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There are businesses that should raise VC and those that should not. Odds are most people's business are not high growth, VC fueled rocket ships that fit in tha

There are businesses that should raise VC and those that should not. Odds are most people's business are not high growth, VC fueled rocket ships that fit in that model. Some businesses are not possible without a large capital injection. There are many VCs out there that provide a tremendous amount of value outside of their capital. They can help with signing large deals and partnerships, make the right introductions, and provide a lot of credibility to the company. Partners that previously started a successful company are incredibly valuable in almost every aspect of the business. It seems you are referring to angel investing which is biting a chunk out of the tradition VC market at the early stage. Some could argue that these large angel "party rounds", provide more freedom, but don't provide as much value as some VCs or larger angels can bring. Just handing money to young/poor talent typically wouldn't generate a return. There are good VC firms and there are bad ones, if one is hiring "underachieving friends from MBA school", they are likely not performing and will cease to exist soon. This isn't the norm amongst firms generating a return for their LPs. VCs don't solely exist to hand out executive jobs at their portfolio companies. We're at a point where so many folks have such a gross misunderstanding of venture capital. Even people that have raised it.

akbar501 12y ago
> There are businesses that should raise VC and those that should not. Well said. Raising capital is something that should be considered in the context of the current business. From a wealth creation perspective, selling a business for $10m with 100% ownership is exactly the same as building a $100m business with 10% ownership. > Some businesses are not possible without a large capital injection. Absolutely. Plus, some businesses will be substantially smaller without outside capital. Conversely, some businesses will grow into nice size businesses without outside capital, but will spend themselves into oblivion if they raise a round. A lot of thought should go into whether or not the current business is the high growth, large market business that's a good fit for venture capital.
not_that_noob 12y ago
> Some businesses are not possible without a large capital injection. That's about the only reason to raise VC money. If it's a high-growth rocket ship, it's better to take money from expansion stage investors that don't look for control. > There are many VCs out there that provide a tremendous amount of value outside of their capital. This is simply not true. If you're a high-flying company, you can do much of this on your own anyway. If you're not, good luck getting your calls returned from your investor. I have seen a HBS survey that said only about 11% of founders said their investors provided more value than the money. > Just handing money to young/poor talent typically wouldn't generate a return. On the contrary, the data (Microsoft, Google, Facebook,…) demonstrate that inexperienced talent makes the outliers if they can stay in control. Poor talent won't build a company to a fundable milestone anyways. This surfaces the absolutely incorrect condescension at the heart of the VC mindset. > VCs don't solely exist to hand out executive jobs at their portfolio companies. True, but they do place their buddies in positions of control so that they can exit a company when they want to. This is likely the predominant reason they generally change CEOs, though the partly line is less self-serving. Note that this excludes the better firms like AH, etc. > We're at a point where so many folks have such a gross misunderstanding of venture capital. Even people that have raised it. No, we're at a point where everyone has better information about the value of VCs. People who have raised used to talk about this privately, but now it's public knowledge. It's a new era.
- nostrademons 12y ago
  I'm not sure I would call either Bill Gates or Mark Zuckerburg inexperienced. Microsoft was Gates's second startup (the first was Traf-O-Data), he'd also done several successful consulting projects, his mom was a board member on United Way, and his grandfather was a national bank president. Facebook was Mark Zuckerburg's third startup - the second, Synapse Media Player, had received a $M+ buyout offer from Microsoft while Zuck was still in high school. And even then he hired Sheryl Sandburg to ensure that all the daily operations of a major company were covered. Larry and Sergey were both thoroughly inexperienced in business when they founded Google. However, as someone who worked under both Eric Schmidt and Larry Page and was a Google employee during the CEO transition of 2011 - Google would've flown apart as an organization if Larry had been in charge during its high-growth period. He made - and occasionally continues to make - several rookie management mistakes that come from never having to deal with a corporate hierarchy from a position other than the top. Now, he learns pretty quickly from them and makes up for it by having a very good understanding of the industry dynamics, but the VC's condition of forcing him to hire "adult supervision" was absolutely the right thing to do, and Google was very lucky to find a CEO that could manage the founders while still keeping them involved in the business and giving them enough leeway to make crazy bets like GMail, Android, and Chrome.
  - yuhong 12y ago
    On the no poach agreement scandal this comment suggest that Eric Schmidt should apologize (yea, I know "Jonathan Rosemberg" has already resigned from Google): https://news.ycombinator.com/item?id=7733775 https://news.ycombinator.com/item?id=7733775 As a side note, I think Eric Schmidt handles most of the legal stuff, right? That probably didn't help.

akbar501 12y ago

> There are businesses that should raise VC and those that should not. Well said. Raising capital is something that should be considered in the context of the current business. From a wealth creation perspective, selling a business for $10m with 100% ownership is exactly the same as building a $100m business with 10% ownership. > Some businesses are not possible without a large capital injection. Absolutely. Plus, some businesses will be substantially smaller without outside capital. Conversely, some businesses will grow into nice size businesses without outside capital, but will spend themselves into oblivion if they raise a round. A lot of thought should go into whether or not the current business is the high growth, large market business that's a good fit for venture capital.

not_that_noob 12y ago

> Some businesses are not possible without a large capital injection. That's about the only reason to raise VC money. If it's a high-growth rocket ship, it's better to take money from expansion stage investors that don't look for control. > There are many VCs out there that provide a tremendous amount of value outside of their capital. This is simply not true. If you're a high-flying company, you can do much of this on your own anyway. If you're not, good luck getting your calls returned from your investor. I have seen a HBS survey that said only about 11% of founders said their investors provided more value than the money. > Just handing money to young/poor talent typically wouldn't generate a return. On the contrary, the data (Microsoft, Google, Facebook,…) demonstrate that inexperienced talent makes the outliers if they can stay in control. Poor talent won't build a company to a fundable milestone anyways. This surfaces the absolutely incorrect condescension at the heart of the VC mindset. > VCs don't solely exist to hand out executive jobs at their portfolio companies. True, but they do place their buddies in positions of control so that they can exit a company when they want to. This is likely the predominant reason they generally change CEOs, though the partly line is less self-serving. Note that this excludes the better firms like AH, etc. > We're at a point where so many folks have such a gross misunderstanding of venture capital. Even people that have raised it. No, we're at a point where everyone has better information about the value of VCs. People who have raised used to talk about this privately, but now it's public knowledge. It's a new era.

nostrademons 12y ago
I'm not sure I would call either Bill Gates or Mark Zuckerburg inexperienced. Microsoft was Gates's second startup (the first was Traf-O-Data), he'd also done several successful consulting projects, his mom was a board member on United Way, and his grandfather was a national bank president. Facebook was Mark Zuckerburg's third startup - the second, Synapse Media Player, had received a $M+ buyout offer from Microsoft while Zuck was still in high school. And even then he hired Sheryl Sandburg to ensure that all the daily operations of a major company were covered. Larry and Sergey were both thoroughly inexperienced in business when they founded Google. However, as someone who worked under both Eric Schmidt and Larry Page and was a Google employee during the CEO transition of 2011 - Google would've flown apart as an organization if Larry had been in charge during its high-growth period. He made - and occasionally continues to make - several rookie management mistakes that come from never having to deal with a corporate hierarchy from a position other than the top. Now, he learns pretty quickly from them and makes up for it by having a very good understanding of the industry dynamics, but the VC's condition of forcing him to hire "adult supervision" was absolutely the right thing to do, and Google was very lucky to find a CEO that could manage the founders while still keeping them involved in the business and giving them enough leeway to make crazy bets like GMail, Android, and Chrome.
- yuhong 12y ago
  On the no poach agreement scandal this comment suggest that Eric Schmidt should apologize (yea, I know "Jonathan Rosemberg" has already resigned from Google): https://news.ycombinator.com/item?id=7733775 https://news.ycombinator.com/item?id=7733775 As a side note, I think Eric Schmidt handles most of the legal stuff, right? That probably didn't help.