rlucas.net: The Next Generation Rotating Header Image

great recession

The Downturn, REAL vs. FAKE VCs, and REAL WEALTH

In early October 2008 I was asked by a local entrepreneurial booster group for a quote giving VCs’ take on the state of the financial world. Here’s what I wrote (but was too busy/lazy to blog) at the time:

  • REAL VCs have committed funds from stable, liquid, institutions who are not going away (state governments, universities, pension plans, countries).
  • REAL VCs have partnership agreements that last 8-10 years and aren’t tied to the current level of the NASDAQ or the price of anyone’s house.
  • FAKE VCs are everyone else who claims to be a VC but isn’t like the above.
  • FAKE VCs may be nice people but since they aren’t REAL VCs, you don’t know what you’re dealing with in working with them. So be cautious and “know your investor” if you are going to rely on them for your short- to mid-term capital needs.
  • Don’t sweat it; unlike the financial economy, early stage firms are inventing and creating and building things to sell in the real economy. Yes, you’d rather sell your company into a bubble. But great companies are often built in downturns and sold in upturns. Keep building and selling.
  • All the REAL WEALTH that humanity has ever created has been the result of new invention and teamwork. All of this CDO/MBS/hedge fund nonsense is just pushing around money. You, the entrepreneurs and inventors, are the real engines of true wealth creation and we VCs are honored to play a role in helping you do so.

All of this seems at least as true and relevant today as in the first days of October. So let’s all take a deep breath and keep this in mind: human ingenuity (Founders, CTOs, Visionaries) conceives new wealth; human effort and discipline (Engineers, Salesmen, Managers) bears it into the world; and the acceptance of it by markets (Customers, Sponsors) makes it viable and sustainable. VCs play our own humble role by advising the foregoing and making calculated risks of our (and our investors’) wealth and time. This is a GOOD THING, and furthermore, this is a cycle that despite its rough edges CREATES NEW WEALTH. That is not the case with all of the now-trashed asset classes (which were largely about flipping the same old bad ideas to one another) and the whining rent-seekers who (mis-)managed them.

If you’re reading this, you’re almost certainly a geek or a startup-world person. And that means you, like me, have a unique opportunity and burden to do the right thing in this crappy economic time.

So, please. (This goes for me too.) Turn off CNBC. Close the browser window for Yahoo! Finance. If at all you can, block out this volatility and pandemonium among the wealth-re-arrangers. And, please, focus and redouble your efforts on creating wealth and value that ultimately will be what allows our humble race of tool-wielding mammals to conquer ignorance, disease, malnutrition, isolation, Malthus, and generally the heat-death of the Universe.