VCs aren’t your friends(openvc.app)
openvc.app
VCs aren’t your friends
https://www.openvc.app/blog/vcs-arent-your-friends
382 comments
> can't imagine someone like Steve Jobs or Nikola Tesla passing these VC/Ivy League kinds of tests.
My "favorite" "test" is the one more for soft studies (think law or public policy) rather than STEM: for example UN internships typically have no compensation and they often require you to relocate to extremely expensive CoL areas, meaning there is an automatic filter built in where only children of very well-off parents can do these kinds of internships and segue into the jobs connected to them.
My "favorite" "test" is the one more for soft studies (think law or public policy) rather than STEM: for example UN internships typically have no compensation and they often require you to relocate to extremely expensive CoL areas, meaning there is an automatic filter built in where only children of very well-off parents can do these kinds of internships and segue into the jobs connected to them.
VC Analyst Internships are very well paid because they are competing with IB Analyst and FAANG SWE/PM internship offers.
Imo the easiest way to get a VC Analyst internship is to do EECS@Cal/MIT or CS@Stanford with a Business (or in Cal+Stanford's case Econ or MS&E) minor, do a SWE internship in Frosh summer, and be prominent in your university's entrepreneurship or hackathon scene.
That said, my question would be WHY would you want to do that as an undergrad? I'm firmly in the camp that you need to build domain experience in the industry you are investing in, and that takes a decade of SWE, PM, and Sales experience - and that is reflected by the career trajectory of most VCs I work with.
Edit: This is not a snipe at Top Programs and VC Analyst roles. They have value in incubating new founders (plenty of successful YC founders have been VC Analysts who leveraged their VC network to start a successful startup).
Most of the replies below are just salty.
Imo the easiest way to get a VC Analyst internship is to do EECS@Cal/MIT or CS@Stanford with a Business (or in Cal+Stanford's case Econ or MS&E) minor, do a SWE internship in Frosh summer, and be prominent in your university's entrepreneurship or hackathon scene.
That said, my question would be WHY would you want to do that as an undergrad? I'm firmly in the camp that you need to build domain experience in the industry you are investing in, and that takes a decade of SWE, PM, and Sales experience - and that is reflected by the career trajectory of most VCs I work with.
Edit: This is not a snipe at Top Programs and VC Analyst roles. They have value in incubating new founders (plenty of successful YC founders have been VC Analysts who leveraged their VC network to start a successful startup).
Most of the replies below are just salty.
The number of Stanford Juniors with 1 summer internship at a VC posting 'deep' Startup insights or advice is shocking. Like what do these kids with literally no experience running or starting anything know about companies? It's mind boggling.
Wait until you find out the work experience of people consultancies send out to clients. It's often one experienced person with a bunch of grunts pumping out "work."
In a previous life I worked for a health insurance company that paid a million dollars to the Boston Consultancy Group on if we should use agile or not for development. The best part was seeing the half dozen or so people in our offices working so diligently to argue for something we were already doing, even better when speaking to these consultants they had zero experience programming or developing software.
I often wonder what it takes to win these contracts over McKinsey, Bain, BCG, Deloitte; because it sure feels like it's not aptitude that's the defining quality but more quasi-legal corruption.
In a previous life I worked for a health insurance company that paid a million dollars to the Boston Consultancy Group on if we should use agile or not for development. The best part was seeing the half dozen or so people in our offices working so diligently to argue for something we were already doing, even better when speaking to these consultants they had zero experience programming or developing software.
I often wonder what it takes to win these contracts over McKinsey, Bain, BCG, Deloitte; because it sure feels like it's not aptitude that's the defining quality but more quasi-legal corruption.
IME it's not like McKinsey and friends are necessarily sending highly qualified people either. So it wouldn't take much to "beat" them on merit. It's frustrating to watch them get paid so much to recommend the thing we already recommended in house, except their version is missing all the hard parts because they never bothered to check whether the required infrastructure exists or can even be legally installed at the project site.
McKinsey is about as close as it gets to cartoon supervillains in real life. And they must know it, right? Maybe they hide their role from the rank n’ file, but I doubt it. Truly a useless industry, and a significant symptom of our corporatist malaise.
The amount of money the government spends on useless contractors… shudders
The amount of money the government spends on useless contractors… shudders
Maybe it's a way to funnel government money into an obscure international entity?
When you've been told all your life that you are better than others, you believe it
It's sophomoric, which probably shouldn't be all that surprising from those so recently sophomores.
VC Internships are intense, and not every Stanford student can land one. While some advice might be a bit meh, a lot of it is information that has value.
And, no offense, but there is a massive difference in calibre between a Stanford/Cal/MIT/T10 CS program (they tend to have 2-4% acceptance rates to either the college or the CS department) and other programs. This doesn't mean that there aren't high calibre candidates at non-T10 programs (I've known plenty of successful SJSU, CUNY, UMinn, etc founders, EMs, SWEs, PMs, and yes even a couple angels and VCs), but it seems that you have a chip on your back.
> Like what do these kids with literally no experience running or starting anything know about companies
A lot HAVE tried starting something or are in the process of starting a company. Most VC Analysts are hired explicitly so when those Analysts hit the 2 year mark, they can start their own startup.
And, no offense, but there is a massive difference in calibre between a Stanford/Cal/MIT/T10 CS program (they tend to have 2-4% acceptance rates to either the college or the CS department) and other programs. This doesn't mean that there aren't high calibre candidates at non-T10 programs (I've known plenty of successful SJSU, CUNY, UMinn, etc founders, EMs, SWEs, PMs, and yes even a couple angels and VCs), but it seems that you have a chip on your back.
> Like what do these kids with literally no experience running or starting anything know about companies
A lot HAVE tried starting something or are in the process of starting a company. Most VC Analysts are hired explicitly so when those Analysts hit the 2 year mark, they can start their own startup.
Yes and no. Ability to enter a selective school sorts people based on a specific collection of attributes. Those certainly include intelligence and execution ability. But they also include the ability to slavishly follow rules and optimize ones' life to a specific college acceptance formula between the ages of 14-18. (Being at least reasonably wealthy and having educated parents helps too!) The cost is that this approach filters out a lot of extremely brilliant, creative people who don't want to "slavishly follow the formula", or just have normal teenage problems with authority.
Does a low acceptance rate necessarily say anything about the calibre of the students? These schools can be filtering for a great many things that have nothing to do with intelligence or competence. Legacy admissions as an obvious example.
> Legacy admissions as an obvious example
Majority of the T10 CS programs have deprecated legacy admissions. Most are public universities.
> These schools can be filtering for a great many things
The de facto bare minimum you need to get into a BSCS at UIUC, UCB, or CMU is a high (3.8+ out for 4) GPA and a high SAT/ACT (1500+ or 34+).
In reality, these are minimums, and most applicants have taken college level CS courses in high school either at your local flagship or community college, taken 6 or more AP classes, and have a fairly robust roster and background in Extracurriculars like sports, non profits, and even a couple founders. One of my peers at my undergrad literally sold his bootstrapped company for $1m while he was in high school and he was from Cincinnati.
The point is, because admissions are so rigorous, you end up with very prepared students who already know the ins and outs of the major and industry they are targeting, and as such are able to hit the road running (getting internships in their freshman summer, participating in research from freshman year, graduating early or accelerating MS admissions).
If I need to take a financial bet on someone (which is what VC and hiring is), I can justify my choice based on the data provided above.
This does NOT mean that life ends at college. I know a lot of T10 grads who did dick (no internships, minimal research) and probably would have been better off going to another school or another program. I also know and am friends with plenty of people who went to non-T10 programs who had an AMAZING career trajectory because of how driven and hard working they were.
That said, your credentials are very important - having a successful academic and professional career will open plenty of doors.
Majority of the T10 CS programs have deprecated legacy admissions. Most are public universities.
> These schools can be filtering for a great many things
The de facto bare minimum you need to get into a BSCS at UIUC, UCB, or CMU is a high (3.8+ out for 4) GPA and a high SAT/ACT (1500+ or 34+).
In reality, these are minimums, and most applicants have taken college level CS courses in high school either at your local flagship or community college, taken 6 or more AP classes, and have a fairly robust roster and background in Extracurriculars like sports, non profits, and even a couple founders. One of my peers at my undergrad literally sold his bootstrapped company for $1m while he was in high school and he was from Cincinnati.
The point is, because admissions are so rigorous, you end up with very prepared students who already know the ins and outs of the major and industry they are targeting, and as such are able to hit the road running (getting internships in their freshman summer, participating in research from freshman year, graduating early or accelerating MS admissions).
If I need to take a financial bet on someone (which is what VC and hiring is), I can justify my choice based on the data provided above.
This does NOT mean that life ends at college. I know a lot of T10 grads who did dick (no internships, minimal research) and probably would have been better off going to another school or another program. I also know and am friends with plenty of people who went to non-T10 programs who had an AMAZING career trajectory because of how driven and hard working they were.
That said, your credentials are very important - having a successful academic and professional career will open plenty of doors.
> (they tend to have 2-4% acceptance rates to either the college or the CS department)
This leads me to a broader question: What does their acceptance rate of high schoolers have to do with anything? We're always using that as some kind of proxy, but high schoolers (even the top ones) don't know much...
This leads me to a broader question: What does their acceptance rate of high schoolers have to do with anything? We're always using that as some kind of proxy, but high schoolers (even the top ones) don't know much...
They probably meant universities (bachelor or masters program), but yeah I agree with you. People place way too much faith in institutions and take it as universal endorsement of ability, meanwhile many competent people are "misfits" that have all the brains and ability but can't stand the rules and mind games of these institutions; and those accepted are not significantly better than the ones below the acceptance line.
> meant universities
Nope. I meant departments. The T10 programs handle CS admissions at the College (Engineering) and Department level.
When you apply for a BS EECS at Cal or BSCS at CMU, it is the CS department (or School of Computer Science) that handles the entire application review process.
Only more traditional LACs (the kinds modeled after Harvard College or Dartmouth College) put all applicants in the same bucket.
Nope. I meant departments. The T10 programs handle CS admissions at the College (Engineering) and Department level.
When you apply for a BS EECS at Cal or BSCS at CMU, it is the CS department (or School of Computer Science) that handles the entire application review process.
Only more traditional LACs (the kinds modeled after Harvard College or Dartmouth College) put all applicants in the same bucket.
I think we agree, my point was that you are not talking about high school (15-19 year old children where I live).
But now I see that their reply could also mean that the people are highschoolers at the time they are applying. I understood it as acceptance to high school itself.
But now I see that their reply could also mean that the people are highschoolers at the time they are applying. I understood it as acceptance to high school itself.
Makes sense!
> Nope. I meant departments. The T10 programs handle CS admissions at the College (Engineering) and Department level.
Stanford at least doesn't for undergrads. Admissions is handled at the university level and you're encouraged not to even declare a major (CS included) until after your freshman year when you've had a chance to explore options for a major.
Stanford is a more traditional LAC though, so falls under your last paragraph.
Stanford at least doesn't for undergrads. Admissions is handled at the university level and you're encouraged not to even declare a major (CS included) until after your freshman year when you've had a chance to explore options for a major.
Stanford is a more traditional LAC though, so falls under your last paragraph.
I'm sorry but your quality as a student does not qualify you to advise companies on how they should be growing given that they have no experience seeing how a company grows...
Would you be ok with a undergrad with no more experience than a single internship coming in and dictating how your Engineering Org should be run? Or generally writing blog posts about how to be a great engineer when they have probably never seen a great engineer let alone become one themselves?
Would you be ok with a undergrad with no more experience than a single internship coming in and dictating how your Engineering Org should be run? Or generally writing blog posts about how to be a great engineer when they have probably never seen a great engineer let alone become one themselves?
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My wife found a workaround for it, which is when she realized she didn’t want to continue her PhD she landed the UN internship and used her stipend money for that year to live in Queens off the 7. It paid off in the long run since it gave her an opening to do contracting for them, which gave her the knowledge to pass the entrance exam (which is its own soft studies filter, since many who passed had received formal private education that included how to pass international org entrance exams)
Unpaid internships in general are the same "people with rich parents only" filter, to a lesser extent.
On the other hand, it's a way to get inside without being evaluated too harshly because they might lose money on you. I know people who started from nothing, couldn't pay the scholarships and were self taught, and the unpaid internship was what propelled them into a serious well paid career.
That doesn’t invalidate what the parent said though. Unpaid internships do filter out people who need a paycheck to survive.
Sure they do, but those can apply to a paid position. I don't see why someone who knows enough to get paid would even consider an unpaid internship.
Right, it's the people that need the internship to learn/network and need a paycheck that are SoL
This is a big thing in journalism and fashion, too. Doing an unpaid internship in NYC isn’t exactly cheap
I used to live next to the Vienna duty station and have never heard of unpaid internships at the UN. They usually pay well above market rate (esp. IAEA and such) - can you please provide more info?
I know a bit about the situation in Geneva, and I can confirm that paid UN agency internship seems to be rare.
VCs like Don Valentine & The founder of Atari actually passed on Steve Jobs because "they were not impressive".
It was only after Steve Jobs exploited their preferential attachment & tendency of VC to succumb to herding effects that he was given investment.
It was only after Steve Jobs exploited their preferential attachment & tendency of VC to succumb to herding effects that he was given investment.
Would you mind expanding upon this, detailing the exploitation:
"It was only after Steve Jobs exploited their preferential attachment & tendency of VC to succumb to herding effects that he was given investment."
"It was only after Steve Jobs exploited their preferential attachment & tendency of VC to succumb to herding effects that he was given investment."
There is a very good documentary called Something Ventured[1].
It's really good. I think everyone into Startups must watch this. It's not second hand narration but the real VCs them selves telling the stories so I find it very reliable.
So in the documentary there is a section about VCs meeting Steve Jobs & Wozniak for the first time.
They passed on the investment saying that they were "not impressive".
One of the VCs (that refused to invest) was begged to show up at some computer conference to see how people were interacting with the Apple Computer.
The VC saw a very huge crowd of people around the Apple booth waiting for a turn to use the Apple computer.
The VC then completely changed his mind & decided to invest in Apple. When he did so, even the likes of Don Valentine now begged to enter the round.
My suspicion is that the crowd was artificial, Steve Jobs knew that if he could prove (or construct) some kind of hype around his Apple computer at the conference. It would conjure fear of missing out in the VCs or something akin to traction.
Note that everything else remained the same the product, the founders etc. He just added an ounce of hype.
[1]: https://youtu.be/7eV2L7CHCSQ?feature=shared
It's really good. I think everyone into Startups must watch this. It's not second hand narration but the real VCs them selves telling the stories so I find it very reliable.
So in the documentary there is a section about VCs meeting Steve Jobs & Wozniak for the first time.
They passed on the investment saying that they were "not impressive".
One of the VCs (that refused to invest) was begged to show up at some computer conference to see how people were interacting with the Apple Computer.
The VC saw a very huge crowd of people around the Apple booth waiting for a turn to use the Apple computer.
The VC then completely changed his mind & decided to invest in Apple. When he did so, even the likes of Don Valentine now begged to enter the round.
My suspicion is that the crowd was artificial, Steve Jobs knew that if he could prove (or construct) some kind of hype around his Apple computer at the conference. It would conjure fear of missing out in the VCs or something akin to traction.
Note that everything else remained the same the product, the founders etc. He just added an ounce of hype.
[1]: https://youtu.be/7eV2L7CHCSQ?feature=shared
The longer you work in tech industry, you will viscerally "feel" just how rare Steve Jobs was as a talent.
he had an amazing feel for mass consumer psyche ("taste") and along with a good dose of charisma
FOMO is the number 1 VC trait to exploit.
Even if you think a founder is not impressive, if you see an impressive product you are more likely to take the bet. It’s the same old “sales cures all” sentiment where many organizational dysfunctions can be tolerated if the company’s products are in demand
so he was good at marketing
There's a famous old photo of the first Microsofties[0], and is often captioned by "Would You Invest?"
[0] https://i.insider.com/53ad82026bb3f7237a3347bf?width=800&for...
[0] https://i.insider.com/53ad82026bb3f7237a3347bf?width=800&for...
They were ex-Ivy league and friends from college. They fit into the current investor meta perfectly
i'll play devils advocate: what if getting shot down hard by a few respected investors was a push to improve / get slicker with their approach?
VCs or Record companies missing "Superstars" is as common as mud.
Here is a fun article showing everyone makes errors. https://medium.com/mba-chronicles/the-vc-antiportfolio-top-m...
Here is a fun article showing everyone makes errors. https://medium.com/mba-chronicles/the-vc-antiportfolio-top-m...
Record companies are the worst. They use the same “spray and pray” strategy as the VCs but charge the artists money to mitigate their risk. Monopolies…
In the tweet the wrong date was not a red flag due to lack of detail as such, but because it signaled:
a) they had been raising for a while now
b) the recipient was not their first choice (ouch, you can hear the ego taking a glancing hit)
So ”the market” did not consider the startup investable, and they did not think about their sales pitch strategically enough … this VC would have liked to be sold to, not just a source of funds.
The implied peer signaling is the key thing here IMO.
a) they had been raising for a while now
b) the recipient was not their first choice (ouch, you can hear the ego taking a glancing hit)
So ”the market” did not consider the startup investable, and they did not think about their sales pitch strategically enough … this VC would have liked to be sold to, not just a source of funds.
The implied peer signaling is the key thing here IMO.
> the recipient was not their first choice (ouch, you can hear the ego taking a glancing hit)
It baffles me that a person successful enough to get put in charge of an investment fund can have such incredibly thin skin.
How would you even function in the real world if you were so easily offended?
It baffles me that a person successful enough to get put in charge of an investment fund can have such incredibly thin skin.
How would you even function in the real world if you were so easily offended?
Not to defend the VC in this case, but thin skin assumes that the VC did not take the meeting because they were offended by not being picked first. VCs and Investors are more often than not lemmings with strong FOMO bias, and perceiving no other VC is interested is enough of a signal to not waste time.
From my own experience having met with VC's and investors is that most are inundated with pitches, and the old addage of 'Take every meeting you can' has been replaced with 'Say No by default.' There is no exact science, and so there are proxy signals they use in their heuristic.
It reminds me of the scene in money ball where the scouts are complaining about a baseball player who does not date an attractive women, so therefore they should not sign him because he doesn't have confidence. https://www.youtube.com/watch?v=6naO8n6HsqE
From my own experience having met with VC's and investors is that most are inundated with pitches, and the old addage of 'Take every meeting you can' has been replaced with 'Say No by default.' There is no exact science, and so there are proxy signals they use in their heuristic.
It reminds me of the scene in money ball where the scouts are complaining about a baseball player who does not date an attractive women, so therefore they should not sign him because he doesn't have confidence. https://www.youtube.com/watch?v=6naO8n6HsqE
> It baffles me that a person successful enough to get put in charge of an investment fund
Not necessarily ROI successful, though certainly successful in making connections to get the job. It seems, however, from their website that some of their capital made it into big companies. It's not clear whether they disclose the previous funds performances.
Not necessarily ROI successful, though certainly successful in making connections to get the job. It seems, however, from their website that some of their capital made it into big companies. It's not clear whether they disclose the previous funds performances.
They can’t function, Michael.
>How would you even function in the real world if you were so easily offended?
They DON'T function in the real world. Rich people, especially the uber new rich in SV do not interact with the real world, but rather with a purchased world from companies selling "lifestyle". They have people bring them groceries that they never see the bill for, because everything is handled by their accountant. They are thin skinned, so they surround themselves with yesmen to continually tell them they are awesome. They write trite, useless blog posts about "working harder" and their army of loyal sycophants eat it up.
They DON'T function in the real world. Rich people, especially the uber new rich in SV do not interact with the real world, but rather with a purchased world from companies selling "lifestyle". They have people bring them groceries that they never see the bill for, because everything is handled by their accountant. They are thin skinned, so they surround themselves with yesmen to continually tell them they are awesome. They write trite, useless blog posts about "working harder" and their army of loyal sycophants eat it up.
> successful enough to get put in charge of an investment fund
Is that how it works?
Is that how it works?
consider that this is sending a negative signal to the VC that other VCs have already passed, rather than that it hurts their feelings
> other VCs have already passed
Is this really a sensible factor to consider? Canva's was founder was rejected 100 times before someone took a chance.
Is there any hard evidence that founders who secure funding earlier are more likely to provide a VC with a successful exit?
Is this really a sensible factor to consider? Canva's was founder was rejected 100 times before someone took a chance.
Is there any hard evidence that founders who secure funding earlier are more likely to provide a VC with a successful exit?
> Is there any hard evidence that founders who secure funding earlier are more likely to provide a VC with a successful exit?
There really isn't much hard evidence about any correlative patterns about early stage VCs. Which is why their model is essentially spray and pray. The successful ones (Sequoias, a1z, etc.) are just signaling rods whereby high growth startups gravitate towards well known VCs, which in turns means signaling to M&A markets.
There really isn't much hard evidence about any correlative patterns about early stage VCs. Which is why their model is essentially spray and pray. The successful ones (Sequoias, a1z, etc.) are just signaling rods whereby high growth startups gravitate towards well known VCs, which in turns means signaling to M&A markets.
"Nobody ever got fired for hiring IBM"
--> GP's point was: You need to look good while losing all your LP's money.
--> GP's point was: You need to look good while losing all your LP's money.
Fair point. If that's the signal who the people financing the VC believe in, then I guess it makes sense them to follow along.
The charitable interpretation, especially for early stage investors, is that your investment will not be the last one necessary to realize a successful outcome.
If a company is having a hard time finding investors now, in the future when it needs more money it may fail for lack of takers, spiking current investments.
If a company is having a hard time finding investors now, in the future when it needs more money it may fail for lack of takers, spiking current investments.
>Is this really a sensible factor to consider?
Sensible or cognitive bias that is in play regardless if it is sensible? I've seen a little research on jobs that discriminate against people not currently employed, with longer periods of unemployment leading to greater discrimination. I haven't seen anything about if this is actually justified or not.
I've also heard of this in other areas, like with date, but I haven't been able to find any research and the topic borders some controversial areas that research has struggle handling.
My guess is that it does happen as a bias, related to peer pressure and following a crowd, but like with other biases, even if it makes sense in some cases historically it will lead to illogical behavior in our current society.
Sensible or cognitive bias that is in play regardless if it is sensible? I've seen a little research on jobs that discriminate against people not currently employed, with longer periods of unemployment leading to greater discrimination. I haven't seen anything about if this is actually justified or not.
I've also heard of this in other areas, like with date, but I haven't been able to find any research and the topic borders some controversial areas that research has struggle handling.
My guess is that it does happen as a bias, related to peer pressure and following a crowd, but like with other biases, even if it makes sense in some cases historically it will lead to illogical behavior in our current society.
This is the smart comment. If, as a VC, you know the outliers are hard to find, would you really get distracted by someone being on the market for 1-2 months?
Add to that how “small” and tight knit the VC community is and that’s a major signal.
Why not both? VCs are human, hurt feelings are probably a negative signal
> b) the recipient was not their first choice (ouch, you can hear the ego taking a glancing hit)
We can be as cynical about this part as we want, but I think what is meant here is that startups should try to raise investment from VC's or investors who are a good match. If I'm down to the 20th VC on my list - that list is sorted a way for a reason by the startup founders.
It's easy to assign this to ego but I think being a rational actor, it is also a signal like the pitch deck date.
We can be as cynical about this part as we want, but I think what is meant here is that startups should try to raise investment from VC's or investors who are a good match. If I'm down to the 20th VC on my list - that list is sorted a way for a reason by the startup founders.
It's easy to assign this to ego but I think being a rational actor, it is also a signal like the pitch deck date.
Absolutely true I think. My intent was not to be too cynical (but feelings do matter though, especially if all you have are weak signals meaning you have to call it by gut feel).
Early stage vcs are successful when other vcs think the outcome is a good investment. Taking a bet that other VCs have already rejected will usually lead to a mixed payout.
I wrote it in another post here, but a bunch of these VCs are cut from the same cloth. They went to some Ivy League school, worked as investment bankers / management consultants / etc. and spent their first year(s) aligning images/tables/etc. and checking power point decks for typos.
If you do stuff like that 100 hours a week, it kind of becomes ingrained.
If you do stuff like that 100 hours a week, it kind of becomes ingrained.
It might seem weird, but most VCs are fairly low-margin businesses day to day, then they either get a big payday or not (mostly not), once the fund starts to wind down. The odds of making it big as a general partner in a VC fund are not great.
A VC has to live of management fees for the fund, which are a tiny fraction, typically half a percent, and that needs to cover both the initial investment process and all management of the portfolio, and it's not a lot.
You can't afford to spend a lot of time scrutinizing every pitch deck, because you'll be inundated by them, so you look for quick filters. Many of which will be bad, because they're wild guesses. Yes, that means they'll miss amazing opportunities. But they're gambling what will be left will at least not be worse.
Upside is, VC's wildly disagree on which things make decent quick filters, so what will get you binned one place will often interest another, or at least not annoy them.
A VC has to live of management fees for the fund, which are a tiny fraction, typically half a percent, and that needs to cover both the initial investment process and all management of the portfolio, and it's not a lot.
You can't afford to spend a lot of time scrutinizing every pitch deck, because you'll be inundated by them, so you look for quick filters. Many of which will be bad, because they're wild guesses. Yes, that means they'll miss amazing opportunities. But they're gambling what will be left will at least not be worse.
Upside is, VC's wildly disagree on which things make decent quick filters, so what will get you binned one place will often interest another, or at least not annoy them.
VC management fees are typically 2%/y. if a VC fund has $100 million in committed capital, the annual management fees would generally be between $2 million and $2.5 million. it's a lot of money.
There's a lot of nuance here. A $100mm fund could be a single guy/gal working from her office, running money in an industry she knows with a little bit of admin support. In that world, $2mm a year in fees is plenty to keep the lights on. Some fund managers I know in this situation don't call all the fee; there may be social considerations / signaling the manager prefers to make. Some spend it all and then some of their own. Absolutely none of them think that the fee is 'retirement money'; they all have eyes on the prize of a 3-5x and carried interest getting them to $100m or so, when they can do whatever thing it is they want to do that got them into running the fund.
On the other hand, a $100mm fund could be a 'contender' fund that wants to raise a large fund, and is in a competitive industry -- it's trying to get on the cap tables that, say, Mayfair gets on to, and so it needs to staff recruiting support, tech help, marketing people. Perhaps it's multi-jurisdiction. In that world, $2mm is way, way too little, and the GPs may well be financing the fund personally through fund 1 and into fund 2, depending on the follow-on raise. They are aiming at running, eventually, $1bn+ per fund in three to four stacked funds, and taking home $1bn after 20 years (or less?) of good effort for each of the original GPs.
These are caricatures, and there's much more than this to the lifecycle of venture funds, but since we're at HN and VC is a big part of the conversation, I think it's good for hackers and founders to understand the counterparties they do business with, and particularly to be able to read the signals of the VCs they talk to, while the VCs are reading the signals of a desperate, out of date deck.
On the other hand, a $100mm fund could be a 'contender' fund that wants to raise a large fund, and is in a competitive industry -- it's trying to get on the cap tables that, say, Mayfair gets on to, and so it needs to staff recruiting support, tech help, marketing people. Perhaps it's multi-jurisdiction. In that world, $2mm is way, way too little, and the GPs may well be financing the fund personally through fund 1 and into fund 2, depending on the follow-on raise. They are aiming at running, eventually, $1bn+ per fund in three to four stacked funds, and taking home $1bn after 20 years (or less?) of good effort for each of the original GPs.
These are caricatures, and there's much more than this to the lifecycle of venture funds, but since we're at HN and VC is a big part of the conversation, I think it's good for hackers and founders to understand the counterparties they do business with, and particularly to be able to read the signals of the VCs they talk to, while the VCs are reading the signals of a desperate, out of date deck.
> Absolutely none of them think that the fee is 'retirement money'
You are sure you can speak for all of them? There are tons of VCs...
To me the 2% running fee sounds pretty nice, combined with somewhat low pressure job compared to many others. Of course it is not nice if your fund doesn't make it but you are guaranteed somewhat cushy position for 5-10 years.
You are sure you can speak for all of them? There are tons of VCs...
To me the 2% running fee sounds pretty nice, combined with somewhat low pressure job compared to many others. Of course it is not nice if your fund doesn't make it but you are guaranteed somewhat cushy position for 5-10 years.
You've already spent a lot of time to raise the fund, unpaid or paid out of proceeds from a previous fund first. Then you have to put in a massive effort to find, sort through and vet investments. Either there are quite a few of you, or you have a nightmare work pressure for several years unless you already have a massive rep (and it's still work).
And most LP's will expect the GP's to have significant skin in the game. E.g. at my previous employer, every staff member was expected to have at a minimum the equivalent of 1x gross yearly salary committed within a few years.
VC salaries are not that great outside the top tier funds or unless you're one of the GP's.
It could be "retirement money" for a handful of the GP's at the top tier funds, but they're only in that position in the first place because they have a lengthy track record, and so their past earnings from carry etc. will still dwarf any operating fee from their current fund.
And most LP's will expect the GP's to have significant skin in the game. E.g. at my previous employer, every staff member was expected to have at a minimum the equivalent of 1x gross yearly salary committed within a few years.
VC salaries are not that great outside the top tier funds or unless you're one of the GP's.
It could be "retirement money" for a handful of the GP's at the top tier funds, but they're only in that position in the first place because they have a lengthy track record, and so their past earnings from carry etc. will still dwarf any operating fee from their current fund.
Yep I'm sure I can speak for all of the $100M-fund work out of your home office types. Or at least > 99%. The Venn overlap between "content with promising people you'll make money for them believably", "too cheap to spend on office / marketing because your fake pitch was so good nobody will need it to feel comfortable", "enough executive function to make believable calls on believable companies while doing no sourcing work" and "$2mm for three years until people catch on, but def don't send me to prison" is absolutely zero or very close to it.
Most who run a fund like this do not think of it as low pressure or cushy, regardless of goals. Something I tell my portco CEOs a lot is that as much as they want to raise money, or need money for their company, in general, VCs they are talking to need to write checks even more. Just not bad checks.
Most who run a fund like this do not think of it as low pressure or cushy, regardless of goals. Something I tell my portco CEOs a lot is that as much as they want to raise money, or need money for their company, in general, VCs they are talking to need to write checks even more. Just not bad checks.
I've not lost billions twice, but have definitely lost tens of millions, and worked alongside at lost one person who lost a billion once... It's an "interesting" business to be in...
Third time's the charm :)
If you ever need someone to help you lose a billion, I'm sure I can think of a few ways of doing so quickly and efficiently.
a billion is a lot though. I don't know that I could come up with ways to do that much so quickly and efficiently. what would be your ways?
It really depends
Spending a billion dollars take a lot of effort (or so I assume; I've "only" spent millions). People will ask annoying questions like "where is the billion dollars coming from, I had no idea you were a billionaire", and ask about AML etc.
Conversely, driving down the value of a company that's already worth billions is "easy": Just publicly demonstrate your willingness to drive the company totally into the ground.
Or if you want speed, and have access to the funds, the super-fast way would be transferring a billion worth of crypto to a random address.
For my part, my biggest "losses" were paper values in startups that failed or didn't get the exits we'd hoped for. There it's also "easy".
Spending a billion dollars take a lot of effort (or so I assume; I've "only" spent millions). People will ask annoying questions like "where is the billion dollars coming from, I had no idea you were a billionaire", and ask about AML etc.
Conversely, driving down the value of a company that's already worth billions is "easy": Just publicly demonstrate your willingness to drive the company totally into the ground.
Or if you want speed, and have access to the funds, the super-fast way would be transferring a billion worth of crypto to a random address.
For my part, my biggest "losses" were paper values in startups that failed or didn't get the exits we'd hoped for. There it's also "easy".
It really varies. I worked for a VC for years, and it often takes substantial reputation to be able to demand fees like that. It also takes substantial reputation to be able to get high enough quality inbound dealflow to be able to do so with few people.
E.g. I know of a decent number of funds that size or smaller with a staff in the range of 10, a few with well above that. Even at 2% it's suddenly not so much money then, even less so when you start to factor in costs.
EDIT: You may also sometimes "on paper" have fees like that, but quietly offer discounts etc. to convince investors. On top of that comes often quite substantial requirements to buy into the fund for at least senior staff that seriously reduce the de facto salary unless the fund also does well enough that it's the carry that matters.
E.g. I know of a decent number of funds that size or smaller with a staff in the range of 10, a few with well above that. Even at 2% it's suddenly not so much money then, even less so when you start to factor in costs.
EDIT: You may also sometimes "on paper" have fees like that, but quietly offer discounts etc. to convince investors. On top of that comes often quite substantial requirements to buy into the fund for at least senior staff that seriously reduce the de facto salary unless the fund also does well enough that it's the carry that matters.
> On top of that comes often quite substantial requirements to buy into the fund for at least senior staff
This is a clearly beneficial requirement, but your point is fair about it leading to 'on-paper' comp looking high. But I'd even go so far as to say that the majority of comp for senior people should be contingent (not sure if that's typical).
This is a clearly beneficial requirement, but your point is fair about it leading to 'on-paper' comp looking high. But I'd even go so far as to say that the majority of comp for senior people should be contingent (not sure if that's typical).
Yes, but it's tricky here because often it's upfront. The only reason it wasn't our case was that carry was unusually spread out over the team and the buying requirement was for everyone, so the LPs accepted that as long as there was a clear plan in place for everyone to buy in, it was ok.
Note that given salary levels this means that over the 10 year runtime of the fund, most of us would be giving up nearly ~20% of our 10 year aggregate gross salary, most of us within 4-5 years. My gross salary during that period was not much different from in my job before - it was a pretty steep sacrifice for a shot at that carry.
Note that given salary levels this means that over the 10 year runtime of the fund, most of us would be giving up nearly ~20% of our 10 year aggregate gross salary, most of us within 4-5 years. My gross salary during that period was not much different from in my job before - it was a pretty steep sacrifice for a shot at that carry.
> Yes, but it's tricky here because often it's upfront.
Fair. These sorts of things are usually pretty nuanced.
> it was a pretty steep sacrifice for a shot at that carry.
I totally get that, but it also seems like the ideal balance of interests. To many obvious failure modes if you don't have enough skin in the game. Of course that works the other way too, the upside in good-to-great cases have to make it make sense.
Fair. These sorts of things are usually pretty nuanced.
> it was a pretty steep sacrifice for a shot at that carry.
I totally get that, but it also seems like the ideal balance of interests. To many obvious failure modes if you don't have enough skin in the game. Of course that works the other way too, the upside in good-to-great cases have to make it make sense.
I mean, I made the choice to join because I saw it as a good option. But even so, was an unusually risky tradeoff between an effectively low basic for a higher bet at the return. I also certainly think it's understandable that LPs want it that way. Main point is that it's only lucrative if the fund pays out on carry, and you take a high risk for something which might possibly pay out ten years in the future. If it doesn't pay out, you've worked years at a not very high (for tech) salary.
Which is effectively like old school startups when you think of it … relatively low salaries and a bunch of options that may or may not turn to gold in 10 years .
Sure, and that's fair enough as long as staff gets a big enough stake. And to be clear, we did. Every single person outside the exec team/general partners on that team had an unusually high stake in the total carry. Our main investor buying us out and turning it into a boring corporate not being the end game we had in mind aside, it was one of the most enjoyable startup experiences I've had (we were a bit of a hybrid, in that while we were operating a single fund, a lot of my work was towards getting tech in place to optimize delivery of subsequent funds).
A lot of startups think it's still ok to pay under the odds once hiring staff that are getting tiny fractions of a percent, though, and at that point, the risk-adjusted value of those options is not worth taking a cut for relative to a bigger corporate with somewhat predictable share performance and liquidity.
A lot of startups think it's still ok to pay under the odds once hiring staff that are getting tiny fractions of a percent, though, and at that point, the risk-adjusted value of those options is not worth taking a cut for relative to a bigger corporate with somewhat predictable share performance and liquidity.
We’re on the same page it sounds like.
Is that 2% on cash the VC fund directly contributed, or is it 2% on total funds injected into the business including loans the VC saddles the business with? (Or is that kind of leverage typically only done by private equity funds?)
Whatever the percentage for a given fund is, this is the rate the investors in the fund (the limited partners) pays to the fund managers (the general partners) to manage the fund. It's separate from what the companies they invest in gets.
So around 5-10 software engineers (compensation in finance seems mostly similar to SW), not including any other costs like office, etc? That's not a lot of money.
There's a reason most small VC funds have mostly useless infrastructure.
Nikola Tesla received funds, in fact quite a bit of it. JP Morgan invested $150,000(~$5M in today terms) for just one project[1]. He died penniless because of his too much confidence in his ideas and he overused the money he got. Even with hindsight, funding Tesla was a bad decision for investors return wise.
[1]: https://en.wikipedia.org/wiki/Wardenclyffe_Tower
[1]: https://en.wikipedia.org/wiki/Wardenclyffe_Tower
Yeah I was going to say this- idiosyncratic geniuses like Tesla are behind some of the most important technogical advancement of the human species, but isn't what VCs are optimising for.
For sure, there's a wider question about how society can reward more than just the ability to return profit. That would help with a lot of today's issues, like climate change, but it's a much bigger issue than just one of where VCs put their money.
For sure, there's a wider question about how society can reward more than just the ability to return profit. That would help with a lot of today's issues, like climate change, but it's a much bigger issue than just one of where VCs put their money.
VCs put lot of money on solving climate change. I feel climate change is one of the most overinvested field, where companies like Helion are valued $3B not only without any working prototype, but also with an idea which many experts say is not feasible at all, and even in the case they could make the prototype work, it is highly unlikely it could compete with solar in terms of cost per unit energy.
But yeah we shouldn't put onus on VC to make society better. Government should invest more in research which benefits society.
But yeah we shouldn't put onus on VC to make society better. Government should invest more in research which benefits society.
I'm definitely not making any claims sbout VCs not investing enough in climate change. I guess the point I was trying to make was that progress on some issues for society needs more than chasing revenue.
I probably shouldn't have used climate change since it's often a controversial issue, but to keep down that path- Public transport would really help climate change but VC likely to invest in that heavily because return wise it isn't comparable to things like selling electric cars.
Again, I'm not saying that as a criticism of VC specifically, but more making the point that the way our society rewards talent or ideas isn't an exact match with what benefits society the most.
I probably shouldn't have used climate change since it's often a controversial issue, but to keep down that path- Public transport would really help climate change but VC likely to invest in that heavily because return wise it isn't comparable to things like selling electric cars.
Again, I'm not saying that as a criticism of VC specifically, but more making the point that the way our society rewards talent or ideas isn't an exact match with what benefits society the most.
Overinvested?
How is it overinvested if no one (government, companies, you name it) come even close to "solving" climate change??
There's a very clear benchmark (CO2 increase) and we're failing spectacularly year-on-year!
How is it overinvested if no one (government, companies, you name it) come even close to "solving" climate change??
There's a very clear benchmark (CO2 increase) and we're failing spectacularly year-on-year!
>How is it overinvested if no one (government, companies, you name it) come even close to "solving" climate change??
The two arent related in any way. Overinvested means that most current investors will lose money. It says nothing about the progress toward climate change
The two arent related in any way. Overinvested means that most current investors will lose money. It says nothing about the progress toward climate change
> Even with hindsight, funding Tesla was a bad decision for investors return wise.
He invented the brushless motor and types of transformers that were instrumental to building Westinghouse's empire. When Westinghouse was running low on money Tesla tore up the patents he'd sold to him to save the company.
Tesla was definitely not a "bad decision for investors", the ROI for his inventions is some significant fraction of the economic value of the global electrical system.
But yeah, a couple of his projects failed at some point. Surely a terrible investment!
He invented the brushless motor and types of transformers that were instrumental to building Westinghouse's empire. When Westinghouse was running low on money Tesla tore up the patents he'd sold to him to save the company.
Tesla was definitely not a "bad decision for investors", the ROI for his inventions is some significant fraction of the economic value of the global electrical system.
But yeah, a couple of his projects failed at some point. Surely a terrible investment!
Investors don't operate charity funding to accrue value for the mutual collective benefit of some global system.
Investors MUST accrue ROI to their own account and/or that of their own investors, the limited partners. If they do not, they're done. Going bankrupt personally while providing huge value to the world at large is a TERRIBLE outcome for any investor.
Tesla invented great things that provide huge positive ROI to the global electrical system, yes. Nonetheless, giving Tesla 150k was a rather poor investment for JP Morgan. If Morgan had made many more such bad investments, he'd be bankrupt, and unable to fund any further value for anyone.
Investors MUST accrue ROI to their own account and/or that of their own investors, the limited partners. If they do not, they're done. Going bankrupt personally while providing huge value to the world at large is a TERRIBLE outcome for any investor.
Tesla invented great things that provide huge positive ROI to the global electrical system, yes. Nonetheless, giving Tesla 150k was a rather poor investment for JP Morgan. If Morgan had made many more such bad investments, he'd be bankrupt, and unable to fund any further value for anyone.
But that's not how VC funding works! Many to most of their investments will fail - that's completely normal. In the case of Tesla, that was also true - and then some of them (e.g. his transformers) resulted in massive wealth creation for Westinghouse's companies at least.
JP Morgan understood that as well as anyone. Venture capital is a numbers game.
The world is full of examples of founders whose first few companies failed and they then went on to start companies that were successful. The very nature of the US's system that allows failure is why it has such a booming startup ecosystem...
JP Morgan understood that as well as anyone. Venture capital is a numbers game.
The world is full of examples of founders whose first few companies failed and they then went on to start companies that were successful. The very nature of the US's system that allows failure is why it has such a booming startup ecosystem...
>Tesla was definitely not a "bad decision for investors", the ROI for his inventions is some significant fraction of the economic value of the global electrical system. But yeah, a couple of his projects failed at some point. Surely a terrible investment!
I feel like this is soo close to getting it. Yes, for those investors it was a bad investment. Their goal isnt global economic value and the success of other projects isnt a consolation.
I feel like this is soo close to getting it. Yes, for those investors it was a bad investment. Their goal isnt global economic value and the success of other projects isnt a consolation.
My point was Westinghouse benefited immensely from Tesla's patents. His AC transmission network wouldn't have been possible without them.
My second point was not every investment in a founder will yield a huge result - many will fail. It's a game of numbers, and just because some of Tesla's projects didn't work out didn't mean he was a "terrible investment".
Does that make more sense?
My second point was not every investment in a founder will yield a huge result - many will fail. It's a game of numbers, and just because some of Tesla's projects didn't work out didn't mean he was a "terrible investment".
Does that make more sense?
It sounds like he had to talk to a number of people first:
Tesla made the rounds in New York trying to find investors for his system of wireless transmission, wining and dining them at the Waldorf-Astoria's Palm Garden (the hotel where he was living at the time), The Players Club and Delmonico's. Tesla first went to his old friend George Westinghouse for help. Westinghouse seemed like a natural fit for the project given the large-scale AC equipment Westinghouse manufactured and Tesla's need for similar equipment.
Tesla asked Westinghouse to "…meet me on some fair terms in furnishing me the machinery, retaining the ownership of the same and interesting yourself to a certain extent". While Westinghouse declined to buy into the project, he did agree to lend Tesla $6,000. Westinghouse suggested Tesla pursue some of the rich venture capitalists. Tesla talked to John Jacob Astor, Thomas Fortune Ryan, and even sent a cabochon sapphire ring as a gift to Henry O. Havemeyer. No investment was forthcoming from Havemeyer and Ryan but Astor did buy 500 shares in Tesla's company. Tesla gained the attention of financier J. P. Morgan in November 1900.
Morgan, who was impressed by Guglielmo Marconi's feat of sending reports from the America's Cup yacht races off Long Island back to New York City via radio-based wireless the previous year, was dubious about the feasibility and patent priority of Tesla's system.
In several discussions Tesla assured Morgan his system was superior to, and based on patents that superseded, that of Marconi and of other wireless inventors, and that it would far outpace the performance of its main competitor, the transatlantic telegraph cable. Morgan signed a contract with Tesla in March 1901, agreeing to give the inventor $150,000 to develop and build a wireless station on Long Island, New York, capable of sending wireless messages to London as well as ships at sea. The deal also included Morgan having a 51% interest in the company as well as a 51% share in present and future wireless patents developed from the project.
Tesla made the rounds in New York trying to find investors for his system of wireless transmission, wining and dining them at the Waldorf-Astoria's Palm Garden (the hotel where he was living at the time), The Players Club and Delmonico's. Tesla first went to his old friend George Westinghouse for help. Westinghouse seemed like a natural fit for the project given the large-scale AC equipment Westinghouse manufactured and Tesla's need for similar equipment.
Tesla asked Westinghouse to "…meet me on some fair terms in furnishing me the machinery, retaining the ownership of the same and interesting yourself to a certain extent". While Westinghouse declined to buy into the project, he did agree to lend Tesla $6,000. Westinghouse suggested Tesla pursue some of the rich venture capitalists. Tesla talked to John Jacob Astor, Thomas Fortune Ryan, and even sent a cabochon sapphire ring as a gift to Henry O. Havemeyer. No investment was forthcoming from Havemeyer and Ryan but Astor did buy 500 shares in Tesla's company. Tesla gained the attention of financier J. P. Morgan in November 1900.
Morgan, who was impressed by Guglielmo Marconi's feat of sending reports from the America's Cup yacht races off Long Island back to New York City via radio-based wireless the previous year, was dubious about the feasibility and patent priority of Tesla's system.
In several discussions Tesla assured Morgan his system was superior to, and based on patents that superseded, that of Marconi and of other wireless inventors, and that it would far outpace the performance of its main competitor, the transatlantic telegraph cable. Morgan signed a contract with Tesla in March 1901, agreeing to give the inventor $150,000 to develop and build a wireless station on Long Island, New York, capable of sending wireless messages to London as well as ships at sea. The deal also included Morgan having a 51% interest in the company as well as a 51% share in present and future wireless patents developed from the project.
So? Everyone has to talk to multiple investors. Even if first investor you talk to agrees to invest on the first meeting, you need to talk to talk to many investors to come up with a fair valuation.
In my little experience, most of the deals I see closing with VCs are because they/we were already linked to VCs through strong trust networks or directly. I see more deals that are close just by phoning/messaging someone that following the typical startup funding round that is read on Internet.
Not saying that most of the cases are not hard work from the startup team but saying that if I would have to raise funds I will put laser focus in the people I know instead of trying to reach VCs that are not in my network.
I will repeat this a little bit differently: I see many yes that are related to the team links, not their product or market.
Finally, when I talk about the team, I don't talk about their real capacity to execute but to sell to a VC like selling to an important customer.
Not saying that most of the cases are not hard work from the startup team but saying that if I would have to raise funds I will put laser focus in the people I know instead of trying to reach VCs that are not in my network.
I will repeat this a little bit differently: I see many yes that are related to the team links, not their product or market.
Finally, when I talk about the team, I don't talk about their real capacity to execute but to sell to a VC like selling to an important customer.
> if I would have to raise funds I will put laser focus in the people I know instead of trying to reach VCs that are not in my network
This is the most common piece of advice all VCs and Founders give. Even YC has called it out on multiple occasions
This is the most common piece of advice all VCs and Founders give. Even YC has called it out on multiple occasions
I don't think the message is clear in the startup industry (yes, industry). The startup industry gives a lot of noise to inexperienced founders (obviously the great majority) making them think the game is more even.
The corollary are the following questions:
- What a founder without VC connections should do?
- How long will it take?
Even if they have a super product in mind (not a time machine) they will have an annoying experience pitching VCs who doesn't have any idea of what you are talking about.
The corollary are the following questions:
- What a founder without VC connections should do?
- How long will it take?
Even if they have a super product in mind (not a time machine) they will have an annoying experience pitching VCs who doesn't have any idea of what you are talking about.
Fair point. I have noticed a drastic lack of good startup advice outside of the Bay Area and Seattle scene. Both those two have very entrenched entrepreneurship networks so information percolates
> what a founder without VC connections should do
Network, network, network.
Finding a VC is the same process as finding your first customer. Sales is a grind, as is running a company. It acts as a filtering function to find seriousish players.
> How long will it take?
If you raise funding, at least 10-15 years to even get the chance to potentially list or get a high 9 figure low 10 figure acquisition.
> what a founder without VC connections should do
Network, network, network.
Finding a VC is the same process as finding your first customer. Sales is a grind, as is running a company. It acts as a filtering function to find seriousish players.
> How long will it take?
If you raise funding, at least 10-15 years to even get the chance to potentially list or get a high 9 figure low 10 figure acquisition.
If you're brilliant and idiosyncratic and delivering something truly compelling, then vcs are more than happy to look past these things. God knows how many very eccentric founders have received funding
It is impossible for something in very early stages, that needs money to be "truly compelling".
For VCs a compelling product means great traction but to get great traction you need initial funding so it's always a catch 22.
For VCs a compelling product means great traction but to get great traction you need initial funding so it's always a catch 22.
Not if they are a bonafide super genius, then it's entirely possible.
That's the minimum bar without traction however. A regular genius isn't that impressive.
That's the minimum bar without traction however. A regular genius isn't that impressive.
VC's don't have the ability to distinguish between genius and super genius...
The competent ones can.
That is a ridiculous claim belied by the distribution of positive outcomes in VC. Any VC making this claim with any confidence is immediately dismissible IMO. I would literally never speak to that person again.
Like in all fields, true competence comes with a deep skepticism of one’s own capabilities. Especially in a field absolutely chock full of luck, uncontrollable variables, motivated reasoning, and outright deception.
Like in all fields, true competence comes with a deep skepticism of one’s own capabilities. Especially in a field absolutely chock full of luck, uncontrollable variables, motivated reasoning, and outright deception.
There aren't foolproof methods, but effective enough methods.
I would say that if an investor was intending to partner with someone who was uniquely advanced intellectually, it would be from spending enough time directly with the potential partner to be able to well recognize the upper echelon like it could not be accomplished any other way.
The most competent at this would sensibly not be relying very much on slides at all, and capable of clearly seeing beyond the factors like luck and uncontrollable elements.
It couldn't happen overnight, and especially not in a single slideshow, much less an email.
What happens when a founder is open to investment and only a super-genius capitalist would be appropriate?
The relevance of a slideshow might still mainly be in the "signaling" more than anything else.
The most competent at this would sensibly not be relying very much on slides at all, and capable of clearly seeing beyond the factors like luck and uncontrollable elements.
It couldn't happen overnight, and especially not in a single slideshow, much less an email.
What happens when a founder is open to investment and only a super-genius capitalist would be appropriate?
The relevance of a slideshow might still mainly be in the "signaling" more than anything else.
How about a stable genius?
As we have seen, you can be very stable at ones utmost intellectual level year after year, and sometimes it can amazingly be someone who is naturally the complete opposite of advanced anyway.
Not quite sure if you got the joke or not. In case you didn't: I was referring to how Trump referred to him once: as a very stable genius haha :D :D
A stable super genius is quite literally even better.
Traction doesn't always mean paying users.
Even just having people on a waitlist can be all you need.
Even just having people on a waitlist can be all you need.
I have 70 trillion people on the waiting list. It doesn't mean anything. Only people that pay for your product matter
That usually happens once you already gain traction.
Getting the critical capital to get there is big problem, and I recall some places explicitly snubbing VCs after having to get to "impressive" without them.
Getting the critical capital to get there is big problem, and I recall some places explicitly snubbing VCs after having to get to "impressive" without them.
It still comes down to risk management.
VCs manage risk differently than bankers, but they still need some form of assurance that their investment will bear fruit. They are not as rigid as bankers but they are still in the same position of having to rely on proxy signals to predict the future.
They can catch more non-conformist value builders† but not every single one.
†For a VC, innovation is a means to building value, not an end to itself. Often the 2 are used interchangeably but only the finances matter in the end.
VCs manage risk differently than bankers, but they still need some form of assurance that their investment will bear fruit. They are not as rigid as bankers but they are still in the same position of having to rely on proxy signals to predict the future.
They can catch more non-conformist value builders† but not every single one.
†For a VC, innovation is a means to building value, not an end to itself. Often the 2 are used interchangeably but only the finances matter in the end.
That's not really how the Ivy League works. Ivy League admissions balances a number of conflicting goals:
1. Legacies: this is the single biggest group of admitted students (eg ~36% of Harvard's undergraduate class). This by itself destroys any merit argument;
2. Athletes: people forget or don't know that the Ivy League is an athletics conference, despite the academic prestige and social proof. Ivy League schools don't offer true atheltics scholarships like you might get for D1 football recruits at, say, UAlabama or USC, but it is an important part of the admissions process;
3. The nebulous idea of "diversity". I don't mean in the DEI sense because it's much broader than that, like you can have better odds of getting an acceptance from an Ivy League school by simply coming from a low-population (and thus low applicant) state like Wyoming or Montana rather than Texas, California or New York;
4. Extra-curriculars, many of which are a proxy for wealth and privilege. For example, not everyone can do an unpaid internship living in NYC or LA or take unpaid opportunities requiring international travel;
5. Other random factors like filling out an orchestra. There's an old cliche that you should study the viola instead of the violin if you want to get into Harvard because there are fewer viola players.
6. Whether admissions believe you will enhance the reputation they've so carefully cultivated. An Ivy League degree is a powerful form of social proof. Being a Harvard grad will help you get into any graduate program. The prestige of your medical school greatly affects your ability to get a residency in a competitive specialty. The point is that social proof diminishes if the perception of your graduates turns sour so admissions will absolutely look at how may reflect on them in future.
The only commonality with VC funding seems to be the power of social proof. That is, MIT and Stanford grads will have an easier time. VC firms will go and do presentations and recruiting at those schools.
That doesn't mean you can't get funded if you went to an unremarkable state school. It just means it's a more difficult road. Stanford or MIT will make it easier to get an internship and thus a returning offer at a prestigious Big Tech company. You'll potentially know more of the people in the VC and startup spaces because you went to school with them or someone they know. There's a real network effect here.
But the point is the similarity to Ivy League recruiting seems to be fairly superficial.
1. Legacies: this is the single biggest group of admitted students (eg ~36% of Harvard's undergraduate class). This by itself destroys any merit argument;
2. Athletes: people forget or don't know that the Ivy League is an athletics conference, despite the academic prestige and social proof. Ivy League schools don't offer true atheltics scholarships like you might get for D1 football recruits at, say, UAlabama or USC, but it is an important part of the admissions process;
3. The nebulous idea of "diversity". I don't mean in the DEI sense because it's much broader than that, like you can have better odds of getting an acceptance from an Ivy League school by simply coming from a low-population (and thus low applicant) state like Wyoming or Montana rather than Texas, California or New York;
4. Extra-curriculars, many of which are a proxy for wealth and privilege. For example, not everyone can do an unpaid internship living in NYC or LA or take unpaid opportunities requiring international travel;
5. Other random factors like filling out an orchestra. There's an old cliche that you should study the viola instead of the violin if you want to get into Harvard because there are fewer viola players.
6. Whether admissions believe you will enhance the reputation they've so carefully cultivated. An Ivy League degree is a powerful form of social proof. Being a Harvard grad will help you get into any graduate program. The prestige of your medical school greatly affects your ability to get a residency in a competitive specialty. The point is that social proof diminishes if the perception of your graduates turns sour so admissions will absolutely look at how may reflect on them in future.
The only commonality with VC funding seems to be the power of social proof. That is, MIT and Stanford grads will have an easier time. VC firms will go and do presentations and recruiting at those schools.
That doesn't mean you can't get funded if you went to an unremarkable state school. It just means it's a more difficult road. Stanford or MIT will make it easier to get an internship and thus a returning offer at a prestigious Big Tech company. You'll potentially know more of the people in the VC and startup spaces because you went to school with them or someone they know. There's a real network effect here.
But the point is the similarity to Ivy League recruiting seems to be fairly superficial.
Also…
“Smart” and “brilliant” are all highly subjective.
Pride and ego lead to an amazing amount of bias when you start to think you know “smart” when you see it.
There are no “tests” for legacy admissions and for students whose parents have donated millions.
“Smart” and “brilliant” are all highly subjective.
Pride and ego lead to an amazing amount of bias when you start to think you know “smart” when you see it.
There are no “tests” for legacy admissions and for students whose parents have donated millions.
I'd say Jobs would have blown them away. He was a businessman and an obsessive who knew when to focus on the design versus the product versus the money. If investors in his era wanted a perfect pitch deck, his pitch deck would have been perfect.
Tesla might have been more likely to focus on having the tech working at the expense of everything else.
Tesla might have been more likely to focus on having the tech working at the expense of everything else.
Nah. I know a VC that passed on Apple because Steve was 20 min late to their meeting.
Jobs also had to be convinced to not smell like a hobo before a meeting because he did not believe in showers (his fruit diet was pure!).
If he did make it to an important investor meeting, he'd sit there massaging his naked dirty feet.
Like it or not - the business world requires some level of shallow ritual you have to buy into.
If he did make it to an important investor meeting, he'd sit there massaging his naked dirty feet.
Like it or not - the business world requires some level of shallow ritual you have to buy into.
Honestly, I would have too, if I were in that VC's place. Hindsight is everything obviously but at that moment, if a founder were to arrive to an important meeting 20 minutes late without good reason, either the meeting was of little importance to the founder, or the lack of punctuality speaks volumes of his dedication to his company and his potential partners. Dave McClure once told me that he passed on Travis Kalanick for similar reasons.
If lack of punctuality being used as a signal causes these VCs to drop Steve Jobs or Travis Kalanick I think it's safe to say it doesn't speak volumes.
Otherwise you're optimizing for criteria other than "selecting whether to invest in Apple or Uber."
Otherwise you're optimizing for criteria other than "selecting whether to invest in Apple or Uber."
You're only considering the false negatives while forgetting about the true negatives. VCs don't have infinite funds at their disposal; a heuristic like "being late to a meeting leads to a rejection" can be beneficial even if the false-negative-rate is non-zero.
>Otherwise you're optimizing for criteria other than "selecting whether to invest in Apple or Uber.
They arent single-mindedly optimizing to invest in the next apple or uber at all cost! They are balancing it against the need to screen out no-name bums that look and sound the same.
They arent single-mindedly optimizing to invest in the next apple or uber at all cost! They are balancing it against the need to screen out no-name bums that look and sound the same.
All I'm saying is that a "screen out the bums" heuristic is also a "screen out some of the wealthiest companies to ever exist" heuristic then it's probably not rooted in anything other than vibes.
It is a huge amount of vibes. There is no scientific way to know the future and predict rare events. The whole VC business model isnt about having good predictions. It is about being a few percent more accurate than random chance.
If you can win a coin flip 51% of the time instead of 50, you have a viable business model.
Perfection isnt the goal.
If you can win a coin flip 51% of the time instead of 50, you have a viable business model.
Perfection isnt the goal.
That's not necessarily evidence of how he treated all VCs rather than one VC one time. (Though I'm inclined to guess it's more accurate than the idea you replied to.)
Jobs definitely didn't present himself that way, at the beginning at least:
To build the company, Jobs adroitly tapped the network of support services that has made Silicon Valley such a fertile place for fledgling businesses. Says he: “We didn’t know what the hell we were doing, but we were very careful observers and learned quickly.” Jobs pestered Regis McKenna, the area’s premier public relations specialist, to take on Apple as a client. After refusing twice, McKenna finally agreed. For advice on how to raise money, Jobs consulted both McKenna and Nolan Bushnell, his former boss at Atari. They suggested that he call Don Valentine, an investor who frequently puts money into new firms. When Valentine came around to inspect the new computer, he found Jobs wearing cutoff jeans and sandals while sporting shoulder-length hair and a Ho Chi Minh beard. Valentine later asked McKenna: “Why did you send me this renegade from the human race?”
https://time.com/3462424/the-seeds-of-success/
To build the company, Jobs adroitly tapped the network of support services that has made Silicon Valley such a fertile place for fledgling businesses. Says he: “We didn’t know what the hell we were doing, but we were very careful observers and learned quickly.” Jobs pestered Regis McKenna, the area’s premier public relations specialist, to take on Apple as a client. After refusing twice, McKenna finally agreed. For advice on how to raise money, Jobs consulted both McKenna and Nolan Bushnell, his former boss at Atari. They suggested that he call Don Valentine, an investor who frequently puts money into new firms. When Valentine came around to inspect the new computer, he found Jobs wearing cutoff jeans and sandals while sporting shoulder-length hair and a Ho Chi Minh beard. Valentine later asked McKenna: “Why did you send me this renegade from the human race?”
https://time.com/3462424/the-seeds-of-success/
I'd be curious what woz saw between garage days and apple incorporation in terms of Jobs' views about marketing/behavior/appearances.
>Jobs would have blown them away.
Looks like he did exceed everyone's expectations.
OTOH people who prefer the conventional are not likely to recognize the most promising outliers for what they are, it can go right over their head as if there was no difference from those having below-average potential.
Looks like he did exceed everyone's expectations.
OTOH people who prefer the conventional are not likely to recognize the most promising outliers for what they are, it can go right over their head as if there was no difference from those having below-average potential.
If I recall Jobs' biography correctly, that came waaay later. First he had to get thrown out of his own company, with the Apple 3 debacle.
When you become a part of their portfolio, you are becoming part of the institution. They need to trust that you’re not going to rock their boat. Taking investment means taking on a grown up attitude towards the operations of your company In many ways. So I think this is kind of intended.
I think “nepotism” might be more succinct?
Nepotism to me implies a kind of incompetence, in that people are selected purely for their relationship to the decision maker. I don’t think these people are generally incompetent at all, although certainly some exceptions exist. It’s more that the filtering mechanism eliminates anyone that doesn’t color in the lines exactly.
I don't think it implies incompetence, but rather, an ability to not know the world outside of the one that was made for the recipient of the nepotism.
I grew up in a fabulously wealthy suburb of NYC, a town often dubbed the "hedge fund capital of the world". I went to school with the kids of people who managed or worked at some of these funds, or worked on Wall Street. These kids were not and are not dumb, let alone incompetant by any stretch. I'm talking top scores on SAT & AP exams, Ivy League acceptance, Consulting/Banking internships, and top tier jobs out of college. Some extremely book smart people, and some with a degree of street smarts too. They all ended up working for the same types of businesses their peers and parents worked at. People would hire their golfing buddy's kids without blinking.
However, there's something these kids all lacked: practical real world knowledge and a complete inability to see outside their biases and inability to perceive outside of their bubble. It's not on them though, not at all - it's just how their experiences shaped them.
It takes an outsider to see the value in another outsider. Insiders are clouded by their own experiences that they can't understand disruption or change in an unknown way.
That same disruption or change is what oftentimes makes for startups whose early investors see insane returns.
I grew up in a fabulously wealthy suburb of NYC, a town often dubbed the "hedge fund capital of the world". I went to school with the kids of people who managed or worked at some of these funds, or worked on Wall Street. These kids were not and are not dumb, let alone incompetant by any stretch. I'm talking top scores on SAT & AP exams, Ivy League acceptance, Consulting/Banking internships, and top tier jobs out of college. Some extremely book smart people, and some with a degree of street smarts too. They all ended up working for the same types of businesses their peers and parents worked at. People would hire their golfing buddy's kids without blinking.
However, there's something these kids all lacked: practical real world knowledge and a complete inability to see outside their biases and inability to perceive outside of their bubble. It's not on them though, not at all - it's just how their experiences shaped them.
It takes an outsider to see the value in another outsider. Insiders are clouded by their own experiences that they can't understand disruption or change in an unknown way.
That same disruption or change is what oftentimes makes for startups whose early investors see insane returns.
First I’d like to thank you for the thoughtful, introspective, self-aware comment.
I have no grievance with people who had slightly better starting conditions than others. My background wasn’t exactly fun but I didn’t grow up in the same postal code as Easy E, a lot of people have it a lot worse than being pushed around as a kid. My childhood was like: “you’re on your own”.
My ex-wife’s background was a horror film, an Ellis novel and she cleanly tests 185-ish on proctored Stanford-Binet. I’m at least somewhat aware of the difference.
What I have an issue with is the fungibility of one’s parent’s or lover’s or advocates wealth into further capture. That’s the thing I’ll be running for office to make not only a felony but one that gets enforced.
You sound like a cool person who is aware you supplied two of three ingredients around success: long hours and table stakes, but my quasi-informed read of your remarks is that you paid that rake.
It also sounds like you understand good cards tend to be the dominant term, and I find that even more noteworthy and admirable than the first two.
Good day Sir or Madame.
I have no grievance with people who had slightly better starting conditions than others. My background wasn’t exactly fun but I didn’t grow up in the same postal code as Easy E, a lot of people have it a lot worse than being pushed around as a kid. My childhood was like: “you’re on your own”.
My ex-wife’s background was a horror film, an Ellis novel and she cleanly tests 185-ish on proctored Stanford-Binet. I’m at least somewhat aware of the difference.
What I have an issue with is the fungibility of one’s parent’s or lover’s or advocates wealth into further capture. That’s the thing I’ll be running for office to make not only a felony but one that gets enforced.
You sound like a cool person who is aware you supplied two of three ingredients around success: long hours and table stakes, but my quasi-informed read of your remarks is that you paid that rake.
It also sounds like you understand good cards tend to be the dominant term, and I find that even more noteworthy and admirable than the first two.
Good day Sir or Madame.
First off, I appreciate your comment. I rarely see such expressions of thanks on HN, so having one directed at a comment I made actually makes my day.
Re: starting off from different conditions - it's the world we live in, and it's inherent in people who have found success (for the most part) - if I have the means to give my kids the best chance for success, why wouldn't I do so? If that means making sure they go to a good school, or get a good job, or a loan to start a business, by all means, it's a no-brainer.
>What I have an issue with is the fungibility of one’s parent’s or lover’s or advocates wealth into further capture. That’s the thing I’ll be running for office to make not only a felony but one that gets enforced.
Agree 110%. You've got my vote (and donation, when you have a campaign and I have money to donate). Question is though, what are the mechanisms for catching this, much less enforcing it? It's one thing to be one of those multi-billionaires who send their kids to the best private schools, but at the same time take advantage of every tax loophole, lobby politicians to slash public education. It's another thing to be moderately successful and do right by society, yet also do one's best to make sure their offspring get every chance to succeed. Success does beget success (in most cases) so policing it is tough IMO but a worthwhile goal.
I'm paraphrasing the Prof G podcast here, but the system needs to really do 2 things. 1. Make sure the people that society would typically forget about (the bottom 90%) get a chance to enter the top 10%, and 2. for the top 10% to produce someone who enters the top .0001% who then makes enough money that taxing that person (or persons) helps #1.
>You sound like a cool person who is aware you supplied two of three ingredients around success: long hours and table stakes, but my quasi-informed read of your remarks is that you paid that rake.
Thank you. I was definitely supplied a lot by my parents, who raised a large family and my mom never had to work (for money - she still had to raise 4 kids, 2 adopted kids, a whole bunch of neighbors, and a dog). My dad worked his ass off and did well for himself, and for his community. Of course, he also had a great start in life (his father was a very successful surgeon) and was afforded top opportunities. The respect for him doesn't change though. I have put in my time, and dealt with a lot of BS, but hopefully one day I'll make it. That said, I also was born with crippling ADHD and am somewhere on the ASD spectrum, so it ain't all roses and sunshine - I barely passed through school and didn't get a good job. But I'm aware of where I came from, and how that influences my worldview. Some of my age-group peers who are doing much better than me financially and socially don't have that awareness, or are blind to the inherent biases that come from it. Odd, but I guess that's how it is.
>It also sounds like you understand good cards tend to be the dominant term, and I find that even more noteworthy and admirable than the first two.
It is what it is! I realize how lucky I was to be brought up when, where and how I did. Some don't, and those tend to be people that get suckered into crazy political beliefs or those that have no idea how society actually is versus how they think it is. Sad, but again, that's just how it is.
Good day to you as well; when you stop by my city to campaign, I will buy you coffee.
Re: starting off from different conditions - it's the world we live in, and it's inherent in people who have found success (for the most part) - if I have the means to give my kids the best chance for success, why wouldn't I do so? If that means making sure they go to a good school, or get a good job, or a loan to start a business, by all means, it's a no-brainer.
>What I have an issue with is the fungibility of one’s parent’s or lover’s or advocates wealth into further capture. That’s the thing I’ll be running for office to make not only a felony but one that gets enforced.
Agree 110%. You've got my vote (and donation, when you have a campaign and I have money to donate). Question is though, what are the mechanisms for catching this, much less enforcing it? It's one thing to be one of those multi-billionaires who send their kids to the best private schools, but at the same time take advantage of every tax loophole, lobby politicians to slash public education. It's another thing to be moderately successful and do right by society, yet also do one's best to make sure their offspring get every chance to succeed. Success does beget success (in most cases) so policing it is tough IMO but a worthwhile goal.
I'm paraphrasing the Prof G podcast here, but the system needs to really do 2 things. 1. Make sure the people that society would typically forget about (the bottom 90%) get a chance to enter the top 10%, and 2. for the top 10% to produce someone who enters the top .0001% who then makes enough money that taxing that person (or persons) helps #1.
>You sound like a cool person who is aware you supplied two of three ingredients around success: long hours and table stakes, but my quasi-informed read of your remarks is that you paid that rake.
Thank you. I was definitely supplied a lot by my parents, who raised a large family and my mom never had to work (for money - she still had to raise 4 kids, 2 adopted kids, a whole bunch of neighbors, and a dog). My dad worked his ass off and did well for himself, and for his community. Of course, he also had a great start in life (his father was a very successful surgeon) and was afforded top opportunities. The respect for him doesn't change though. I have put in my time, and dealt with a lot of BS, but hopefully one day I'll make it. That said, I also was born with crippling ADHD and am somewhere on the ASD spectrum, so it ain't all roses and sunshine - I barely passed through school and didn't get a good job. But I'm aware of where I came from, and how that influences my worldview. Some of my age-group peers who are doing much better than me financially and socially don't have that awareness, or are blind to the inherent biases that come from it. Odd, but I guess that's how it is.
>It also sounds like you understand good cards tend to be the dominant term, and I find that even more noteworthy and admirable than the first two.
It is what it is! I realize how lucky I was to be brought up when, where and how I did. Some don't, and those tend to be people that get suckered into crazy political beliefs or those that have no idea how society actually is versus how they think it is. Sad, but again, that's just how it is.
Good day to you as well; when you stop by my city to campaign, I will buy you coffee.
I express some pretty controversial opinions on HN and a few other places where people even sometimes listen to aggressive criticism of the status quo, and it’s kind of part of the package deal that when you walk away from the big time over an objection of conscience, you’re probably pretty passionate about it. I’ve chosen to embrace some pretty contentious relationships with some of the most powerful people in the world because even a few years of living large at the expense (in my opinion) of the public welfare was making me physically ill. Those folks for the most part have chosen to hit back much harder with their much greater resources, but be very careful to make the more vulnerable party by far appear to be the aggressor. There are just limits to how much a guy who walked away from the FAANG pay can menace a C-suite executive or board member at a major corporation.
I try hard to leaven an attitude and articulation around this that depending on one’s taste starts at “passionate” and it’s not ridiculous to call it “strident” or maybe even “toxic” or something with acknowledging thoughtful, public-minded comments like yours at every opportunity.
I would like to acknowledge that you’re very articulate and clearly ethically-motivated remarks and attitude created an opportunity for me to be thoughtful and reasonable in spite of being very frustrated with the status quo, which is not an opportunity afforded on every thread for someone who is engaged in what amounts to some level of “civil disobedience”.
I think everything you’ve said is eminently reasonable, though even describing a position on these topics implies some different difficult dilemmas, many of which you pointed out.
I’d very much like to continue this conversation as it’s one of the most productive I’ve found on the Internet in recent memory, but arbitrarily nesting the thread without more expressed interest from the community is probably pushing it.
If you’d also like to kick the tires on some of these conundrums in a bit more detail, please email me at [email protected] and I will make an effort to reply promptly!
Either way, thank you for raising the bar on the conversation: you pulled my level of debate up, and I doubt I’m alone in that.
I try hard to leaven an attitude and articulation around this that depending on one’s taste starts at “passionate” and it’s not ridiculous to call it “strident” or maybe even “toxic” or something with acknowledging thoughtful, public-minded comments like yours at every opportunity.
I would like to acknowledge that you’re very articulate and clearly ethically-motivated remarks and attitude created an opportunity for me to be thoughtful and reasonable in spite of being very frustrated with the status quo, which is not an opportunity afforded on every thread for someone who is engaged in what amounts to some level of “civil disobedience”.
I think everything you’ve said is eminently reasonable, though even describing a position on these topics implies some different difficult dilemmas, many of which you pointed out.
I’d very much like to continue this conversation as it’s one of the most productive I’ve found on the Internet in recent memory, but arbitrarily nesting the thread without more expressed interest from the community is probably pushing it.
If you’d also like to kick the tires on some of these conundrums in a bit more detail, please email me at [email protected] and I will make an effort to reply promptly!
Either way, thank you for raising the bar on the conversation: you pulled my level of debate up, and I doubt I’m alone in that.
With the exception of Jack Dorsey and Mike Krieger, every tech zillionaire I’ve spent time with is distressingly incompetent.
I appreciate that as Palmer Luckey can tell you, this is now an industry driven entirely by fear of reprisal by people lacking in competence.
So let’s add criminal corruption.
Don’t take my word for it, Carmack publicly expressed regret at not fighting it harder.
And on hacker news? I don’t really care if someone disagrees with Engine John.
So let’s add criminal corruption.
Don’t take my word for it, Carmack publicly expressed regret at not fighting it harder.
And on hacker news? I don’t really care if someone disagrees with Engine John.
Yeah pretty much
So much that playing videogames during a VC meeting can swing them the "right way" if you fit the structure enough
So much that playing videogames during a VC meeting can swing them the "right way" if you fit the structure enough
In case anyone doesn't know this reference:
https://www.businessinsider.com/ftx-sam-bankman-fried-league...
https://www.businessinsider.com/ftx-sam-bankman-fried-league...
“I LOVE THIS FOUNDER,” “I am a 10 out of 10,”
He was even featured on the Forbes under 30!
You can say a lot of shit about this person. But this is so inspiring. Like, this is a good example for young people out there. You don't have to change your ways for boomers even though they have a lot of money you need.
The lesson I got here is just be you. Let others change for you.
And do not fuck with the IRS in any circumstances.
The lesson I got here is just be you. Let others change for you.
And do not fuck with the IRS in any circumstances.
SBF was able to fit the image of the boy genius that the partners at the VCs (who mostly were probably not boomers) were looking for, while still coming off as "one of them."
They thought that the crazy hair and the video game stuff was an act meant to project an image to the world, and the real SBF was Stanford and Jane Street.
They thought that the crazy hair and the video game stuff was an act meant to project an image to the world, and the real SBF was Stanford and Jane Street.
The real SBF was Stanford and Jane Street
> I can't imagine
Try imagining harder. (Or just google :-)
Sequoia was their first VC. Got the Apple II off the ground.
Try imagining harder. (Or just google :-)
Sequoia was their first VC. Got the Apple II off the ground.
First off, there is another comment in this thread talking about how that almost didn’t happen.
Secondly, I’m talking about VCs today. Do you think VCs today act the exact same way they did 50 years ago? The industry has grown dramatically since then.
Secondly, I’m talking about VCs today. Do you think VCs today act the exact same way they did 50 years ago? The industry has grown dramatically since then.
You don’t think Jobs would have noticed the wrong date on the pitch deck? I was under the impression he was fairly obsessive with attention to detail.
There are SO MANY VCs and every VC is different. if your idea is truly great there is probably one whose investment thesis is aligned with your idea
> The way VCs filter out potential investments seems fairly similar to the way Ivy League schools filter out potential students. (Probably because they are comprised of the same people.) It is not really about technical brilliance, or innovation, or anything that is written on their website as a core value. It's more about whether you're smart enough and can follow instructions and fit into the overarching institutional structure of school and work.
Its the same for the entire education system as Chomsky explains: It seeks to educate people smart enough to do what they are told, but dumb enough to not question it.
Its the same for the entire education system as Chomsky explains: It seeks to educate people smart enough to do what they are told, but dumb enough to not question it.
The problem with the “signal” is that it’s based on pretty much nothing. It is just as valid or nuts as any other ad hoc random tea leaves & chicken bones “signal” someone decides to come up with a dubious justification for. Whether the deck said March, April, or May changed absolutely nothing about the underlying business and thus also nothing about the actual investment opportunity.
Maybe they made the deck two months ago and spent the last two months prosecuting pipeline and closing deals? Maybe they didn’t have a great investor network, so it took them a month or two to even be talking to the right investors (which more often than not is actually what’s important, and only superficially any given pitch or deck)? Maybe the VC in question was their first choice once they learned they existed and what their thesis is?
It’s absolutely true that VCs aren’t your friends. They’re middlemen for distributing other people’s money who pick winners at such a low success rate that one could be forgiven for wondering if random lottery might do just as well.
In terms of actual performance and criteria, they’re more like clergy. There are various performative religious traditions and ceremonies that have to be serviced and abided if one is to have any hope of them bestowing their blessings.
Maybe they made the deck two months ago and spent the last two months prosecuting pipeline and closing deals? Maybe they didn’t have a great investor network, so it took them a month or two to even be talking to the right investors (which more often than not is actually what’s important, and only superficially any given pitch or deck)? Maybe the VC in question was their first choice once they learned they existed and what their thesis is?
It’s absolutely true that VCs aren’t your friends. They’re middlemen for distributing other people’s money who pick winners at such a low success rate that one could be forgiven for wondering if random lottery might do just as well.
In terms of actual performance and criteria, they’re more like clergy. There are various performative religious traditions and ceremonies that have to be serviced and abided if one is to have any hope of them bestowing their blessings.
The deck from March says that they have been sending the deck around since March, and are still looking for investments. It might be meaningful, but would have to measure how quickly the typical funding rounds are made for successful companies, to have an "academic" argument about it. However it doesn't really matter, a VC can invest for whatever reasons he wants.
> The deck from March says that they have been sending the deck around since March, and are still looking for investments
You're assuming that most businesses seeking VC money are fundraising full-time.
I read this and assumed that the founder was was working on building their business full-time and passively looking for VC. For example, they might not be ready to do active fundraising, but want to "dip their toe" into VC so they're much better prepared in 6-24 months when they are ready to actively raise money?
The attention that a business needs gives to fundraising really depends on what the business is, and how well organic growth helps them now.
You're assuming that most businesses seeking VC money are fundraising full-time.
I read this and assumed that the founder was was working on building their business full-time and passively looking for VC. For example, they might not be ready to do active fundraising, but want to "dip their toe" into VC so they're much better prepared in 6-24 months when they are ready to actively raise money?
The attention that a business needs gives to fundraising really depends on what the business is, and how well organic growth helps them now.
Also the fact they haven't updated their deck in April/May means they didn't have any huge growth in march/april/may to brag about, or even they had bad march/april/may results that they want to hide
Whatever the reason. The VC objection is nonsense of the fortune cookie wisdom variety. We (venture backed founders) tolerate it because we need the inane spiritual blessings of these dubious kingmakers to make our world go around. So we smile, nod, grit our teeth, and move on to the next one. But none of them are secret geniuses with a unique skill to predict the future based on random made up nonsensical “signals”.
They’re herd animals where survivorship bias has a reinforcing function until a point where being luckiest longest makes it possible to put a finger on the scale of outcomes to make raising subsequent funds easier, makes it possible to set the trend the herd follows, and makes it possible to somewhat curate outcomes (“soft landings” instead of insolvency) for your portfolio.
Every single unicorn and/or significantly exited startup has a pile of VC rejections that’s miles high. The trick as the founder is to just figure out how to find better aligned investors. Typically ones who aren’t high on the ego trip of being an accidental kingmaker. Take the “feedback” like that of the VC in the post for what it is… complete nonsense from someone who’s accidentally successful enough to get away with such a silly criteria because nobody wants to insult the cult clergy to their face in case you might need their blessings at some point yourself… and move on.
Successfully raising money is first an exercise in qualifying who the right investors/funds are for what you’re doing as a venture and second it’s an exercise in number of shots on goal you can make in as short a period as possible until you find one, “Yes”. Full stop.
They’re herd animals where survivorship bias has a reinforcing function until a point where being luckiest longest makes it possible to put a finger on the scale of outcomes to make raising subsequent funds easier, makes it possible to set the trend the herd follows, and makes it possible to somewhat curate outcomes (“soft landings” instead of insolvency) for your portfolio.
Every single unicorn and/or significantly exited startup has a pile of VC rejections that’s miles high. The trick as the founder is to just figure out how to find better aligned investors. Typically ones who aren’t high on the ego trip of being an accidental kingmaker. Take the “feedback” like that of the VC in the post for what it is… complete nonsense from someone who’s accidentally successful enough to get away with such a silly criteria because nobody wants to insult the cult clergy to their face in case you might need their blessings at some point yourself… and move on.
Successfully raising money is first an exercise in qualifying who the right investors/funds are for what you’re doing as a venture and second it’s an exercise in number of shots on goal you can make in as short a period as possible until you find one, “Yes”. Full stop.
Sure, they'd be better off just using a good source of randomness to pick the lucky ones, because then they wouldn't be self-deluding about having special insight.
Most business founders don’t need VC money and are worse off for taking VC money.
I find the mindset “my pitch deck was 2 months old so I didn’t get funding” very out of touch of business realities. It is far more likely that that type of business doesn’t need VC funding. Your SaaS can probably be built with your daytime developer salary. No VC ever says “wow, what a great investment opportunity, one of the best, but the slides were old”. You don’t even need the slides, or the rehearsed elevator pitch. Just build a business that’s worth VC money (solid, profitable, and ready to scale up) if you absolutely insist on it.
I find the mindset “my pitch deck was 2 months old so I didn’t get funding” very out of touch of business realities. It is far more likely that that type of business doesn’t need VC funding. Your SaaS can probably be built with your daytime developer salary. No VC ever says “wow, what a great investment opportunity, one of the best, but the slides were old”. You don’t even need the slides, or the rehearsed elevator pitch. Just build a business that’s worth VC money (solid, profitable, and ready to scale up) if you absolutely insist on it.
As someone who took more than a year off to build his SaaS - the days of stitching together a prototype at night are pretty much over. You need to be an incredible hustler and have a really good insight into a desperate business need.
Customers today expect polish and few bugs right out of the gate. I spent months on polish alone. If you don't, your product is going to be savaged like this:
"Former Yahoo CEO Marissa Mayer’s New Photo-Sharing App Has a Design From the Stone Age"
https://gizmodo.com/marissa-mayer-new-app-shine-photo-sharin...
Customers today expect polish and few bugs right out of the gate. I spent months on polish alone. If you don't, your product is going to be savaged like this:
"Former Yahoo CEO Marissa Mayer’s New Photo-Sharing App Has a Design From the Stone Age"
https://gizmodo.com/marissa-mayer-new-app-shine-photo-sharin...
> ... the days of stitching together a prototype at night are pretty much over. You need to be an incredible hustler and have a really good insight into a desperate business need.
I'll take that as a compliment.. as someone that took nights to build a SaaS product solo into a multi-million dollar business (and still do it solo).
I'll take that as a compliment.. as someone that took nights to build a SaaS product solo into a multi-million dollar business (and still do it solo).
Before: I had no idea this app existed.
Now: I know this app existed.
Having no polish can't be worse than having no app.
Now: I know this app existed.
Having no polish can't be worse than having no app.
How’s your SaaS doing now, if you don’t mind my asking?
friendlyfire.tech is pretty much dormant :)
The benefit of being bootstrapped, of course, is that it's designed with costs in mind, so I don't spend more on hosting than I do on my Netflix subscription.
The benefit of being bootstrapped, of course, is that it's designed with costs in mind, so I don't spend more on hosting than I do on my Netflix subscription.
The fact that writer Jody Serrano is trying to take down another women Marissa has very little to do with polish of the app. Look at OpenAI design.. it's not much better and it doesn't matter.
That article follows a long standing tradition of women attacking other women in power based on appearance to try to elevate themselves. No insight on polishing trends can be learned here.
That article follows a long standing tradition of women attacking other women in power based on appearance to try to elevate themselves. No insight on polishing trends can be learned here.
> Your SaaS can probably be built with your daytime developer salary
Sure. But from experience it takes 3x as long.
After a long day of coding it’s not fun to come home and do another 8 hours.
Sure. But from experience it takes 3x as long.
After a long day of coding it’s not fun to come home and do another 8 hours.
Even if you love what you do at your day job... The cobbler's kids go without shoes, and the chef's fridge is full of condiments & takeout boxes.
The first thing to go is your social life closely followed by your health.
Bootstrapping is in my opinion much harder than VC backed.
Bootstrapping is in my opinion much harder than VC backed.
The constant feeling of small wins keeps you going
When you finally take 1 day a month off and look down from 10,000 feet up
The reality of how things are going is gloomy
It might also help if you can mentally spin things to be more boomy. Optimists in the house
When you finally take 1 day a month off and look down from 10,000 feet up
The reality of how things are going is gloomy
It might also help if you can mentally spin things to be more boomy. Optimists in the house
I'm hopeful for this silicon valley downturn because while I think you're right that most software business plans are capital-light and could be bootstrapped, the problem with the boom times is that if you try to bootstrap and validate any market you will have a VC-funded competitor come along and blitzscale right over the top of you.
Profitability is optional.
Profitable companies attract much more VC interest and even competition.
Doesn't a VC make money from valuation, not profitability. A profitable business has either reached market potential, or isn't spending enough on growth. Anecdotally I can think of many more examples of unprofitable businesses getting VC money.
> Doesn't a VC make money from valuation, not profitability
Sure, but if the business is profitable that means it works. Now the investment can be spent on bending the curve up (e.g. hire more salespeople that could have been afforded from the company’s revenue alone) rather than the more risky approach of spending the money to see if the product will make it at all.
> A profitable business has either reached market potential, or isn't spending enough on growth.
This is a naïve view from the SaaS era propagated by SaaS and consumer app investors. Does not apply to most businesses and applied to none of the biggest companies today like Microsoft, Apple, NVIDIA, Google, et al.
Look at google: no, it wasn’t profitable (no revenue or even revenue model) but had huge uptake by the nerds without any effort to market it.
> Anecdotally I can think of many more examples of unprofitable businesses getting VC money.
Sure, several of my own companies were funded in this mode. But that capital was more expensive because it was used figuring out if the tech would work and if there were actually customers for the product.
Sure, but if the business is profitable that means it works. Now the investment can be spent on bending the curve up (e.g. hire more salespeople that could have been afforded from the company’s revenue alone) rather than the more risky approach of spending the money to see if the product will make it at all.
> A profitable business has either reached market potential, or isn't spending enough on growth.
This is a naïve view from the SaaS era propagated by SaaS and consumer app investors. Does not apply to most businesses and applied to none of the biggest companies today like Microsoft, Apple, NVIDIA, Google, et al.
Look at google: no, it wasn’t profitable (no revenue or even revenue model) but had huge uptake by the nerds without any effort to market it.
> Anecdotally I can think of many more examples of unprofitable businesses getting VC money.
Sure, several of my own companies were funded in this mode. But that capital was more expensive because it was used figuring out if the tech would work and if there were actually customers for the product.
> A profitable business has either reached market potential, or isn't spending enough on growth.
Yes, but spending money on growth is probably the number one thing VCs like to invest in. If you happen to be profitable, but also can demonstrate a clear path to growth, then VCs will lean in.
Yes, but spending money on growth is probably the number one thing VCs like to invest in. If you happen to be profitable, but also can demonstrate a clear path to growth, then VCs will lean in.
Not counting their 2% annual maintenance fee, a VC makes money from buying shares low, selling them high, and keeping 20% of the high price minus the low price. So yes, they make money if the valuation is higher than the when they bought it.
Example:
- buy 1 million shares at $1.
- sell 1 million shares for $101.
- (101 - 1) * 1_000_000 = 100_000_000
- 100_000_000 * 0.2 = VC gain of 20_000_000
Example:
- buy 1 million shares at $1.
- sell 1 million shares for $101.
- (101 - 1) * 1_000_000 = 100_000_000
- 100_000_000 * 0.2 = VC gain of 20_000_000
Yeah that's why all large startups are bootstrapped
I think the argument would also be that you don't need a "large" startup to get something done.
In transactional financial markets "friends" is not the right word, but there is something to be said about more or less effective alignment of interests and that is purely a matter of design.
There is more than enough money sloshing around, it all boils down to designing contracts and suitable information exchanges between parties. So anybody thinking that the current system is sub-obtimal can try their hand at disrupting the VC system and making history :-)
An arrangement that better utilizes the majority of the entrepreneurial crowd's energy and time is likely to at least carve a niche, if not dominate. It may not even be that hard. The chasing of planet-scale returns (with the corresponding discounting of the rest 99.99%) is a recent phenomenon and may be just an aberration.
There is more than enough money sloshing around, it all boils down to designing contracts and suitable information exchanges between parties. So anybody thinking that the current system is sub-obtimal can try their hand at disrupting the VC system and making history :-)
An arrangement that better utilizes the majority of the entrepreneurial crowd's energy and time is likely to at least carve a niche, if not dominate. It may not even be that hard. The chasing of planet-scale returns (with the corresponding discounting of the rest 99.99%) is a recent phenomenon and may be just an aberration.
To carve any niche in a space like this, one needs extensive personal connections, money of their own to apply and put in the game, time to spend on it, and the belief that this is the best use of all of it.
It may well be that far better arrangements exist, but how would a slumdog or a small time farmer or a stay at home parent ever get the ball rolling? Who would play ball with them?
It would pretty much require that an existing VC or an empowered member of their ecosystem have the idea and see a path to it enriching themselves in order for them to spend time on it.
This is a major issue with pure market maximalism like the above: not everyone has agency within and access to every market, and no agent within a market would just let it change unless they personally stand to gain. Many potential solutions pass through empowerment or enrichment of different groups than those currently holding the reins, and this may mean those solutions are impossible to explore.
It may well be that far better arrangements exist, but how would a slumdog or a small time farmer or a stay at home parent ever get the ball rolling? Who would play ball with them?
It would pretty much require that an existing VC or an empowered member of their ecosystem have the idea and see a path to it enriching themselves in order for them to spend time on it.
This is a major issue with pure market maximalism like the above: not everyone has agency within and access to every market, and no agent within a market would just let it change unless they personally stand to gain. Many potential solutions pass through empowerment or enrichment of different groups than those currently holding the reins, and this may mean those solutions are impossible to explore.
> money sloshing around
Meta-comment: What a creative and effective word picture. In just 3 words there's so much information that instantly comes across.
Meta-comment: What a creative and effective word picture. In just 3 words there's so much information that instantly comes across.
Financial accountants have a line item for not being a dick. It’s called “goodwill”. No shit.
Goodwill is like dark matter; they have to account for value increases or decreases when doing double entry bookkeeping so they invented goodwill for that.
The trivial necessity of valuing the intangible of being well-liked by one’s customers and partners has nothing to do with positing definitionally unobservable mass.
The cost and effort and intellectual integrity burnt on linking that mass to bosonic super partners even after a six sigma result at CERN on scalar field excitation at 125 GeV was found exactly as everyone knew it would be without a squark in sight is very on brand for what passes as rigor around here these days.
The cost and effort and intellectual integrity burnt on linking that mass to bosonic super partners even after a six sigma result at CERN on scalar field excitation at 125 GeV was found exactly as everyone knew it would be without a squark in sight is very on brand for what passes as rigor around here these days.
Ha ha, this is both hilarious and so true!
I do not know who Jason lemkins is but he seems like a random small fry saying bullshit to gain some clout.
I have worked with bigger vc firms such as matrix partners and they genuinely care about you and want your startup to succeed if they are interested.
Trick is to make something which is genuinely cool and matches with the thesis and talk to vcs who are respectable.
Yc is a great help in this regard. They help you understand which vcs are respectable and which vcs you should treat like mushrooms: feed them shit and keep them in the dark.
Lemkins seems like a mushroom.
I have worked with bigger vc firms such as matrix partners and they genuinely care about you and want your startup to succeed if they are interested.
Trick is to make something which is genuinely cool and matches with the thesis and talk to vcs who are respectable.
Yc is a great help in this regard. They help you understand which vcs are respectable and which vcs you should treat like mushrooms: feed them shit and keep them in the dark.
Lemkins seems like a mushroom.
I love this blog post about why Jason Lemkin’s post about passing on a pitch because the pitch deck said March instead of May is a good and normal post. Without this informative content we would not know that Jason Lemkin‘s post was not at all off putting or ridiculous, and we are rightfully brought up to speed on how cool it was, in fact.
Also, "caused an outrage" apparently means "barely got any traction". <200 likes, barely any retweets, even the 30 or so replies weren't as confrontational as I was lead to believe by that intro.
I guess "VC was wrong and nobody really gave a shit" doesn't have the same ring to it.
I guess "VC was wrong and nobody really gave a shit" doesn't have the same ring to it.
>I guess "VC was wrong and nobody really gave a shit" doesn't have the same ring to it.
This is a good point. When something looks like Jason Lemkin posting something ridiculous on social media, it is actually an opportunity for us to learn of both his fame and the normalcy of his opinions, as well as to be reminded of the high portion of VCs that are good human beings.
This is a good point. When something looks like Jason Lemkin posting something ridiculous on social media, it is actually an opportunity for us to learn of both his fame and the normalcy of his opinions, as well as to be reminded of the high portion of VCs that are good human beings.
Some people will give a shit, some won't. I've met VCs that would scoff at Jason for trivial stuff like that, while I've met others that would agree with him - and maybe be even rigid about "small stuff".
My experience is that if the VC is someone who has background from finance, consulting, or law, then they are more likely to lose their minds over superficial stuff like logo placement, font consistency, alignment of images / tables / etc., and of course consistency in dates etc. - probably because that's all they did during their formative years in their respective industries.
Second point: There's a bunch of VCs out there with the only qualification of
A) Having founded / led a successful startup
B) Having invested in startups during the ZIRP-era
So while you have some tremendously good VCs that have stood the test of time, and have "seen it all", there are also VCs that will be washed away the next few years. So don't take it personally if / when some VC will decline you and and be all preachy about it.
Last point: Some of these stories are just made-up BS to generate content and thoughts. Half of the stuff VCs write on LinkedIn or Twitter seems to be fiction, for the sake of getting a point through to their listeners. Also keep that in mind.
My experience is that if the VC is someone who has background from finance, consulting, or law, then they are more likely to lose their minds over superficial stuff like logo placement, font consistency, alignment of images / tables / etc., and of course consistency in dates etc. - probably because that's all they did during their formative years in their respective industries.
Second point: There's a bunch of VCs out there with the only qualification of
A) Having founded / led a successful startup
B) Having invested in startups during the ZIRP-era
So while you have some tremendously good VCs that have stood the test of time, and have "seen it all", there are also VCs that will be washed away the next few years. So don't take it personally if / when some VC will decline you and and be all preachy about it.
Last point: Some of these stories are just made-up BS to generate content and thoughts. Half of the stuff VCs write on LinkedIn or Twitter seems to be fiction, for the sake of getting a point through to their listeners. Also keep that in mind.
In so many ways raising funding is just like applying for a job. Here's what I can do, give me money.
The only difference is that the VC pays you your salary (and all your other expenses) in advance. And let's you keep some of the upside. By contrast an employer pays you a salary, and your (work) expenses as you go.
The VC "implies" by their funding how long your contract is. The employee goes "forever".
So all the things that apply to job-hunting apply to VC funding (Amplified). And make no mistake, the VC becomes your boss.
Once you understand it in these terms you can best evaluate if VC funding is for you.
The only difference is that the VC pays you your salary (and all your other expenses) in advance. And let's you keep some of the upside. By contrast an employer pays you a salary, and your (work) expenses as you go.
The VC "implies" by their funding how long your contract is. The employee goes "forever".
So all the things that apply to job-hunting apply to VC funding (Amplified). And make no mistake, the VC becomes your boss.
Once you understand it in these terms you can best evaluate if VC funding is for you.
> the VC becomes your boss
Only if you give them board control.
Only if you give them board control.
… Or if you expect to ever raise money again.
Not exactly correct, you are now partners. You own X% of the company and they own Y%. If you want to continue raising you better not be that guy that is constantly fighting with their partners... but your partners are definitely not your bosses.
If someone gives you money, they become your boss
Want to test that? I will volunteer to be the recipient.
The tone of the post just reminds me of how frustrating interviewing for a (software engineering) job is: Many rejections are arbitrary and the best advice is to just keep applying.
In this case, I suspect Jason assumes that every business should be 110% focused on fundraising. Well, businesses are trying to run their business! The goal is to run the business, the pitch is a tool, not the goal.
The same thing applies to finding a (software engineering) job: Candidates have life obligations and can't dedicate 110% of their time to pleasing a single interviewer. The goal is to demonstrate that you can do a job, the interview isn't the job itself.
In this case, I suspect Jason assumes that every business should be 110% focused on fundraising. Well, businesses are trying to run their business! The goal is to run the business, the pitch is a tool, not the goal.
The same thing applies to finding a (software engineering) job: Candidates have life obligations and can't dedicate 110% of their time to pleasing a single interviewer. The goal is to demonstrate that you can do a job, the interview isn't the job itself.
For folks that are working on a product right now, given the incentive structures behind venture capital, are there genuine reasons to pursue that kind of money? Let me rephrase: How many folks out there are searching for for some kind of niche business with enough to cover expenses and had some profit in a small scale?
I had a short experience with the music industry and the whole enterprise + VC sounds the same dynamic between artists and record labels back in the day, where was not enough to play in local bars and have a steady presence there, but everyone wanna to be Metallica or Anthrax.
I had a short experience with the music industry and the whole enterprise + VC sounds the same dynamic between artists and record labels back in the day, where was not enough to play in local bars and have a steady presence there, but everyone wanna to be Metallica or Anthrax.
I've never heard of a musical group or artist who can make a sustainable living on just a local scene (although maybe that's rather the point, since they stayed local to wherever they are). Even for huge artists, from what I've heard merch is where the money is, not ticket or record sales (or today, streaming, which is _ludicrously_ tilted against the artist actually making any money). Admittedly I last looked into this around twenty years ago and my sample is tilted more towards the folk singer-songwriter type rather than, say, DJs.
That's not to diss local artists, though. Some are incredibly talented, and I loved the scene I was in it. Just, if we're talking about investing, making music looked like 9 times out of 10 a money sink you do for the love of it, not an investment opportunity.
That's not to diss local artists, though. Some are incredibly talented, and I loved the scene I was in it. Just, if we're talking about investing, making music looked like 9 times out of 10 a money sink you do for the love of it, not an investment opportunity.
> Even for huge artists, from what I've heard merch is where the money is, not ticket or record sales
That’s not quite true. It’s an extreme example, but Taylor Swift’s personal earnings from her current tour is expected to end up in the billions.
Back in the day, touring was something of a marketing tool to sell records, today the records are marketing for the tours (and they build hype, which yields sponsorships and so on). Merch is an important revenue stream, but a large chunk of that is sold on tour.
That’s not quite true. It’s an extreme example, but Taylor Swift’s personal earnings from her current tour is expected to end up in the billions.
Back in the day, touring was something of a marketing tool to sell records, today the records are marketing for the tours (and they build hype, which yields sponsorships and so on). Merch is an important revenue stream, but a large chunk of that is sold on tour.
That's like saying you should take VC money because you can end up being like Mark Zuckerberg. It's a 1/50'000'000 sort of case or perhaps even less likely.
I wasn’t suggesting anyone do anything, I was mostly trying to point out that large acts can make a lot of money on touring. Most make very little, if any at all.
Agreed but using examples like Taylor Swift in music is far off from focusing purely on (exited) unicorns when talking about VC. You have to look outside the 99th percentile to find generalized insights.
If you look outside the 99th percentile, you won’t find anyone living off their music career.
Plenty of musical groups make a living locally and not only pop music. If you play a classic instrument you get opportunities for festivals, parades, weddings, local shows. Joining a marching band can pay for your schooling for example.
Many classic rock bands with members in their 40/50/60s perform live, have a local following and make good money without selling CDs.
Cover bands are often local and make good coin without album sales.
Then you have musicians performing children who get paid.
You are never going to be a pop star or a VC rocketship company but few are. But you can make a solid living just performing locally.
Many classic rock bands with members in their 40/50/60s perform live, have a local following and make good money without selling CDs.
Cover bands are often local and make good coin without album sales.
Then you have musicians performing children who get paid.
You are never going to be a pop star or a VC rocketship company but few are. But you can make a solid living just performing locally.
Any business that needs up front capital needs to get it somehow. E.g. develop a medical device that has years of development, testing, and regulatory lead time. Who pays the salaries and for the laboratories and studies?
It's either: only allow companies that are already big to do new things, which they often aren't geared for in various ways, or have a mechanism to allow capital into new businesses from outside, that comes with certain expectations. You're free to decline both the capital and the expectations, of course, because this is a free agreement made between two parties.
It's either: only allow companies that are already big to do new things, which they often aren't geared for in various ways, or have a mechanism to allow capital into new businesses from outside, that comes with certain expectations. You're free to decline both the capital and the expectations, of course, because this is a free agreement made between two parties.
If you have a business that can get off the ground without funding, great. That just isn't reality for most.
There is maybe some people who raise money "because it is cool", but I would think it is in the minority. If you have a business that is profitable, you are happy with the growth, etc, there is little sense in going to the investors begging for money. The couple bootstrapped businesses I have seen didn't have much interest in raisin.
There is maybe some people who raise money "because it is cool", but I would think it is in the minority. If you have a business that is profitable, you are happy with the growth, etc, there is little sense in going to the investors begging for money. The couple bootstrapped businesses I have seen didn't have much interest in raisin.
Nobody in business is your friend. Friendship isn't about money and money isn't about friendship.
I learned that VCs aren't my friends the hard way... they stole my company from me and left me with nothing.
I discovered a promising new medical treatment- a small molecule drug with impressive experimental results. My name is on the patent and my co-inventors decided to form a startup and gave me co-ownership/stock, although I did some work to help get the company started I didn't want to leave my current job to be involved in full time running the startup at the level they were.
They got big VC funding and the VCs reformed the startup as a new company. During the pandemic lockdown, trying to work at home while parenting a toddler with no childcare, I was sent a form to sign by a new VC firm funding the company, and I was so stressed with the pandemic situation that I just trusted them and signed it without reading it.
The VCs cut me out entirely... just deleted my shares and ownership of a company based on tech I invented and patented. I can't revoke the patent rights either, because they already had a contract licensing it from my employer.
I discovered a promising new medical treatment- a small molecule drug with impressive experimental results. My name is on the patent and my co-inventors decided to form a startup and gave me co-ownership/stock, although I did some work to help get the company started I didn't want to leave my current job to be involved in full time running the startup at the level they were.
They got big VC funding and the VCs reformed the startup as a new company. During the pandemic lockdown, trying to work at home while parenting a toddler with no childcare, I was sent a form to sign by a new VC firm funding the company, and I was so stressed with the pandemic situation that I just trusted them and signed it without reading it.
The VCs cut me out entirely... just deleted my shares and ownership of a company based on tech I invented and patented. I can't revoke the patent rights either, because they already had a contract licensing it from my employer.
I heard from Reid Hoffman himself that he approached 99 VCs before he got funded.
He had two meetings in one day. The first he was asked whether it’s B2B or B2C. He said B2C and was told they only fund B2B. Then next one he said B2B but they said they only fund B2C.
Meanwhile, some startups are funded by VCs piling on, and then go bankrupt quickly.
He had two meetings in one day. The first he was asked whether it’s B2B or B2C. He said B2C and was told they only fund B2B. Then next one he said B2B but they said they only fund B2C.
Meanwhile, some startups are funded by VCs piling on, and then go bankrupt quickly.
Average for pre-seed/seed is about 80.
And there was recently a guy who did 400 investor meeting to get a single yes.
And there was recently a guy who did 400 investor meeting to get a single yes.
Carnivorous sheep - is my favourite unflattering description of VC's.
Ironically this I heard this from somebody who ultimately became one. Perhaps it's Zombie Carnivorous Sheep.
Ironically this I heard this from somebody who ultimately became one. Perhaps it's Zombie Carnivorous Sheep.
The is all "investing theater", in which stuff other than the business and product is what the VC uses to make a decision.
It's not. VCs are investment professionals and are trying to avoid adverse selection just like everyone else. Here's a relevant quote from a recent Matt Levine newsletter:
> I think that, if you had only five minutes with a world-class trader, and you asked her “teach me the essentials of trading,” probably she would spend the five minutes on adverse selection. The essential lesson is that, if you are being offered a trade, that probably means it’s a bad trade; your job is to understand that thoroughly so you can figure out the exceptions.
> I think that, if you had only five minutes with a world-class trader, and you asked her “teach me the essentials of trading,” probably she would spend the five minutes on adverse selection. The essential lesson is that, if you are being offered a trade, that probably means it’s a bad trade; your job is to understand that thoroughly so you can figure out the exceptions.
I may be betraying a certain level of cultural literacy for the bulk HN demographic but the original tweet reminds me of when popular online vixens (e.g., Instagram models) talk about “who slid into their DMs”.
Remember: if VCs believed in what they were doing they would not take a 2% annual management fee and 20% of the upside.
They’d take 40% of the upside and live on ramen noodles.
VCs make money by raising money from LPs.
They spend this money on investments which don’t look too bad if they fail, because nearly all of them fail. Looking good while losing all of your investors money on companies which go broke is the key VC skill.
Once in a while you get a huge hit. That’s a lottery win, there is no formula for finding that hit. Broad bets helps but that’s about it. The “VC thesis” is a fundraising tool, a pitch instrument, it makes no measurable difference to success. It’s a shtick.
Sympathy, however, for the VC: car dealership sized transactions paired with the diligence burdens of real finance. It’s a terrible job.
Once you understand that VC is one of the worst jobs in finance and they don’t believe most of their own story — it’s fundraising flimflam for their LPs - it’s a lot easier to negotiate.
1) we are a sound bet not to get you in trouble if we fail (good schools and track records)
2) we will work hard on things which your LPs and their lawyers understand, leaving evidence of a good effort on failure
3) we know how the game works and will play by the unwritten rules: keep up appearances
The kind of lunatics who actually stand to make money with a higher probability than average - the “Think Different” category - usually violate all of these rules.
1) they have no track record
2) they work on esoteric nonsense
3) they look weird in public
And they’re structurally uninvestable.
Once you get this it’s all a lot easier: the job of a VC is not to invest in winners, that’s a bonus.
The job of a VC is to look respectable while losing other people’s money at the roulette wheel, and taking a margin for doing so.
I hope that helps.
They’d take 40% of the upside and live on ramen noodles.
VCs make money by raising money from LPs.
They spend this money on investments which don’t look too bad if they fail, because nearly all of them fail. Looking good while losing all of your investors money on companies which go broke is the key VC skill.
Once in a while you get a huge hit. That’s a lottery win, there is no formula for finding that hit. Broad bets helps but that’s about it. The “VC thesis” is a fundraising tool, a pitch instrument, it makes no measurable difference to success. It’s a shtick.
Sympathy, however, for the VC: car dealership sized transactions paired with the diligence burdens of real finance. It’s a terrible job.
Once you understand that VC is one of the worst jobs in finance and they don’t believe most of their own story — it’s fundraising flimflam for their LPs - it’s a lot easier to negotiate.
1) we are a sound bet not to get you in trouble if we fail (good schools and track records)
2) we will work hard on things which your LPs and their lawyers understand, leaving evidence of a good effort on failure
3) we know how the game works and will play by the unwritten rules: keep up appearances
The kind of lunatics who actually stand to make money with a higher probability than average - the “Think Different” category - usually violate all of these rules.
1) they have no track record
2) they work on esoteric nonsense
3) they look weird in public
And they’re structurally uninvestable.
Once you get this it’s all a lot easier: the job of a VC is not to invest in winners, that’s a bonus.
The job of a VC is to look respectable while losing other people’s money at the roulette wheel, and taking a margin for doing so.
I hope that helps.
> Remember: if VCs believed in what they were doing they would not take a 2% annual management fee and 20% of the upside.
This makes no sense. Companies have fees, junior associates have student loans, buldings require rent to be paid.
This is a foolish sentiment, unless you would apply it to all employees everywhere. If startup employees truly believe in their company they would also take no salary at all and just live on ramen noodles.
But if you think this through you realize that employees also have costs in their lives that they need money for.
> Once you get this it’s all a lot easier: the job of a VC is not to invest in winners, that’s a bonus.
> The job of a VC is to look respectable while losing other people’s money at the roulette wheel, and taking a margin for doing so.
This really makes me question which VC firm you work at as you don't seem to understand how they work. If VC firms had no alpha then they wouldn't be able to raise a second fund at all. And you'd never see VC funds stick around.
They fact that Y combinator exists for all these years and A16Z, sequoia, etc are all around for so long indicates that they are good at their job and their job is to make returns for the LPs.
I work at a firm, i'd be happy to help you understand how these firms work as you seem to have a very outsiders view on it, i can help clear up alot of your blind spots if you want to talk!!
This makes no sense. Companies have fees, junior associates have student loans, buldings require rent to be paid.
This is a foolish sentiment, unless you would apply it to all employees everywhere. If startup employees truly believe in their company they would also take no salary at all and just live on ramen noodles.
But if you think this through you realize that employees also have costs in their lives that they need money for.
> Once you get this it’s all a lot easier: the job of a VC is not to invest in winners, that’s a bonus.
> The job of a VC is to look respectable while losing other people’s money at the roulette wheel, and taking a margin for doing so.
This really makes me question which VC firm you work at as you don't seem to understand how they work. If VC firms had no alpha then they wouldn't be able to raise a second fund at all. And you'd never see VC funds stick around.
They fact that Y combinator exists for all these years and A16Z, sequoia, etc are all around for so long indicates that they are good at their job and their job is to make returns for the LPs.
I work at a firm, i'd be happy to help you understand how these firms work as you seem to have a very outsiders view on it, i can help clear up alot of your blind spots if you want to talk!!
VC as an asset class loses money.
Within that loss, some companies do better than others.
Whether that is skill, luck or finding some way to tilt the board in your favour (political influence for example) depends on who you ask.
I have read that the statistics the distribution of success in the VC field was compatible with a random distribution with a very small skill bias.
I do not know if that analysis was accurate and it will be 10 years out of date now.
But that there are winners and losers does not mean that it is not a game of chance.
Within that loss, some companies do better than others.
Whether that is skill, luck or finding some way to tilt the board in your favour (political influence for example) depends on who you ask.
I have read that the statistics the distribution of success in the VC field was compatible with a random distribution with a very small skill bias.
I do not know if that analysis was accurate and it will be 10 years out of date now.
But that there are winners and losers does not mean that it is not a game of chance.
Do you know if those stats took into account massive economic events? Such as market crashes?
Which tend to happen at least once a decade?
People often have a point to make, and will often ignore such data to make it. To add to this, outside of honest intent prejudiced with personal bias, there are parties lookong to undermine any aspect of success the West has, by invalidating those successful models.
Which tend to happen at least once a decade?
People often have a point to make, and will often ignore such data to make it. To add to this, outside of honest intent prejudiced with personal bias, there are parties lookong to undermine any aspect of success the West has, by invalidating those successful models.
> VC as an asset class loses money.
If you're actually open to changing your mind, provide the source for this claim.
I think you'll find you're wrong by most reasonable definitions of "losing money".
If you're actually open to changing your mind, provide the source for this claim.
I think you'll find you're wrong by most reasonable definitions of "losing money".
> If startup employees truly believe in their company they would also take no salary at all and just live on ramen noodles.
Not if you have no capital -- You still have to eat and be housed and that costs a lot if you don't have family wealth or other income streams, even with a good salary.
People also naturally have different levels of risk aversion. Not everyone can/should be putting it all on red every day.
> This really makes me question which VC firm you work at as you don't seem to understand how they work. If VC firms had no alpha then they wouldn't be able to raise a second fund at all. And you'd never see VC funds stick around.
You're looking at it at the 'fund' level not the individual businesses that make up the fund. To use the roulette example, if I bet specific numbers or splits, I will expect any one of those to certainly lose, but I just need one to hit to cover the rest. Since the individual bets here are human beings and companies and not chips on a table, there's definitely an element of what the top commenter said IMO.
Not if you have no capital -- You still have to eat and be housed and that costs a lot if you don't have family wealth or other income streams, even with a good salary.
People also naturally have different levels of risk aversion. Not everyone can/should be putting it all on red every day.
> This really makes me question which VC firm you work at as you don't seem to understand how they work. If VC firms had no alpha then they wouldn't be able to raise a second fund at all. And you'd never see VC funds stick around.
You're looking at it at the 'fund' level not the individual businesses that make up the fund. To use the roulette example, if I bet specific numbers or splits, I will expect any one of those to certainly lose, but I just need one to hit to cover the rest. Since the individual bets here are human beings and companies and not chips on a table, there's definitely an element of what the top commenter said IMO.
> Not if you have no capital -- You still have to eat and be housed and that costs a lot if you don't have family wealth or other income streams, even with a good salary.
That's exactly their point; this exact same logic can be applied to VCs, too.
That's exactly their point; this exact same logic can be applied to VCs, too.
Do you mean to the employees of VCs? LPs do have capital, that's why they're LPs.
For the employees, the sentiment that you should bet on the sales pitch "I won't get you fired" over "I will make you wealthy beyond measure" still holds.
For the employees, the sentiment that you should bet on the sales pitch "I won't get you fired" over "I will make you wealthy beyond measure" still holds.
The LPs pay 2% management fee so the employees make some money regardless of the outcome, just like startup founders want to make some money even if the startup fails.
If startups had capital to coast on they wouldn't needs VCs. If VCs didn't have capital to invest they wouldn't be VCs.
One of these groups clearly has more money at the start of this arrangement and you seem to be ignoring the change in npower dynamic that creates.
One of these groups clearly has more money at the start of this arrangement and you seem to be ignoring the change in npower dynamic that creates.
There are VCs, and there are LPs. VCs do the work of finding investments and setting up funds; LPs provide the money and wait for it to grow.
Of course, from a startup perspective, both really just look like VCs. But in reality, the people working at VCs but who are not LPs are not usually rich.
Of course, from a startup perspective, both really just look like VCs. But in reality, the people working at VCs but who are not LPs are not usually rich.
Nobody who writes a comment like that wants to know why they’re wrong. “Money people bad” is their mantra. You’ll never change it, they’ve swallowed too much propaganda.
Hardly, I'm a CEO.
Is that supposed to mean something? Half of Hacker News is a startup CEO.
By your own logic, you better pay yourself a $0 salary, $0 on secondaries, and invested all your personal savings into the project, because otherwise clearly you don't believe in your own company. Right? And I hope that is also true about every one of your employees?
By your own logic, you better pay yourself a $0 salary, $0 on secondaries, and invested all your personal savings into the project, because otherwise clearly you don't believe in your own company. Right? And I hope that is also true about every one of your employees?
Check the bio.
Looks like an interesting idea.
> Check the bio.
> Mattereum
Still none the wiser.
> Mattereum
Still none the wiser.
Haha, yeah I’m still a CEO of a YC-backed company too. I wouldn’t use it as evidence of anything except that I’m capable of having a company not go bankrupt for 17 years. (Man typing that makes me feel old.)
CEOs of tech companies fall for the anti-capitalist propaganda as much as anyone, in fact maybe more. There’s always been a far-left political lean to tech. Which hey, whatever floats your boat.
CEOs of tech companies fall for the anti-capitalist propaganda as much as anyone, in fact maybe more. There’s always been a far-left political lean to tech. Which hey, whatever floats your boat.
Of a company with how many employees?
Seven years in business. Number of staff varies with the environment but we've had as many as 40 on all hands, mostly part-timers with specialised skills.
It's not a very ordinary company. Too many lawyers.
It's not a very ordinary company. Too many lawyers.
> If startup employees truly believe in their company they would also take no salary at all and just live on ramen noodles.
Yes.
Yes.
This doesn't make sense.
I worked in hedge funds, even there the management fee (2%) covers the fixed costs (legal, trading operations, treasury, IT operations, etc.) whereas the performance fee (20%) incentivises the alpha.
In VC it's even worse, because at least hedge funds are liquid. VC investments don't realize their value for 5-10 years! Are they supposed to work for free for 10 years? Even the support staff?
I worked in hedge funds, even there the management fee (2%) covers the fixed costs (legal, trading operations, treasury, IT operations, etc.) whereas the performance fee (20%) incentivises the alpha.
In VC it's even worse, because at least hedge funds are liquid. VC investments don't realize their value for 5-10 years! Are they supposed to work for free for 10 years? Even the support staff?
If they have fixed costs, why is it a percentage based fee?
Why not just be upfront with a fixed dollar value per year of fees for that part?
Why not just be upfront with a fixed dollar value per year of fees for that part?
Prices of products in general are not based on costs, they are based on what share of the cake is available to take.
Fees such as trading costs are a percentage of trading volume.
Therefore, the more money you are managing, the higher your trading costs. (i.e those costs are "fixed" but its a "fixed percentage" rather than a static number.)
Therefore, the more money you are managing, the higher your trading costs. (i.e those costs are "fixed" but its a "fixed percentage" rather than a static number.)
I highly doubt trading costs are part of the 2% management fee.
What else would they be part of? It's an operational cost.
In my experience they absolutely are part of the 2% fee. Why do you think they aren’t?
In that case, how can the rate be fixed or does that mean that the hedge fund limits its trade turn-over. In other words, if your trading fees are 0.2% and your trading volume is 10 times the capital raised, you already burned through your management fee.
That’s why they are fixed percentage not fixed. Trading fees go up with the amount of capital moved but mostly in a linear fashion.
Calculating your trading costs (and usually more importantly slippage) is absolutely table stakes for a fund that trades.
For most funds that’s relatively easy as the trading component is a cost center that you can outsource for predictable prices.
For funds that aren’t treating trades as cost centers, well it’s presumably part of what you are selling so you better be good at it.
Calculating your trading costs (and usually more importantly slippage) is absolutely table stakes for a fund that trades.
For most funds that’s relatively easy as the trading component is a cost center that you can outsource for predictable prices.
For funds that aren’t treating trades as cost centers, well it’s presumably part of what you are selling so you better be good at it.
Take 40% and raise capital for the VC operations as a separate transaction than from the LPs, of course.
Efficient markets.
Efficient markets.
How would you raise capital for operations separately from LPs? What's the upside of that for any investor? Do they get part of fund returns? Nobody is giving any kind of fund any money unless they get part of the fund returns for it.
They would take equity in the fund, of course.
So they take 40% of future portfolio returns, and then sell half of that up front in return for investment of 2% of total funds managed and end up exactly where we are now but with added complexity....
Strangely the 0.05% management fee I pay covers the fix costs of my mutual fund.
A market is very liquid and trading is cheap, and the relevant starts are publicly aggregated. Transactions for an index fund are probably billions a day in rebalancing, withdrawal, and purchases. Startup transactions take $x0,000+ in legal fees, travel costs, due diligence from domain experts, and weeks of labor for single or double digit million dollar deals. Are you seriously comparing the two?
Paul Graham, Black Swan Farming: https://paulgraham.com/swan.html
> "The two most important things to understand about startup investing, as a business, are (1) that effectively all the returns are concentrated in a few big winners, and (2) that the best ideas look initially like bad ideas."
_initially look like bad ideas_ meaning "we can't pick them out of the crowd of other bad ideas"
> "there is probably at most one company in each YC batch that will have a significant effect on our returns, and the rest are just a cost of doing business"
> "For that reason one of my most valuable memories is how lame Facebook sounded to me when I first heard about it."
> "We'll probably never be able to bring ourselves to take risks proportionate to the returns in this business."
So it's not like this model is alien to Our Kind Hosts at YC. They understand that this is a crap shoot with a slightly tilted table, but they're optimising for staying out of the zones where everybody else is betting and not that much more.
To be remembered: if you're having a hard time getting funded, the VCs are also having a hard time funding you, because the huge returns go to things that look odd, lame, and weird.
For the most part.
> "The two most important things to understand about startup investing, as a business, are (1) that effectively all the returns are concentrated in a few big winners, and (2) that the best ideas look initially like bad ideas."
_initially look like bad ideas_ meaning "we can't pick them out of the crowd of other bad ideas"
> "there is probably at most one company in each YC batch that will have a significant effect on our returns, and the rest are just a cost of doing business"
> "For that reason one of my most valuable memories is how lame Facebook sounded to me when I first heard about it."
> "We'll probably never be able to bring ourselves to take risks proportionate to the returns in this business."
So it's not like this model is alien to Our Kind Hosts at YC. They understand that this is a crap shoot with a slightly tilted table, but they're optimising for staying out of the zones where everybody else is betting and not that much more.
To be remembered: if you're having a hard time getting funded, the VCs are also having a hard time funding you, because the huge returns go to things that look odd, lame, and weird.
For the most part.
> So it's not like this model is alien to Our Kind Hosts at YC. They understand that this is a crap shoot with a slightly tilted table, but they're optimising for staying out of the zones where everybody else is betting and not that much more.
Do you think this still applies, given recent waves of following the crowd in the last few years like crypto, and now AI? It seems that YC is actually in exactly the same hype zones as everyone else these days.
Do you think this still applies, given recent waves of following the crowd in the last few years like crypto, and now AI? It seems that YC is actually in exactly the same hype zones as everyone else these days.
I'm too far away to know: based in London, mostly working in the legaltech domain, we're far far away from the SV cultural nexus (other than occasional trips to Burning Man for a refresher!)
I think there's a pretty good chance that as their original team is further and further from the operation that they're "reverting to the mean" but I have no evidence.
I think there's a pretty good chance that as their original team is further and further from the operation that they're "reverting to the mean" but I have no evidence.
> if VCs believed in what they were doing they would not take a 2% annual management fee and 20% of the upside.
They’d take 40% of the upside and live on ramen noodles
So if you believed in something, you need to get rid of the concept of hedging and financial responsibility?
This kind of "believing" is what a religious zealot does. No wonder people say SV is a cult.
So if you believed in something, you need to get rid of the concept of hedging and financial responsibility?
This kind of "believing" is what a religious zealot does. No wonder people say SV is a cult.
This correctly describes bad VCs, but not good ones. In my experience, the vast majority of VCs from outside the Bay Area are bad in this way (particularly true in Europe).
Not all VCs from the Bay Area are good, but the good ones are far more common there than anywhere else. One reason "move to SF" is such common advice.
Not all VCs from the Bay Area are good, but the good ones are far more common there than anywhere else. One reason "move to SF" is such common advice.
This is the correct take, though it states a truth many don’t want to hear. Even the detractors have not been able to make solid counter arguments. Instead, they pile on hypotheticals to try and overwhelm this comment author (miring in bureaucracy).
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This makes a lot of sense. I have always wondered how it is that VCs give so much weight to perceptions. Coming from academic background, it seems so strange that your school rank weights much more in getting VC funding than in PhD admissions.
This is nonsense...
VCs have a whole staff of people needed to do business and a ton of costs. There's a legal team, marketing/events, human resources, finance, some executive assistants. Screening, meeting founders, traveling to meet founders, takes up a TON of time and obviously most of the time, no investments are made! Also don't forget, VCs have an office, usually not in a cheap place, so lease costs, cleaning costs etc.
If VCs had to work for free, where would you be meeting them? Ok it's all virtual now, let's say. But the truth is, meeting people face to face when you're going to write them a cheque for 10-20M is generally a good idea. So VCs and founders will almost always need to travel. You're also always going to need lawyers and finance people, since you're dealing with term sheets and large amounts of money.
As others have said, VC investments are not liquid at all and the timeline is 10 years for any returns. So a VC investor in your world has to travel around the US, Europe or India meeting founders, has to work with lawyers, financial folks for free, gets zero benefits in terms of healthcare, etc. All for the chance at 40% of something in 10+ years, that might not work out anyway?
If run this way, the industry would simply not exist and the founders would not get any investment. And the truth is this, there are many founders out there who want and actively seek VC investment and "shock" actually are happy with the relationship with their investors because they understand a good relationship benefits both parties in the deal.
I will also add, most employees in VC firms get no percentage of the profits of the fund (i.e. the carry). Most VC employees just get a regular salary (which is often far less than tech company salaries). So if there were no fee associated, these people would never get paid, since even when the fund finishes, they wouldn't get any of the 20% carry.
VCs have a whole staff of people needed to do business and a ton of costs. There's a legal team, marketing/events, human resources, finance, some executive assistants. Screening, meeting founders, traveling to meet founders, takes up a TON of time and obviously most of the time, no investments are made! Also don't forget, VCs have an office, usually not in a cheap place, so lease costs, cleaning costs etc.
If VCs had to work for free, where would you be meeting them? Ok it's all virtual now, let's say. But the truth is, meeting people face to face when you're going to write them a cheque for 10-20M is generally a good idea. So VCs and founders will almost always need to travel. You're also always going to need lawyers and finance people, since you're dealing with term sheets and large amounts of money.
As others have said, VC investments are not liquid at all and the timeline is 10 years for any returns. So a VC investor in your world has to travel around the US, Europe or India meeting founders, has to work with lawyers, financial folks for free, gets zero benefits in terms of healthcare, etc. All for the chance at 40% of something in 10+ years, that might not work out anyway?
If run this way, the industry would simply not exist and the founders would not get any investment. And the truth is this, there are many founders out there who want and actively seek VC investment and "shock" actually are happy with the relationship with their investors because they understand a good relationship benefits both parties in the deal.
I will also add, most employees in VC firms get no percentage of the profits of the fund (i.e. the carry). Most VC employees just get a regular salary (which is often far less than tech company salaries). So if there were no fee associated, these people would never get paid, since even when the fund finishes, they wouldn't get any of the 20% carry.
As noted, the VC would raise capital like any other business to cover its operating costs.
Think about why they don’t do that.
Think about why they don’t do that.
They already do that... they raise funds from LPs which include a fee which covers the costs. And it works fine, LPs repeatedly invest in the same firms which they wouldn't do if they thought it was a bad deal. There are firms which have been investing for 20-30 years with the same LPs. If the business model wasn't working it would have failed and the VC firm would have closed a long time ago.
"If the business model wasn't working it would have failed and the VC firm would have closed a long time ago."
Tons of VCs do fail.
Tons of VCs do fail.
As a class VC is a lousy investment.
Warren Buffett has described PE as a horrible investment class populated entirely by grifters who lock up your money for 10 years and fuck around with it, producing awful returns. The way he describes it, VC sounds very similar from a LP's perspective.
So why does anyone invest? Buffett's theory is that LPs are mutual fund and pension fund managers who like the fact that there's a 10 year lockup in a private, illiquid investment because it means that the value can't be marked to market. They won't still be managing the fund at the end of the lockup and in the mean time they can mark to expectation and let the next guy deal with the fallout.
Warren Buffett has described PE as a horrible investment class populated entirely by grifters who lock up your money for 10 years and fuck around with it, producing awful returns. The way he describes it, VC sounds very similar from a LP's perspective.
So why does anyone invest? Buffett's theory is that LPs are mutual fund and pension fund managers who like the fact that there's a 10 year lockup in a private, illiquid investment because it means that the value can't be marked to market. They won't still be managing the fund at the end of the lockup and in the mean time they can mark to expectation and let the next guy deal with the fallout.
I think the answer is marginal utility of money. If I have $20 million, and I take $1m to the casino and bet it all on Red 21, maybe I come back with another $20m after taxes. Or I lose $1m then and there.
But in the process there's no control and no sense of skill or judgement or expertise. I'm just a gambler.
If on-the-other-hand I gave that money to a GP in a fund to invest on my behalf, they could come back with a game-changing amount of money in some circumstances, and there's a plausible claim of skill and expertise in my selection of the GP, and the GP's selection of investments.
Same potential for asymmetric returns as gambling, but in a format that reinforces the illusions of skill and control and just maybe really is a question of skill at some level.
I want to say that losing money by being bad at things is always possible, but making money by being good at things is far more a matter of intangibles than anybody want to admit, and proving that any success was deterministic rather than little turtles racing down the beach to the sea and on-average half make it is nearly impossible.
We all love the illusion of control. But the statistics just don't bear it out as a fact in business.
But in the process there's no control and no sense of skill or judgement or expertise. I'm just a gambler.
If on-the-other-hand I gave that money to a GP in a fund to invest on my behalf, they could come back with a game-changing amount of money in some circumstances, and there's a plausible claim of skill and expertise in my selection of the GP, and the GP's selection of investments.
Same potential for asymmetric returns as gambling, but in a format that reinforces the illusions of skill and control and just maybe really is a question of skill at some level.
I want to say that losing money by being bad at things is always possible, but making money by being good at things is far more a matter of intangibles than anybody want to admit, and proving that any success was deterministic rather than little turtles racing down the beach to the sea and on-average half make it is nearly impossible.
We all love the illusion of control. But the statistics just don't bear it out as a fact in business.
Yes, and that's healthy. Any ecosystem of companies, people, animals has failures. As far as I can see, it works fine. Just like tech companies, some VCs do amazingly, some fail. We get new VCs starting each year just like tech companies, some succeed, some fail, there's no issue here.
Agreed. VCs are companies, start ups are companies, they've got very similar dynamics.
There's no magic anywhere in here.
There's no magic anywhere in here.
> If VCs had to work for free, where would you be meeting them?
It's interesting you are pointing exactly at the OP point without realizing it. If you are assuming that the VCs will be doing this for "free", it means they simply don't believe they'll have any ROI, let alone one that beats the market.
It's interesting you are pointing exactly at the OP point without realizing it. If you are assuming that the VCs will be doing this for "free", it means they simply don't believe they'll have any ROI, let alone one that beats the market.
What? That makes no sense.
VC is a job like any other, it takes time and work/effort etc to produce output, it's also a job where you can improve with skill and experience. Just like writing code takes effort and skill, why would you spend 10 years writing code full-time for "free"?
Just like no one would edit books full-time for free, or write code full-time for free, or teach kids full-time for free, VC's wouldn't screen companies, interview founders, carry out significant due diligence processes for free either. Because they need to eat, need health-care, need money for rent/mortgages etc, just like every other professional.
It's just another job, and most people in VC are not rich, they are just earning a salary and get no carry/% of profits of the fund.
VC is a job like any other, it takes time and work/effort etc to produce output, it's also a job where you can improve with skill and experience. Just like writing code takes effort and skill, why would you spend 10 years writing code full-time for "free"?
Just like no one would edit books full-time for free, or write code full-time for free, or teach kids full-time for free, VC's wouldn't screen companies, interview founders, carry out significant due diligence processes for free either. Because they need to eat, need health-care, need money for rent/mortgages etc, just like every other professional.
It's just another job, and most people in VC are not rich, they are just earning a salary and get no carry/% of profits of the fund.
Nobody said work for free.
Raise money for the fund's operations with a separate investment product, and take no 2% management fee. Instead take 40% of the upside: this is _efficient_ if you think the upside will be huge.
In fact if you were certain of the huge upside, people would borrow the operating costs for the VC rather than selling equity in the fund. Most VCs in practice live off the 2% quite nicely, and pray for a big hit, but _the big hit is a bonus not the point of the fund_
The point of the fund is the 2%. The once-in-a-blue moon hit is just that.
And let me point out. The YC "big hit rate" is about 1 per 200 investments. Ballpark; you'd need to ask them the current stat.
So a fund that makes 100 investments, on those numbers, has a 50/50 chance of a big hit. 50 investments, a 25% chance.
To reliably get a big hit you either need to massively alter the odds of success for your portfolio companies, or kiss an awful lot of frogs hoping to hit the occasional prince.
VC is _extremely hard_ because it bakes in tech risk and projections about future society into a financial product called startup equity. The big hits are staggering - the best investments ever made by human beings at any point in history I would guess - but reliable prediction of those big hits is impossible.
Nearly every unicorn has a stack of 70 rejection emails. The special factor is intangible and invisible.
If it even exists.
I think Paul Graham explained all of this quite clearly in Black Swan Farming. It's slightly "between the lines" but he knows exactly what business he is in: spread betting and tipping the table as far as possible in his favour!
A good VC approach.
Raise money for the fund's operations with a separate investment product, and take no 2% management fee. Instead take 40% of the upside: this is _efficient_ if you think the upside will be huge.
In fact if you were certain of the huge upside, people would borrow the operating costs for the VC rather than selling equity in the fund. Most VCs in practice live off the 2% quite nicely, and pray for a big hit, but _the big hit is a bonus not the point of the fund_
The point of the fund is the 2%. The once-in-a-blue moon hit is just that.
And let me point out. The YC "big hit rate" is about 1 per 200 investments. Ballpark; you'd need to ask them the current stat.
So a fund that makes 100 investments, on those numbers, has a 50/50 chance of a big hit. 50 investments, a 25% chance.
To reliably get a big hit you either need to massively alter the odds of success for your portfolio companies, or kiss an awful lot of frogs hoping to hit the occasional prince.
VC is _extremely hard_ because it bakes in tech risk and projections about future society into a financial product called startup equity. The big hits are staggering - the best investments ever made by human beings at any point in history I would guess - but reliable prediction of those big hits is impossible.
Nearly every unicorn has a stack of 70 rejection emails. The special factor is intangible and invisible.
If it even exists.
I think Paul Graham explained all of this quite clearly in Black Swan Farming. It's slightly "between the lines" but he knows exactly what business he is in: spread betting and tipping the table as far as possible in his favour!
A good VC approach.
VC is a job like any other
Generally speaking these people can retire any time they want. Not necessarily with the all the padding and status markers they'd prefer to have. But the bottom line is -- by the time they hit partner level, they definitely have enough in the bank so that they no longer have to show up at the office --- and they certainly don't need to be be anybody's employee in order to physically sustain themselves.
So in the most fundamental sense -- it absolutely is not a "job like any other".
Generally speaking these people can retire any time they want. Not necessarily with the all the padding and status markers they'd prefer to have. But the bottom line is -- by the time they hit partner level, they definitely have enough in the bank so that they no longer have to show up at the office --- and they certainly don't need to be be anybody's employee in order to physically sustain themselves.
So in the most fundamental sense -- it absolutely is not a "job like any other".
Ok, I'm guessing you've never worked for a VC company.
Sure, IF you're a partner and IF you've been a partner for the duration of a fund (10 years) then you're probably "rich", supposing the fund was successful.
However, most employees at VC companies are not partners, they are filled with associates, vps, support staff, receptionists, personal assistants, event planners, accountants, para-legals, lawyers, etc. None of whom are rich.
In fact the average employee at Google or Netflix probably earns more than the non-partner people at a VC firm. You earn less in VC than you would do going to Netflix and being a Senior Software Engineer. The only exception is if you're very, very lucky and get a partner position at a successful fund (and last for the duration of an investing cycle - 10 years.
Sure, IF you're a partner and IF you've been a partner for the duration of a fund (10 years) then you're probably "rich", supposing the fund was successful.
However, most employees at VC companies are not partners, they are filled with associates, vps, support staff, receptionists, personal assistants, event planners, accountants, para-legals, lawyers, etc. None of whom are rich.
In fact the average employee at Google or Netflix probably earns more than the non-partner people at a VC firm. You earn less in VC than you would do going to Netflix and being a Senior Software Engineer. The only exception is if you're very, very lucky and get a partner position at a successful fund (and last for the duration of an investing cycle - 10 years.
You're railing against things I simply didn't say.
Of course these vast majority of people at these companies are regular staff. But I was clearly referring to the folks at partner level, not the employees. It's right there, in plain English. And I certainly didn't say anything about being "rich" in SV terms.
Of course these vast majority of people at these companies are regular staff. But I was clearly referring to the folks at partner level, not the employees. It's right there, in plain English. And I certainly didn't say anything about being "rich" in SV terms.
> VC is a job like any other
No, it's not; or at least not supposed to. That's what communism is (regular plebs of the working class deciding how to allocate resources with no skin in the game).
It's funny that I heard a VC the other day claiming the US is turning into the Soviet Union...
No, it's not; or at least not supposed to. That's what communism is (regular plebs of the working class deciding how to allocate resources with no skin in the game).
It's funny that I heard a VC the other day claiming the US is turning into the Soviet Union...
So... where's the magic pixie in this story? If VC is not a job -- and remember most of the junior people in funds, it's like their first job in finance -- then what is it?
I mean you've gotta define terms here...
I mean you've gotta define terms here...
It’s a job but not like any regular jobs. In most regular jobs, you are given a set of requirements/tasks, you do them 9-5 and go home. VC decides who gets money and as a result what kinda of jobs there will be out there. Luckily, VC is only a part of the financing sector.
The problem, in my opinion, is the lack of skin in the game in many of these funds. If the alpha is the 2% of funds managed, then the investments are a side show and as a result VC are just a plunder of these funds and a misallocation of resources in the economy. (Hence my comparison with communism).
The problem, in my opinion, is the lack of skin in the game in many of these funds. If the alpha is the 2% of funds managed, then the investments are a side show and as a result VC are just a plunder of these funds and a misallocation of resources in the economy. (Hence my comparison with communism).
Elegantly written presumption.
Cool description :)
Let me throw in one other tip for founders looking to get funded: do not ignore regional VCs.
Most of the stories about "how VC works" are 10, 15 years out of date. The cultural "sense of things" lags behind the reality. We found this out the hard way.
In fact, contrary to all expectations and myths, VCs (outside perhaps of the top 50 or 100 firms?) read their emails and take cold meetings.
They have to.
Every region in the world has some clone of Silicon Valley - technical universities and accelerators and incubators and funds - and most of them have very little deal flow or exposure to outside opportunities and ideas. The guy from a second tier French city part-funded by an Economic Development Agency has as much luck getting into a deal with Union Square as you do. But he still has money to invest.
So most of the VCs outside of a small, narrow set do answer emails, are glad to be approached, and are basically glad to see you if you've got anything at all which is interesting to say. It doesn't cost much to try, either. It's the price of an email.
Yes, warm intros to top tier VCs are really handy.
But that's also why the top tier VCs are so massively subject to group think and wind up collectively dropping five billion dollars on electric scooters and stuff like that.
Everybody is human.
Everybody is here to do the deal.
At the top of the chrome towers are men and women in shoes and socks trying to look good to their management. Nothing behind the curtain, no wizard of oz. Do what you can. Don't break yourself for the myths. Do intelligently bet the odds!
Tech is going to be the dominant story in human history for the rest of our lives in almost all scenarios. It's not a bad industry to be in. It's just the financial side of that industry is really heavy on the mythology and maybe that's holding us back now.
Most of the stories about "how VC works" are 10, 15 years out of date. The cultural "sense of things" lags behind the reality. We found this out the hard way.
In fact, contrary to all expectations and myths, VCs (outside perhaps of the top 50 or 100 firms?) read their emails and take cold meetings.
They have to.
Every region in the world has some clone of Silicon Valley - technical universities and accelerators and incubators and funds - and most of them have very little deal flow or exposure to outside opportunities and ideas. The guy from a second tier French city part-funded by an Economic Development Agency has as much luck getting into a deal with Union Square as you do. But he still has money to invest.
So most of the VCs outside of a small, narrow set do answer emails, are glad to be approached, and are basically glad to see you if you've got anything at all which is interesting to say. It doesn't cost much to try, either. It's the price of an email.
Yes, warm intros to top tier VCs are really handy.
But that's also why the top tier VCs are so massively subject to group think and wind up collectively dropping five billion dollars on electric scooters and stuff like that.
Everybody is human.
Everybody is here to do the deal.
At the top of the chrome towers are men and women in shoes and socks trying to look good to their management. Nothing behind the curtain, no wizard of oz. Do what you can. Don't break yourself for the myths. Do intelligently bet the odds!
Tech is going to be the dominant story in human history for the rest of our lives in almost all scenarios. It's not a bad industry to be in. It's just the financial side of that industry is really heavy on the mythology and maybe that's holding us back now.
I feel like my entire takeaway from a business-y degree at a rather good university kinda boiled down to “don’t go to European VCs, they’re mean and valuations are bad, while providing no upside”.
Will be raising on an idea that makes me look at least a little bit like a lunatic in four weeks’ time, so keen to see how this is born out!
Will be raising on an idea that makes me look at least a little bit like a lunatic in four weeks’ time, so keen to see how this is born out!
Jason just wasn't into it and invented a random reason to say no... and brag about it—after all, his day-to-day job is constantly tweeting, bragging, and pretending about giving advice to become visible for startups and get the deal flow at the same time showing those SaaStr conference goers to keep participating and paying. If numbers in the deck were impressive for the economics work for him personally, he would be begging founder to take his money despite any date or any other imperfections in the deck. But the numbers weren't. And Jason used it as a reason to remind about himself one more time to the public.
VCs primarily provide capital, and that's their essential role. They aren't there to be your friends or mentors.
Remember, if you mix friendships with financial asks, you risk losing those friends.
So, VCs are a great resource for funding, perfectly suited for what they're designed to do!
Remember, if you mix friendships with financial asks, you risk losing those friends.
So, VCs are a great resource for funding, perfectly suited for what they're designed to do!
Some of them do like to pretend to be your friend after they’ve invested, though. Don’t fall for it :)
Every blog post about VC should have a disclaimer with the interest rate at the time of writing.
What do you mean?
You can't compare VC behaviour when interest rates are low to when they're high, because when they're low they're handing out money to anyone with a pulse, and when they're high they're checking if pitches say March instead of May.
When interest rates are lower, money is easier to come by so terms are usually more favorable to founders.
Why should VCs care about interest rates? They're looking for 30000% returns from 1/100 of their investments while the rest go to 0.
They aren't interested in your measly 5%
They aren't interested in your measly 5%
Because VCs need to get investors, meaning they're competing with other investment opportunities.
When interest rates were 0.5%, a high-risk investment with a 12% return looked pretty attractive. So lots of people were handing over money to VCs. As they had wheelbarrows full of other people's money they were required to spend they didn't look too closely at what they were spending it on.
Now you can get 5.5% risk-free from a bank account, that high-risk VC fund looks a lot less attractive. As VCs have much less cash they need to spend, they can be a lot more selective.
When interest rates were 0.5%, a high-risk investment with a 12% return looked pretty attractive. So lots of people were handing over money to VCs. As they had wheelbarrows full of other people's money they were required to spend they didn't look too closely at what they were spending it on.
Now you can get 5.5% risk-free from a bank account, that high-risk VC fund looks a lot less attractive. As VCs have much less cash they need to spend, they can be a lot more selective.
interest rate changes shift optimal balance of stocks vs bonds at hedge fund scale, altering prices which rebalances vc allocation in LP portfolios (targeting some fixed %) as well as impacts the velocity and price of IPOs which proceeds are reinvested into subsequent venture funds
yeah well if their cost to lever up is suddenly 6-7% instead of 1% some perceptions change
This is weird, because my understanding and experience of fundraising is that serious prospective investors never get deals from cold inbound slides; they've been introduced, and, most likely, have been talking to the company for months prior to a "formal" start to fundraising, in "no, no, we're not raising money yet, just looking for advice" mode, waiting along with 5-10 other investors for someone to preempt.
This is like a whole mythology constructed around the idea that instead of networking and preparing, you apply to VCs as you would to a college. Does that ever work? I'm seriously asking. (YC doesn't count!)
This is like a whole mythology constructed around the idea that instead of networking and preparing, you apply to VCs as you would to a college. Does that ever work? I'm seriously asking. (YC doesn't count!)
As long as I been around startups, about 15 years, the advice always have been had more success getting warm intro. Even more back in the day than now. I think PGs essays lays out the fundraising process this way too.
The advice is never just send deck to a VC. Same as just applying to a company. Private organizations have no need for any kind controlled process, you're always better having or building of personal relationships and convincing people directly first. It's often even about the pitch or pitching skills. It's more like relationship or case you build, then the pitching is just formal step to close the deal.
I think the cold approach only works start the relationship if you have proven business, great potential and can tell that story well. But also by then VCs might already know about you and come to you.
Otherwise it's always about building some level of personal connection first. Essentially you're asking to someone personally believe and bet their internal and external reputation on. They are not going to hand you the money after one hasty email and deck.
The anti-VC crowd often try paint this as some kind of exclusive country club, but it's not true. So many new founders raise capital all the time. VCs are always looking for new founders and companies.
But it's also true that if you just crawl out of the woods one day and go meet a VC and ask them for $2M is likely not going to happen. If you don't get a single person in the world with some kind of VC connection to make a warm introduction to you, it often considered as a filter that you're not serious enough about your business.
The advice is never just send deck to a VC. Same as just applying to a company. Private organizations have no need for any kind controlled process, you're always better having or building of personal relationships and convincing people directly first. It's often even about the pitch or pitching skills. It's more like relationship or case you build, then the pitching is just formal step to close the deal.
I think the cold approach only works start the relationship if you have proven business, great potential and can tell that story well. But also by then VCs might already know about you and come to you.
Otherwise it's always about building some level of personal connection first. Essentially you're asking to someone personally believe and bet their internal and external reputation on. They are not going to hand you the money after one hasty email and deck.
The anti-VC crowd often try paint this as some kind of exclusive country club, but it's not true. So many new founders raise capital all the time. VCs are always looking for new founders and companies.
But it's also true that if you just crawl out of the woods one day and go meet a VC and ask them for $2M is likely not going to happen. If you don't get a single person in the world with some kind of VC connection to make a warm introduction to you, it often considered as a filter that you're not serious enough about your business.
I don't know if this person realizes that he basically asks people to lie in the future and make a custom deck with custom dates and custom jokes to each angel.
It's just a part of a bigger short sighted system tho, hate the game not the player
It's just a part of a bigger short sighted system tho, hate the game not the player
In my experience founders that have raised vc regard them as bankers. Founders who haven't successfully raised (for whatever reason) and people that dream about being founders postulate on these things.
Funding is simple. Seed or before you/team are fundable, based on some signal of you've done it or can do it. Post seed, it's not you, it's the business. If in 2 months you haven't gotten interest or intros, you're business is not VC fundable, or you suck at fundraising which means you're probably not the right venture backable CEO.
Funding is simple. Seed or before you/team are fundable, based on some signal of you've done it or can do it. Post seed, it's not you, it's the business. If in 2 months you haven't gotten interest or intros, you're business is not VC fundable, or you suck at fundraising which means you're probably not the right venture backable CEO.
Bankers with good PR.
But for the first time founders out there please don't sweat it if you can't get funded for a long time, you may just be early. I gave up on a great idea (that my partner later worked into a great product within an existing company) because we were unable to get funded for 3 months. And later got VC funded after working on a worse idea for a year. It can take time, It may require you to get customers first, but if you get along with your partners and can see business progression don't worry to much about VCs, they are mostly capricious up until the point you can show that its a good business. Then they are, as OP said, just bankers.
But for the first time founders out there please don't sweat it if you can't get funded for a long time, you may just be early. I gave up on a great idea (that my partner later worked into a great product within an existing company) because we were unable to get funded for 3 months. And later got VC funded after working on a worse idea for a year. It can take time, It may require you to get customers first, but if you get along with your partners and can see business progression don't worry to much about VCs, they are mostly capricious up until the point you can show that its a good business. Then they are, as OP said, just bankers.
first time founders that have large followings in the community they are building for are the most fundable. Reason being, your first product or iteration will fail, but if you have a captive audience willing to try and give you feedback you're in the best position to achieve product market fit.
My career is focused on B2B so I don't know a lot about communities, but the sentiment is the same. You have an edge if you know a lot about a subject and have good connections with professionals in the field that are willing to talk to you.
But I would say VCs usually prefer a team as its more likely to check all the boxes. I've heard 3 as the "optimum" for team resilience vs founding team social complexity, but that is just a general sentiment. If you have a community get a tech guy, if you are a techy get a product guy, if you are a product guy get a sales guy, etc. Don't try to be an ubermensch, just find a team you can work with.
But I would say VCs usually prefer a team as its more likely to check all the boxes. I've heard 3 as the "optimum" for team resilience vs founding team social complexity, but that is just a general sentiment. If you have a community get a tech guy, if you are a techy get a product guy, if you are a product guy get a sales guy, etc. Don't try to be an ubermensch, just find a team you can work with.
Community of users applies to b2b as well. It could just be followers on linkedin where you get engagement from your ideal customer profile buyer. VCs looks for signal that you/team will execute. Best signal is undeniable evidence that you are executing and they are just getting on at the right time.
Absolutely, so many people don't understand that a great deck and a tech demo is in 99.9% of the time not enough. You need a strong signal that you are on the right track: user engagement, LOIS, actual sales. The more you can show the better.
If you didn't get to that point don't be surprised if you get the canned response of "This just does not seem like the right opportunity for us".
The first investor in your startup is you. If you are not willing to put your money and time into it don't be surprised other people aren't willing to do it.
If you didn't get to that point don't be surprised if you get the canned response of "This just does not seem like the right opportunity for us".
The first investor in your startup is you. If you are not willing to put your money and time into it don't be surprised other people aren't willing to do it.
Here are two hard earned lessons from my experience fundraising. 1. If an investor isn't interested, cut bait. It's usually clear in the first 15 minutes. No follow-up with argument/data will convince them. Why they aren't may or may not teach you anything. Just move on and continue pitching. 2. Once one investor is interested, getting meetings with others is MUCH easier. If they can't lead, they will intro you to someone they've worked with that can. Getting in front of the A-list investors is hard as they see every deal and can pick and choose. If you can't get a B/C-list investor to term sheet, you or your biz isn't fundable (sorry). If you easily get B/C investors to term sheet you can probably get a brand name firm to steal the deal with better terms. In my experience A-listers aren't discerning on price if they believe in you and/or the biz. This seems to happen to the B/C investors all the time, that's why when they find you, like you/biz, they will drive you to close quickly. 2 months as referenced in OP is an eternity.
If this looks attractive to a founder:
""We want to be the first check in." "We add value" 'We are responsible investors". "We're in for the long run". "We back outliers" and the oh-so-famous "Let me know how I can be helpful".
then what they should look for is a skilled operational partner with a high-ish IQ and a stable personality, almost certainly with access to money that can be used for bootstrapping the business. You know, a virtually nonexistent unicorn in the circles that most people operate. Someone who is as rare as the right spouse. That combination is worth a hefty percentage.
VC money isn't optimal for the initial startup phase. Everyone will be happier, detail nitpicking will be nonexistent, and the VC involvement will be more natural at the point in which customer acquisition rate and the cost of that volume is outpacing revenue, which should be the exponential growth curve often in years 5-10. Sometimes an acquisition comes soon after.
If a founder cares about their business, then asking VC to essentially be their startup partner is asking for trouble in a lot of instances.
""We want to be the first check in." "We add value" 'We are responsible investors". "We're in for the long run". "We back outliers" and the oh-so-famous "Let me know how I can be helpful".
then what they should look for is a skilled operational partner with a high-ish IQ and a stable personality, almost certainly with access to money that can be used for bootstrapping the business. You know, a virtually nonexistent unicorn in the circles that most people operate. Someone who is as rare as the right spouse. That combination is worth a hefty percentage.
VC money isn't optimal for the initial startup phase. Everyone will be happier, detail nitpicking will be nonexistent, and the VC involvement will be more natural at the point in which customer acquisition rate and the cost of that volume is outpacing revenue, which should be the exponential growth curve often in years 5-10. Sometimes an acquisition comes soon after.
If a founder cares about their business, then asking VC to essentially be their startup partner is asking for trouble in a lot of instances.
Just an anecdote (no judgement here; VC has its place): An acquaintance of mine who works for a VC firm once said "Ultimately, VC money is a loan for people who are not bankable".
That really resonated with me as with that perspective I understood why behavior & practices are closer to what you'd experience if you personally need to take out a loan outside of the regulated banking system
That really resonated with me as with that perspective I understood why behavior & practices are closer to what you'd experience if you personally need to take out a loan outside of the regulated banking system
The whole "hate VCs" thing is kind of silly in my opinion. VC wouldn't exist if founders didn't want and need capital and have no other way of getting it.
Also, for every other "evil VC" story, there are other stories where founders are really happy with their VC board members, have a strong and positive relationship with their VC partners, and end up getting some kind of positive exit which wouldn't have happened at all without the investment.
Sure, some VC companies may be shitty, some others may be amazing, but this is basically like everything in life. Some schools are shitty, some cops are shitty, some cars, tech companies, managers etc, are shitty. But some of all these things can also be great and awesome too. Thats life.
Also, for every other "evil VC" story, there are other stories where founders are really happy with their VC board members, have a strong and positive relationship with their VC partners, and end up getting some kind of positive exit which wouldn't have happened at all without the investment.
Sure, some VC companies may be shitty, some others may be amazing, but this is basically like everything in life. Some schools are shitty, some cops are shitty, some cars, tech companies, managers etc, are shitty. But some of all these things can also be great and awesome too. Thats life.
I generally agree. Maybe to add to your argument:
A - Just as with customer reviews on amazon unhappy customers are often times the majority to leave a review whereas fewer happy customers voice their opinion in the form of a review. I suspect the same goes for VC interactions.
B - Due to the way the VC business is structured the variance in "quality" of VCs is heavily skewed and not normally distributed, tricking our perception of what to expect. In other words i suspect that you have a much higher likelihood in to interact with a very "low quality" VC or absolute "top VC" than with an "average" VC. If you amplify this with A you may get an even worse public opinion.
Nevertheless I think on an individual basis you're always better off if you don't need VC for your business - if you have that option.
A - Just as with customer reviews on amazon unhappy customers are often times the majority to leave a review whereas fewer happy customers voice their opinion in the form of a review. I suspect the same goes for VC interactions.
B - Due to the way the VC business is structured the variance in "quality" of VCs is heavily skewed and not normally distributed, tricking our perception of what to expect. In other words i suspect that you have a much higher likelihood in to interact with a very "low quality" VC or absolute "top VC" than with an "average" VC. If you amplify this with A you may get an even worse public opinion.
Nevertheless I think on an individual basis you're always better off if you don't need VC for your business - if you have that option.
VC wouldn't exist if founders didn't want and need capital and have no other way of getting it.
This is too reductive. A lot of founders have to raise because they're competing with other companies with VC funding, often dumping their product on the market at a loss to starve out bootstrapped competitors and lock in customers.
This is too reductive. A lot of founders have to raise because they're competing with other companies with VC funding, often dumping their product on the market at a loss to starve out bootstrapped competitors and lock in customers.
Yeah but imagine trying to bootstrap a product which relies on network effects with no investment and where profitability is potentially years out. Social Networks are a good example here, or something like Uber.
There are many valuable and amazing businesses where self-funding/bootstrapping doesn't work. Or businesses which start out as one thing, get VC money and experiment, try to find product/market fit over a year or two, and then hit it big and create something really valuable to the market.
I agree that many companies would be better bootstrapping and creating a sustainable, profitable businesses, but the truth is, the VC model and ecosystem does enable certain businesses to exist which wouldn't exist otherwise as people wouldn't work for that long for free or almost no income.
There are many valuable and amazing businesses where self-funding/bootstrapping doesn't work. Or businesses which start out as one thing, get VC money and experiment, try to find product/market fit over a year or two, and then hit it big and create something really valuable to the market.
I agree that many companies would be better bootstrapping and creating a sustainable, profitable businesses, but the truth is, the VC model and ecosystem does enable certain businesses to exist which wouldn't exist otherwise as people wouldn't work for that long for free or almost no income.
Sure I think VC has value in some cases. I think the zero-interest period distorted their role and pushed them into areas that would have better been served by bootstrapped and profitable small companies. I'm hopeful that with interest rates back in a more reasonable range we'll get a better equilibrium.
As the VC pointed out, the key here is the two-months-old date.
But not exactly for the reason he stated. It is not that he isn't the first, so he's got thin skin or wants only founders who thought he was the best/first VC to approach (and smart founders might not take their first shot with their most favored VC as they'd want to hone their pitch with less-critical candidate VCs).
The reasoning here is more likely that "other smart money has looked at this deal and passed", so he can leverage the efforts of these other unseen VCs who passed. This could be written off as lazy/cowardly 'herd mentality', but it is a real signal.
It's also true that by definition, if there's a unique opportunity here, he's also missing it by grouping himself with the other VCs. But that is a negative-space signal, and the question is whether it's more likely determinative than the signal that "yeah, they also passed".
But not exactly for the reason he stated. It is not that he isn't the first, so he's got thin skin or wants only founders who thought he was the best/first VC to approach (and smart founders might not take their first shot with their most favored VC as they'd want to hone their pitch with less-critical candidate VCs).
The reasoning here is more likely that "other smart money has looked at this deal and passed", so he can leverage the efforts of these other unseen VCs who passed. This could be written off as lazy/cowardly 'herd mentality', but it is a real signal.
It's also true that by definition, if there's a unique opportunity here, he's also missing it by grouping himself with the other VCs. But that is a negative-space signal, and the question is whether it's more likely determinative than the signal that "yeah, they also passed".
Don’t do business with people who think putting the wrong date matters.
> think of a VC as a sales prospect
I think the problem with VCs is that, most generally, they are not good sales prospects, they are pedantic. A good sales prospect is someone who give you feedback, even automated, so you know where you are. Even if they receive a zillion of pitch decks every day (as it is noted in the article), they should have a better process in 2024 to handle that.
I will give you an example as a customer which can be translated: I sent a simple problem to HubSpot and after many chats and email tickets they couldn't solve it! They are advertised as a top CRM, we are happy as customers but I feel there is nobody in the line. On the other hand we are customers of Bizneo for HR/PX and they are happy to make a call and help us. I would expect more feedback from VCs, they are more terrible than banks giving feedback, knowing that they are in a power position but that will not work for long time.
I think the problem with VCs is that, most generally, they are not good sales prospects, they are pedantic. A good sales prospect is someone who give you feedback, even automated, so you know where you are. Even if they receive a zillion of pitch decks every day (as it is noted in the article), they should have a better process in 2024 to handle that.
I will give you an example as a customer which can be translated: I sent a simple problem to HubSpot and after many chats and email tickets they couldn't solve it! They are advertised as a top CRM, we are happy as customers but I feel there is nobody in the line. On the other hand we are customers of Bizneo for HR/PX and they are happy to make a call and help us. I would expect more feedback from VCs, they are more terrible than banks giving feedback, knowing that they are in a power position but that will not work for long time.
As much as I dislike VCs, I didn't find the Twitter post to be that bad. I can see his point about the company being an almost, and on top of that getting warning "signs". It wasn't the fact that the date was a few months old, it was the fact they didn't care enough to update it before sending the deck. It was the fact they did the bare minimum (or less than minimum).
I never really put it in words before, but I pick up a lot of these signs. From the way someone writes, to the way they text message, to the content they consume, to how they handle social dynamics like grabbing coffee together or a lunch. It all paints a picture of a person and/or team. These things matter.
If they can't take their time to update the deck, they probably skimp out elsewhere.
I never really put it in words before, but I pick up a lot of these signs. From the way someone writes, to the way they text message, to the content they consume, to how they handle social dynamics like grabbing coffee together or a lunch. It all paints a picture of a person and/or team. These things matter.
If they can't take their time to update the deck, they probably skimp out elsewhere.
If there’s anything to be irritated about here it’s that yet another VC revealed how absolutely moronic their job is. Any idiot can look at some slides and see if the numbers are good. The hard part is finding the gems in those bottom 90%. Sadly nobody seems to be doing that.
Pro-tip: when I was in M&A, I would always write the season rather than the month on the cover of materials sent to prospective buyers. "Spring 2024" sidesteps the issue entirely and the deck even survives being forwarded around for a few months.
What is more striking is that this VC felt it necessary to take to LinkedIn to "educate" others on his reasoning. For what purpose? So that people will remove dates from their slide decks now? Because that is the likely outcome.
The only investors who have enough time for such things generally aren't the ones closing the best deals. What does it say about him that he is desperate enough for a deal that he has to open cold emails and then take to LinkedIn to criticize a date that is two months old? If you notice he didn't say anything about the content of the actual information being outdated. Just the date.
His biggest gift to this company was not investing in them.
The only investors who have enough time for such things generally aren't the ones closing the best deals. What does it say about him that he is desperate enough for a deal that he has to open cold emails and then take to LinkedIn to criticize a date that is two months old? If you notice he didn't say anything about the content of the actual information being outdated. Just the date.
His biggest gift to this company was not investing in them.
He felt "triggered" that he wasn't the first call, which comes off as petty and entitled, which most VCs are.
They might not be my friends, but they did pay 90% of my salary for the past 22 years...
When a VC wants to bankrupt it's competitor it's bad and most of them do the same
Not all VCs have the same investment thesis.
Alignment and mutual fit is important.
Being undiscovered and being found by a process is partially a positioning piece too.
VCs want a transaction in a short number of years depending how far they are into their current fund.
It’s not always about any one idea, but rather what idea can be the winner to make up for the others that didn’t win big.
Also, knowing the difference between investors and VCs is important - investors tend to often give more personalized support than VCs.
If you’re ready to go big and be supported to do so, VCs can be just what’s needed.
Increasingly, VCs are a feeder system to private equity and you may be able to position yourself for that long term.
Alignment and mutual fit is important.
Being undiscovered and being found by a process is partially a positioning piece too.
VCs want a transaction in a short number of years depending how far they are into their current fund.
It’s not always about any one idea, but rather what idea can be the winner to make up for the others that didn’t win big.
Also, knowing the difference between investors and VCs is important - investors tend to often give more personalized support than VCs.
If you’re ready to go big and be supported to do so, VCs can be just what’s needed.
Increasingly, VCs are a feeder system to private equity and you may be able to position yourself for that long term.
As one commenter mentioned it comes down to having suitable information exchange between the parties. Some VC said no to most big successes in SV at some point.
I recommend watching a pitch competition with lesser known VCs and companies like Pitchforce. You realize how difficult it is to understand what people are building and why it could be big. Most VCs will not be users of the product or experts in the vertical and will use other signals, however imperfect or limited as is the case here.
https://pitch-force.com/
I recommend watching a pitch competition with lesser known VCs and companies like Pitchforce. You realize how difficult it is to understand what people are building and why it could be big. Most VCs will not be users of the product or experts in the vertical and will use other signals, however imperfect or limited as is the case here.
https://pitch-force.com/
I wonder if any generalization as an attribute for all VCs is ever going to be a good enough. People call them “not friends” or “sheep” or whatever. But it has always felt like an unsatisfactory framing.
It is a marketplace. The equity of companies is for sale and VCs are buyers.
The buyers come with a variety of risk appetite, $ available to invest, personal histories and they all want very high ROI to justify staying in the business.
Companies also have their own variety in ambition (TAM), track record (growth rates) and level of conviction of people who work there.
It is a marketplace. The equity of companies is for sale and VCs are buyers.
The buyers come with a variety of risk appetite, $ available to invest, personal histories and they all want very high ROI to justify staying in the business.
Companies also have their own variety in ambition (TAM), track record (growth rates) and level of conviction of people who work there.
If startups are a casino, VC's are Tony Soprano, offering you another 100k after you've already lost everything you have. Smiling away, tell you it'll all be fine.
VC really is the A&R of our time.
I guess that’s what they meant by “tech is the new music”
>A VC receives 10 to 50 decks per week. Out of those, 10% are hot: think OpenAI.
>1-5 OpenAIs per week
Yeah, ok man, quality blog post incoming.
>1-5 OpenAIs per week
Yeah, ok man, quality blog post incoming.
Those numbers are hilarious. I can see an associate getting that many decks a week, then culling them down to 1 to 3 for the next guy up the chain. But there will be 3 to 12 associates.
Then the number of deals is also hilarious. These people don't have unlimited money, even in the good old days, you'd be lucky to be doing a deal a week out of the pool the associates approved.
So basically there are a hundred times as many decks as what the OP thinks there are for each deal. And the successful ones aren't open AI, the majority of the time a successful exit is getting sold for $10m to the incumbents in the field.
Then the number of deals is also hilarious. These people don't have unlimited money, even in the good old days, you'd be lucky to be doing a deal a week out of the pool the associates approved.
So basically there are a hundred times as many decks as what the OP thinks there are for each deal. And the successful ones aren't open AI, the majority of the time a successful exit is getting sold for $10m to the incumbents in the field.
I didn’t read this as “10% will become 100B businesses”,
I read this as “10% are hot”—probably the author meant “like a team out of OAI” but maybe they meant “like recent rounds of OAI have been”.
In any case this post read as sophisticated, reasonable, and helpful, to me.
I read this as “10% are hot”—probably the author meant “like a team out of OAI” but maybe they meant “like recent rounds of OAI have been”.
In any case this post read as sophisticated, reasonable, and helpful, to me.
It's orders of magnitude off. The guy is just LARPing poorly, even lacking common sense.
One single OpenAI-tier deal every two years, consistently, would put you into Legendary VC territory.
One single OpenAI-tier deal every two years, consistently, would put you into Legendary VC territory.
I think he meant that they seem as exciting as OpenAI to investors. Not that all of them (or any) succeed.
You can bet on all 10% potential OpenAIs of the future and still loose all your bets.
You can bet on all 10% potential OpenAIs of the future and still loose all your bets.
Still feels way off. If VCs receive 1-5 pitches per week that seem as exciting to them as OpenAI, they'd spread their money around a lot more startups. Don't think they're that excited by half the "solid metrics, good founders, there's plenty of money in generic B2B SaaS if we throw enough at the sales team" stuff they actually invest in.
Now I can believe that at least 10% of the pitchdecks they receive are "we hook $industry up to OpenAI's API"...
Now I can believe that at least 10% of the pitchdecks they receive are "we hook $industry up to OpenAI's API"...
What a colossal failure of OpenAI’s nonprofit charter that they’re repeatedly in a conversation about being good VC returns.
I read that comment a bit differently:
- Volume: Former founders who hit the jackpot are investing in a bunch of startups every week. There are hundreds of unicorns etc out there, and thousands of Series A's every year. That's a bunch of competitive deals being signed every day!
- Quality: Early silicon valley startups can easily look like openai's early days. With hundreds of unicorns out there, their execs eventually leaving and recruiting smart folks for their next thing happens almost every day. Pitches that are "We're solving X" are a dime a dozen. Likewise, they're each flawed in different ways -- in OpenAI's case, an easy negative phrasing is: no real business plan, positioned mostly as a non-profit R&D lab that'd do open source for Elon Musk to get google IP more easily. Likewise, having Stripe's CTO was one of those cool unicorn exec things, but for 0->1 business, maybe not so obvious, and Sam Altman's only 0->1 gig was running a small failed social mobile social network. It's easy to phrase in positive vs negative lights. Now imagine getting 5 of those on your desk every week, and you only pick 0-3 a year, hoping each win pays for all the duds, and then some...
- Volume: Former founders who hit the jackpot are investing in a bunch of startups every week. There are hundreds of unicorns etc out there, and thousands of Series A's every year. That's a bunch of competitive deals being signed every day!
- Quality: Early silicon valley startups can easily look like openai's early days. With hundreds of unicorns out there, their execs eventually leaving and recruiting smart folks for their next thing happens almost every day. Pitches that are "We're solving X" are a dime a dozen. Likewise, they're each flawed in different ways -- in OpenAI's case, an easy negative phrasing is: no real business plan, positioned mostly as a non-profit R&D lab that'd do open source for Elon Musk to get google IP more easily. Likewise, having Stripe's CTO was one of those cool unicorn exec things, but for 0->1 business, maybe not so obvious, and Sam Altman's only 0->1 gig was running a small failed social mobile social network. It's easy to phrase in positive vs negative lights. Now imagine getting 5 of those on your desk every week, and you only pick 0-3 a year, hoping each win pays for all the duds, and then some...
I actually laughed when I read that
Moral of the story: Don't date your slides.
>Jason (star emoji) (uk flag emoji) SaaStr LDN June 4-5 (star emoji) Lemkin
This person is famous?
sounds like he's mad about being sloppy seconds `:)`
This person is famous?
sounds like he's mad about being sloppy seconds `:)`
Two-time founder here. I think this naivety reflects more unrealistic founder expectations raised by the bubbly fundraising environment of the ZIRP (zero interest rate phenomenon) than any fundamental change in VC.
> the OpenVC pitch deck tutorial explicitly says to never include the date on your cover.
Careful, there's often metadata in a deck, if you know how to look.
Careful, there's often metadata in a deck, if you know how to look.
This is probably a good reminder. But you could write an article like this about every institution:
- The police aren't your friends
- Your employer isn't your friend
- Your colleagues aren't your friends
- The government isn't your friend
- Small businesses aren't your friends
- Big corporations aren't your friends
- Elon Musk isn't your friend
- Your landlord isn't your friend
- Your professors aren't your friends
There's no such thing as a relationship where the interests of both parties are perfectly aligned. And the pain caused by any misalignment will be more intense when the stakes are higher, such as startups/VC.
- The police aren't your friends
- Your employer isn't your friend
- Your colleagues aren't your friends
- The government isn't your friend
- Small businesses aren't your friends
- Big corporations aren't your friends
- Elon Musk isn't your friend
- Your landlord isn't your friend
- Your professors aren't your friends
There's no such thing as a relationship where the interests of both parties are perfectly aligned. And the pain caused by any misalignment will be more intense when the stakes are higher, such as startups/VC.
The article is useful because, while most of your other examples don’t pretend to be your friends, VCs often do, at least at a superficial level. Understanding that this seeming friendship isn’t real is important.
VCs do have a helpful role to play in funding many types of startups, but the role of investor is very different from the role of friend.
VCs do have a helpful role to play in funding many types of startups, but the role of investor is very different from the role of friend.
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If there’s one thing ChatGPT could replace: developing “pitch decks” and “cold emails” for vulture capitalists.
Train LLMs using this site and reap that (dangerous) VC money.
Train LLMs using this site and reap that (dangerous) VC money.
One of the things I'm surprised isn't covered more is the liquidation preference that VCs take... an investment is basically an extremely expensive loan.
If shit hits the fan, they are entitled to the payout of up to their original investment, so all of the company's assets, when liquidated, fund those proceeds.
If your company succeeds, the VC owns a percentage of your success.
If shit hits the fan, they are entitled to the payout of up to their original investment, so all of the company's assets, when liquidated, fund those proceeds.
If your company succeeds, the VC owns a percentage of your success.
The reason for that is that there is very high likelihood that the "loan" will never be paid back. It is just a market. As far as I understand from the statistics, VC's are not making great money, on average. Average startup gets the funding, uses it for salaries and everything else, and never pays the investor any substantial amount back.
The interest rate on the loan, is your ROI. This is reasonable because it's a very risky loan.
> If shit hits the fan, they are entitled to the payout of up to their original investment, so all of the company's assets, when liquidated, fund those proceeds.
I thought all loans are structured that way? I am not sure why this should not be the case here.
> If shit hits the fan, they are entitled to the payout of up to their original investment, so all of the company's assets, when liquidated, fund those proceeds.
I thought all loans are structured that way? I am not sure why this should not be the case here.
This is the George Costanza approach to VC: you go looking for some minor flaw, make a big deal out of it and then boast/complain to your friends.
I know humans aren’t rational creatures but boasting how you make big investment decisions on a glorified pseudoscience call like you’re Sherlock Holmes is icky.
I know humans aren’t rational creatures but boasting how you make big investment decisions on a glorified pseudoscience call like you’re Sherlock Holmes is icky.
"The logos good, fine." LOL
VCs make steep graphs steeper. By the time you are in a position to raise money for acceleration, you don't really need it. All capital, no venture.
more genreally, two companies cannot be friends
We had a vc that was my friend; not anymore; we failed and he felt betrayed we ‘gave up so easily’ (we didn’t). I guess a better one is; VCs should not be your friends.
> VCs aren’t your friends
Congrats, good for you! You learned something new or probably forget something that you taught yourself.
Congrats, good for you! You learned something new or probably forget something that you taught yourself.
Do VCs need regulation? Should we ensure equity for diverse founders?
Yeah, why just VC's, force everyone to invest. There is a lot of rich ppl in the world who don't invest to startups at all. That is wrong. We should have a law that requires at least certain % of net worth to be invested in startups.
VC stands for Vampire Capitalist, right?
I remain confused as to why anyone would take VCs seriously at all, much less want to be friends with them. They mostly give strong vibes of "sociopath" and "malignant narcissist".
> A VC receives 10 to 50 decks per week. Out of those, 10% are hot: think OpenAI.
lol.
lol.
The 0% interest era did wonders for this economy.
For companies that are at the point of raising venture capital, this might be what is actually needed. But it certainly seems like it filters out a lot of the more idiosyncratic, brilliant types that aren't concerned with (from their perspective, irrelevant) details, like the date on a pitch deck. It seems like a good way to get institutional operators, not rare but not-quite-conformist innovators. I can't imagine someone like Steve Jobs or Nikola Tesla passing these VC/Ivy League kinds of tests.