I spotted a piece by Paul Kedrosky today during a blog-feeds-catchup-session where Paul talks about a sort of “(minimum) two degree of separation” rule that VCs maintain between themselves and the sex industry. (Quotes above for my words, not his.) In other words: benefiting from infrastructure, transport, payment mechanisms — cool. Having fleshy bits linked to from the portfolio companies page — not cool.
This reminds me of an early experience I had at Voyager. We were looking at a company that was building an online search / social media app. They talked about people using it for various applications — consumer, enterprise, small business, blah blah blah. We were just about to the end of the pitch, when I asked pretty straightforwardly: “So, what’s the sex angle here? Is there an application in dating or porn?”
The room went silent.
I pushed on, oblivious to the mood that had just chilled like a shot of Jaeger down an ice luge. “You know, like VHS, or modems for BBSes, or early adoption of Web marketing tricks like affiliate programs and popups,” I articulated despite the intrusion of my foot now rapidly entering my oral cavity. “Is there a strategy for accelerating adoption around that content?”
The founders were visibly uncomfortable. Mercifully, my boss was not pissed, just bemused. “I … I guess people could use it for other things, too,” said one of the founders, finally. Handshakes all around, a quick note on our investment process, and we’ll get back to you after next week’s partner meeting, ciao for now.
Oops. Back at the office, this is addressed.
“Randall, in the venture business, we have certain things we don’t talk about, and certain things we don’t invest in, due to a number of reasons.”
At the time, I’m thinking: OK, VCs are pillars of the community, have to show up at the Opera, at the charity events, at the B-school reunions, and can’t be branded pornographer or such. I filed this away under the “shit not to talk about, Einstein” filter, along with ever admitting to listening to Journey, or denigrating tattoos while speaking to anyone whom you’ve never seen fully naked.
But now, Paul Kedrosky gives me a flashback and with a key piece of insight. It’s a follow the money moment: “… until the venture business is funded by groups other than pension funds, trusts, and endowments (ahem), the likelihood of mainstream VCs ever getting beyond flirtations [[with the sex business]] is vanishingly small.” Yep, follow the money. The paymasters here are the Prudent Men, the real stodgy guys, the Trustees and the Chairmen and the Stewards and the Overseers.
And frankly, this is probably a good thing. It’s a little like the Senate. You don’t want the country entirely run by a bunch of pasty old white dudes, most all millionaires, 60 years old and who won’t be fired for 12 years (on average), and who probably still think that Kudzu and the missile gap are our biggest national problems. But you don’t want a bunch of whippersnappers on the make driving all your big decisions without recourse to the accumulated wisdom of years past.
The real test will be if one of the trendsetter endowment funds like Harvard or Yale green lights a VC or PE investment that targets the sin sectors. If that ever happens, then the VC business will start to get a lot more (directly) involved in the naughty bits…