-as-usual.

7Figures2Commas 13y ago

Breaking news: big fish in smaller pool worried about arrival of bigger fish from larger pool. Details at 10.

higherpurpose 13y ago

Beware Silicon Valley investors who will invest in your company a lot of money initially, and then force your hand to sell to the companies where they are board members.

amirmc 13y ago

For those claiming that Marc is acting in his own self interest, well of course he is. You should also bear in mind that he's advising his own portfolio to be highly skeptical of such deals. What he's getting at in (imho) a rather roundabout way is that deals with these other firms are likely to be 'non-standard' as compared to those with 'SV' firms. You don't have to go very far back to see that people can get caught by surprise in such arrangements. Just look at the Skype options scandal of a few years ago, which was a Private Equity deal (they just have a different view of 'normal' regarding options). I've no idea what hedge funds are doing by investing in companies but I'd be wary of the terms. http://www.businessinsider.com/skype-scandal-silver-lake-2011-6 http://www.businessinsider.com/skype-scandal-silver-lake-201...

jroseattle 13y ago

Overall, I have no problem with Marc's suggestions from a credibility/benefit POV, and I don't think he's making those comments to further any strategic position for himself. "People in SV generally consider this unethical and abusive." But this comment stood out to me. In my interpretation, this translates to Marc saying the civility and integrity of the benevolent overlords of Sili Valley are the true standard bearers of how to operate in the technology capital business. Further, anyone who doesn't follow that protocol is out of bounds. Marc even calls out how the market will take care of this problem and that tech companies will need to do their own due diligence on investors. The implication: tech companies are obviously not smart enough to do that on their own, so I better let them know. Really...if any company taking on significant investment doesn't execute their own due diligence on their investors, well you get what you get.

tankenmate 13y ago
Sure, but how do you do effective due diligence on the likes of Goldman Sachs, Morgan Stanley, et alia? They have so many deal makers, partners and deals going that it can be nigh on impossible to get a grapple on how that affects the term sheets that you received. My gut tells me you should deal with companies that make most of their money from the finance market you are getting your capital from, are of a similar relative size in their market as you are to yours, and if possible have a similar head count (which is almost impossible as a start up); these are the rules I tend to make when hitching my horse to someone else's service wagon, be it finance, legal, comms etc. Obviously it is much harder to meet these goals as a small business.
- jroseattle 13y ago
  > how do you do effective due diligence on the likes of Goldman Sachs, Morgan Stanley... Is this a suggestion that due diligence is a futile exercise? If my company is taking hundreds of millions of dollars in investment, I will be damn sure proper due diligence is executed on all participants -- including Goldman, Stanley, etc. Because they are such high flyers, it should technically be easier to execute said due diligence.

kyleblarson 13y ago

Are non Silicon Valley dollars less green?

foobarqux 12y ago

Are there any actual examples of this happening? The article gives examples of investments by PE firms but not predatory behavior.

blazespin 12y ago

It was all sound advice up until he said non silicon Valley. That positively dripped of prejudice. There are lots of terrible SV VC. Note I am a massive pmarca fan boy.

perlpimp 12y ago

I thought reason to get investors is two way street and money is only one of the reasons to get funding from an investor. Getting funding might mean opening a door to new relationships and contacts that would otherwise be unavailable to a company. So yes getting lots of money from a first that mostly invests in some rather different area might just not lead to lucrative deals, life changing contacts one might get if the VC firm might have for the company otherwise. my 2c

ams6110 12y ago

With general investment firms like T. Rowe Price, BlackRock, Morgan Stanley, doing SV venture deals, is that a sign of a bubble in tech valuations? Typically by the time "main street" investors get interested, the growth potential is all but tapped out. Or so I've heard.

adamhooper 12y ago

This certainly won't win Marc any friends in the "non-SV" private equity shops and will certainly cause many to question his motives. However, what has happened over the last several years to the credit of PG/YC [1], Naval/Nivi @AngelList/Venture Hacks et al is to create a much more transparent and founder friendly fundraising environment here in SV. With transparency comes accountability and reputations can quickly spread both for the good and bad. The "culture" of fundraising in SV is one with more open communication of how investors behave. Word spreads quickly in the valley and kudos to Marc for raising the flag on what have most likely been firsthand experiences with such issues. Not many individual founders/companies are in positions to see broad market behavior over a broad data set like a16z portfolio companies. So what's the downside of taking a "sky-high valuation" and then getting re-traded after you've told other, potentially better firms w/lower valuations, that you're going into exclusive negotiations? I see the options as follows: 1) non-SV investor holds their word, does confirmatory DD and company ends up executing a great deal at terms better than other firms or; 2) said investor comes back and re-trades any number of terms (valuation, control, preferences, board seats etc) and company feels stuck thereby having to take the now worse deal or; 3) investor re-trades and company walks. Result #1 is potentially great, #2 could be a pretty bad deal but in the end company has the capital, and #3 could be a killer - company is now damaged goods and has to come back to other firms, tail between the legs asking for another shot. This happens all the time in the investment real estate world where I came from and I see a ton of parallels here. Oftentimes there is a full marketing process that ends in a best and final bidding process. A buyer is selected based on the terms/price/timing of their offer and they begin their DD process. Buyers that behave and honor the terms with only material changes coming due to material issues uncovered in DD earn great reputations and their offers are usually considered first from the seller's perspective. Buyers that go into contract and come back with ridiculous re-trades very quickly reach the bottom of the pack going forward on all future deals. So as a seller, you either take the now far inferior deal, or walk from the lesser deal and chance going back out to market as damaged goods. Not a good situation. Again, sure there are some self-serving motives in Marc bringing this issue up, but as a founder of a company leading our fundraising, I certainly appreciate being aware of all the issues currently in the market. As fickle and at times irrational fundraising can be for startups, the more knowledge we can arm ourselves with the better. [1] - http://ycombinator.com/hdp.html http://ycombinator.com/hdp.html

bedhead 12y ago

Andreessen is basically just a troll, I'm tired of him.

mathattack 12y ago

I have heard anecdotal stories of very bad post-investment behavior from non-traditional investors. My impression is that mainstream tech investors assume they will all see each other again. There are some challenges with this, but is solves the prisoner's dilemma. They won't overtly screw their investees, or word will get out. This isn't the case with some of the other sharks throwing money around. I have heard horror stories of shakedowns based on obscure clauses inserted into term sheets by PE investors. I have heard stories of these investors abusing the founders as they take full control of the companies, because it is in their legal right. If the endgame is great company, or a high long term valuation, going with the wrong short term financing just to get a higher sounding valuation is foolish.