VCs Are Not Your Channel (But They Might Be Your Friends)

March 12th, 2007

Occasionally I get calls from folks who get the bright idea that, since VCs have a bunch of portfolio companies under influence, they can leverage selling their stuff by talking to me instead of pounding the pavement to the whole portfolio.

If you’re thinking of doing this, remember that we (VCs) are not your personal sales channel into our portfolios! Consider:

  • VCs generally take a board seat at most; we influence our portfolios, not control them, and we do so at a fairly high and abstract level.
  • Most VCs abandoned the “incubator” model after the ’90s bubble; we prefer that our portfolio companies seek the best service providers for their particular needs rather than establish some sort of Gleichschaltung.
  • We ain’t in it for charity! We’re trying not only to build and sell our portfolio companies, but to seek out new deals, with new capitalizations, and to boldly go where no man has gone before! (er, sorry.) Star Trek aside, this takes up our time, so even if your shiny new product (or dreary old service) is really groovy for a portfolio company, unless it gets them to an exit or gets us a new deal, it’s probably best dealt via a different contact.

Now, all that said, there are some cases where using VCs for leverage into their portfolios does make some sense.

  • You have some particular specialized characteristics that suit one VC’s portfolio well. This could be a mix of geography, stage, domain expertise, etc., like, say, a life sciences IP law firm that caters to early stage firms in Botswana might find affinity with a VC with that same focus.
  • Your sale is at the board level. C-level recruiters come to mind (although this is emphatically not guidance for recruiters to start badgering VC board members).
  • You have some referenceability within the world of VC-funded startups. These people talk to each other, go to work for each other, and start companies over and over with each other. Your sales into big companies (even tech) or lifestyle businesses (even small “startups”) are not representative of what the experience with a VC-funded firm will be, and won’t necessarily reference well among such firms.
  • Your offering will almost certainly speed a company to exit at an excellent valuation (hint: you can’t, or else you’d be a champion VC yourself).

What should you do if you decide to make the pitch?

  • Do your homework — it’s fairly trivial in most cases to discover a VC’s portfolio and the specific investors (partner) on each board.
  • Use your homework — figure out which portfolio companies you have a great deal for, and make your pitch to the specific investor affiliated with that company.
  • Reference successes and, ideally, get referred in. Find other venture-backed companies that you did an amazing job for, and, if possible, get the CEO or VC board member from that company to recommend you. This would be the holy grail introduction.

I personally try to be helpful to decent and courteous sales / biz dev folks, but I think that reading and acting on the above is a bare minimum level of courtesy for sales / biz dev people talking to VCs.

Posted in vc | No Comments »

More Evidence That Your Old-Ass Values No Longer Hold Sway

March 3rd, 2007

I read last week in the Durham (NC) Herald-Sun this AP story, which unfortunately I now find linked only at the ghastly FOX News:

Today’s college students are more narcissistic and self-centered than their predecessors, according to a comprehensive new study by five psychologists who worry that the trend could be harmful to personal relationships and American society.

Of course, we can hardly see this without warning bells that it is a salvo in the ever-more-boring-by-the-day Culture Wars. But interpreted another way — freed from its pettily polemical underpinnings — it is yet more evidence that the Myspace values have taken over from the old-school ones that persons of so venerable an age as my own (27) may yet hold. Self-promotion is no longer vice, but virtue. Narcissism, manifested through incessant working on of one’s own profile and pictures, is not the domain of a few egotist introverts but is every barista’s and coed’s pastime.

Reflecting on this shift during a week in Key West reading some of Papa’s value-challenging works on the Lost Generation was interesting. (I will not say enlightening, as the mind-addling effects of the State of Florida tend to preclude enlightenment while in the Sunshine State.)

Posted in tech_and_market_reflections | No Comments »

How YouTube Has Renewed My Hopes For Humanity

February 16th, 2007

I spent some time recently playing around on the post-acquisition YouTube. It seems that Google’s legal department has really cracked down on copyrighted material; about one in six links I surfed from within YouTube were broken (removed due to terms of service violations or such).

But in surfing the remaining stuff — most all amateur productions like guitar showoffs or beatboxing flautists — a realization came over me that has renewed my hope for humanity. This is an odd thing to say about grainy, jerky videos filmed in peoples’ garages and living rooms, I realize.

What it was in particular, though, that gave me this sense of hope, is understanding that people — non-professional people, amateurs in the both the “lover” and in the “unpaid” senses — have an incredible desire to express themselves through random-ass creativity, which they will do if only they have an excuse. YouTube is the excuse and the motivation.

Kids who have a crazy idea, say, to play Pachelbel on the electric guitar at breakneck speed, or to lay down a beatbox while blowing a jazz flute tune — a crazy idea that begs to be shared with other people just for the sheer joy of sharing — now have an outlet, a stage big or small upon which to showcase the finished product. Since a lot of this stuff is just too wacky and micro-scale to find outlets in traditional performance or social venues (you could never sell a ticket to see some guy spit and raspberry into his flute for 4 minutes, and it would take quite the rude host to foist such a display on one’s party guests, for example), in a pre-YouTube world one can imagine some number of would-be beatboxing flautists who simply never would bother to practice and innovate, since they’d have nobody with whom to share their micro-triumph.

Now, with YouTube available, one has a real, credible (if nonremunerative) way to get some social props for honing any weird, nonsaleable, but potentially interesting or amusing skill. This, I hope, will spur all sorts of creative activity, the practice of which I hold inherently to be better than mere consumption or participation in externally-created pastimes.

I realize that this is sort of a reformulation of “Long Tail.” But what I want to focus on is not on the existing producers of the long end of the tail, but rather on the incentive this provides for converting mere consumers into long tail producers, and the moral improvement this results in for those ex-consumers. And this is how YouTube has renewed my hopes for our race.

Posted in tech_and_market_reflections | No Comments »

HOWTO: Subversion Export for Legal Discovery

February 7th, 2007

The more interesting things you do in life, the more likely it is that some jackass will sue you. If this happens, you will probably be faced with giving one or more sets of attorneys access to your electronic documents.

If, like all right-thinking citizens, you store your documents in a Subversion repository organized hierarchically by subject, you may find yourself needing to provide access to not only the current version, but all previous versions, of all documents on a particular subject.

With CVS, you could just have made a copy of the relevant part of the repository root, since the repository itself stores things in a directory structure.

But SVN has some nice features like renaming, symlinks, and binary diff, which necessitates a more sophisticated repository structure. You’ll notice that if you go to your repository root, there’s no analog to what you see in CVS.

If you don’t want to give the lawyers your whole SVN repository (and there’s no reason you should), then you need a way to drop out all of the revisions, ever, for a particular directory and all subdirectories.

Here’s what worked for me (using Subversion on Cygwin on Win XP). 

$ mkdir /cygdrive/c/temp/discovery $ mkdir /cygdrive/c/temp/discovery/working_copy $ mkdir /cygdrive/c/temp/discovery/repository $ cd doc/all_stuff/ $ cp -par doc/all_stuff/target /cygdrive/c/temp/discovery/working_copy $ svn up -rHEAD target_subject $ svn log target_subject > /cygdrive/c/temp/discovery/repository/log

Now, look through the log for all of the revisions mentioned. For me they were mercifully few; you may need to do a touch more scripting if you have e.g. hundreds of revisions (think “| grep ‘^r'”). 

$  for i in 1 49 103 106 107 112 HEAD > do svn up -r$i target_subject > cp -par target_subject/ /cygdrive/c/temp/discovery/repository/r$i > done $

This gives a nice, clean structure with your current working copy (including uncommitted changes) in one directory, and all revisions up to that one in another directory, along with the svn log of comments on all commits. This should satisfy all but the most KY-equipped of legal eagles.

Posted in bugfix | No Comments »

Jihad Against Websites That Artificially Maximize Page Views

February 5th, 2007

I was checking out the new Judy’s Book in an attempt to find a good local accountant. Well, it’s terrible. But of all the ways (incomplete, too many ads, too cluttered, unhelpful categorization, navigational and search deficiencies) in which it’s terrible, there is one which stands out:

Judy’s Book sells out its users by trading our attention and RSI affliction for extra page views.

What I mean by this is that there is no way to look at an object / entity (in this case, a local business that is reviewed), and see at a glance all the relevant information and reviews. You have to click through to a new page in order to read more than the first several words of each review (of which there may be many for each reviewee). This makes it impossible to quickly scan and get a feel for the business you’re looking at. Maybe the use testers at Judy’s Book are slow readers or in some other way deficient, but any modern infovore is well-adapted to scanning and snarfing. The difference is like ordering a Porterhouse and getting a pile of steak bites.

They must be getting CPM advertising rates, because the only rational reason for pissing off and insulting your users like this is to jack up your page view metrics. (As an example of how much people hate this, consider that it’s seen as bad netiquette to post links to the “online” version of a news story when there is a single page “printable” version available for non-moronic reading.)

So, I’m now on a jihad against websites that conceal information unnecessarily behind “read more” or similar links in order to drive additional page views. Don’t do it. Or else I will get whiney (and get carpal tunnel syndrome from clicking your damn “read more” links).

Posted in tech_and_market_reflections | No Comments »

Hint: Nobody Has Any Idea How This Thing Works

January 31st, 2007

In Venture Capital, we have lots of rules of thumb for assessing entrepreneurs. Some such rules are:

  • Invest in guys who are already rich, because they have fewer distortions in their motivations.
  • Invest in guys who aren’t already rich, because they’re hungry.
  • Invest in guys who have put their own wealth at risk, because they have “skin in the game.”
  • Invest in guys who have raised outside capital from credible investors.
  • You gotta outsource the tech stuff — it’s too expensive.
  • You never outsource the tech stuff — it’s too important.
  • Entrepreneurs should not come from a big company (because they have the wrong culture).
  • Entrepreneurs should come from a big company under a big-ego boss (because they want to make their own name out from the shadow of the big cheese).
  • Only young guys get this new (social networking, Web 2.0, whatever) stuff.
  • Only seasoned old guys will make any money.

When you’ve got guidelines like this, many of which are quoted with nary a trace of irony by the practitioners of our art, it’s fairly clear that you actually don’t have any useful guidelines.

Except one: invest in guys who’ve done it before.

The only person you know has a shot at creating a company with an exit value over $100 M (which is about the minimum exit value that most VCs would admit to wanting in any case, so I’ll use this as the threshold for my definition of a “star entrepreneur”) is the guy who’s already done it. Everybody else hasn’t yet proved it.

However, we have a major signal-to-noise problem here. When you look at an entrepreneur, even if he’s a star, you don’t know to which causes and in what proportions to attribute that stardom. Certainly, the quality E of star entrepreneurship could be the cause. But it could also be quality L (for luck). With only one exit, you just don’t know. But with no exits, you know even less.

If you were a statistician, you might try doing something with a Chernoff bound or a Z-test to figure this out. But a few things confound this approach. The main problem is that your number of trials is usually one. You can’t just keep tossing the coin to see if it comes up heads 51% of the time; you have to somehow guess the bias after only one flip (no pun intended!).

Another big source of error is that successful exit events are fairly rare. Most venture funded companies don’t have successful exits. (The old chestnut about VC is that a fund makes ten investments; five fail, 3 or 4 return 1x capital, and 1 or 2 make a 10x return. That’s hardly accurate, but it’s a good enough schematic for understanding the rarity of successful exits.) So if the probability of any given entrepreneur having a successful exit is 10%, then even a “rock star” who is five times better than the average is still only even money to exit big.

So, we have lots of both Type I and Type II errors. Finally, successive startups are not independent trials. That is, unlike rolling the dice, each startup you do is affected by the previous ones (both the experience of doing them and the ultimate outcome).

Even when an entrepreneur has been successful in the past, we don’t know if he’s likely to be successful again (though we can say, on average, he’s more likely to succeed than a newbie). But often, we fail to reject the guys who “hit the lottery” with their previous success. And even more often (almost by definition), we end up rejecting highly promising entrepreneurs who haven’t yet had a home run.

Yet, somehow, VCs continue to invest, and the returns (compressed due in large part to excess capital seeking a home in alternative assets / private equity) have continued to be good (if less princely than in the early years of VC). So VCs aren’t just monkeys throwing darts; we do have some discrimination ability.

Another chestnut in the VC industry is that “it takes $X million (e.g. $30 million) to make a general partner.” That is, to get a venture investor to the level of a seasoned senior investor, he needs to have led $X million in deals. This amount of deal flow (or, as it’s sometimes told, losses) is required to build up the black box of intuitions, gut feelings, sixth sense, etc. that a good general partner should have.

To me, this is a bunch of horse hooey. Yes, any good seasoned professional in any field will have some pre-rational judgment abilities that appear to be a “black box” — but these should only come into play at the margin. The core of any professional discipline must be reducible to a teachable, coherent syllabus. Take, for example, Malcom Gladwell’s example in Blink of the use of the Goldman algorithm for diagnosing acute myocardial infarction (heart attack). Essentially, the algorithm kicks the ass of expensive cardiologists and other “professionals” at doing one narrow thing, which is telling whether a heart attack is happening.

Now, the human body is a system, replicated and observed over billions of instances, with trillions of dollars cumulatively spent on measuring and exploring it. It provides feedback continuously on a second-by-second basis. And a heart attack is a fairly catastrophic and disruptive event — the death of part of the most important muscle. So the fact that a relatively simple algorithm can discriminate that event with great specificity is perhaps unremarkable.

But what is remarkable is that it took until the mid-eighties to promulgate the Goldman algorithm, and even today it’s not the gold standard. (Hey, at least medicine has the Goldman algorithm: in VC, nobody yet has validated such an approach.)

Doctors and VCs both have acute cases of what I call “special snowflake syndrome:” both groups tend to believe that they have special, irreducible talents and skills at doing whatever they do, and that they could never be replaced by a dumb machine. It is no coincidence that special snowflake syndrome tends to strike those in high-income jobs; folks who’ve seen automation or offshoring put downward pressure on their wages tend not to subscribe to this conceit. We also see special snowflake syndrome in industries where there are relatively high barriers to entry, such as regulatory (medicine) or timing / liquidity (10 year partnership agreements in VC).

In both cases, special snowflake syndrome will inevitably lead to heartbreak as people without the illusion of snowflakeness find and implement things like the Goldman algorithm (and the coming, immodestly named Lucas algorithm for VC). Unfortunately for the doctors, they won’t be capturing the economic surplus that results — it will be the middlemen in the hospitals and insurance behemoths that soak up the savings. (Doctors: save yourselves now, by demanding economic ownership of your patients’ well-being, the only humane and just way to allocate costs and risks in your profession!)

Fortunately for VCs, the implementation within a partnership of the Lucas algorithm will enhance that firm’s ability to identify and make successful investments with greater certainty and less manpower. And since VCs, through the carried interest portion, are compensated on financial performance, this will ultimately benefit the adopters. Yes, there will be some Schumpeterian woe for the old-school hangers-on as the snowflakes of their egos are melted in the sunshine of the new day that will be ushered in. And yes, a certain few of the old-school VCs — the ones with really great black boxes and/or Rolodexes — will continue to enjoy their maverick road gambler reputations. But by and by, rationality is coming to our market. Our black boxes will help us make decisions at the margin, but our algorithms will drive our core activities.

Does anybody want to work
on the algorithm with me? (I’m willing to hyphenate the name of the algorithm.) Drop me a line or give me a call at Voyager, +1 206-438-1822. (There will, of course, be several variations for different industries, geographies, stages, and firm preferences — so much so that each firm will likely need its own implementation — which is why I’m not too concerned about giving away competitive advantage by discussing with others in the industry.)

Tags: , ,
Posted in vc | 1 Comment »

Your Old-ass Values Are Broken in this Shiny New World

January 29th, 2007

I was slow to adopt a lot of new social networking technologies. I read blogs for several years (OK, like, three) before getting into “active” blogging (fairly frequent, first-person writing, unlike the mostly-error-message blog posts I put up at my Harvard Law blog.

I was super-fast, however, to adopt Linux, email, instant messaging, online banking, and even “traditional” Web-page-havin’. Why the delta? (Maybe I’m getting old.)

I think it’s got to do with values. My values were about:

  • the importance of one-on-one and small-group relationships,
  • the value of one’s words, and hence the advantage of controlling and using care with one’s communications,
  • measuring twice and cutting once,
  • privacy
  • etc.

There were also some values that I was aware of (but can’t claim personally to have really made much of):

  • modesty,
  • non-intrusiveness on others,
  • etc.

These values privileged one-to-one communications media (email and IM), and one-to-many, “broadcast” model, write-then-publish media (like print publications, papers, and old-school “resume-ware” personal Web sites). If you believed this stuff, you made a few friends but really good ones. You were loathe to publish things that might look stupid. You didn’t want folks to find out who you knew and who knew you, necessarily, as that could be strategic info. And (of course) you wanted to toot your own horn, but without seeming to be doing so yourself.

But social networking rejects all that. If you hold on to all those old values, you’ll get left behind. In social media, the values are:

  • promiscuity,
  • self-promotion,
  • frequency and speed of communications and replies,
  • saying some crap just to be the one talking (this was big at Harvard, come to think of it),
  • exhibitionism, or at least sharing one’s bad habits with the world, a la Hugh Foskett,
  • etc.

So, we have a generation being raised on social media for their IT experience. What little television they will be watching in 5 years will all be “reality” shows, mixed in with “mash-up” or “remix” TV a la VH1 (where celebrity becomes its own vehicle and its own end, perpetuating itself for the sake of itself, kind of like how degrees in certain subjects qualify the holder only to teach that subject). In this world, having old-ass values will pretty much be limited to accountants, lawyers, and maybe some fussy academics (but not the ones with glossy popularized books or lecture tours).

This is and should be somewhat disturbing. Every day, I ride in an 80-year-old elevator. While I’m sure most of its moving parts have been replaced at least a couple of times over its service life, the mechanism itself still functions as the original engineer created it. I’m frankly rather glad that he was raised with old, crusty values rather than the bright, shiny new values with which we’re going to be replacing them.

I wish this were a flash in the pan. But things like webcams, podcasts, blogs, tumblogs, Twitter, and Dodgeball, not to mention Myspace and the rest, all point to these new shiny values rising to ascendancy.

So, look: if you want to survive and thrive in the brave new world of social media, you gotta jettison those old values that got you into Stanford or through your MBA or into the partner track at Sequoia. You have to embrace the ADD and the confusion and the nakedness.

(Or, you have to figure out how to use your old-school values to operate at an abstraction level above that of the twittering throng…)

Posted in tech_and_market_reflections | No Comments »

Playing Online Poker on non-Windows Platforms

January 26th, 2007

I noticed today that I had a few people find my blog via Google with a search for, e.g. “ubuntu software install texas hold em.” This is because I have some writings about poker and about Ubuntu Linux.

Well, I don’t want to pass up the chance to give good, globally-utility-maximizing advice. The only place I’ve ever played real money online poker is PokerRoom.com, which has a cross-platform-friendly Java client. And while I haven’t played since 2004, in 2003/2004 I can vouch for their legitimacy.

Of course, the recent round of corrupt, hypocritical legislation that has created a War on (some) Gambling has really eff’ed up the entire online poker scene, so YMMV.

Posted in poker | No Comments »

The Yen Carry Trade for Everyman, or, How You, Too, Can Unbalance Financial Markets

January 17th, 2007

I was reminded by an Economist article recently about a conversation I overheard at an Asian noodle shop a few weeks back. Some guy was talking to his buddy. The conversation went, roughly:

“Yeah, I just got a great deal on a boat.”

“Where’d you get the money? Did you hit the lottery?”

“Naw, I got a loan, but with a really good interest rate.”

“What, like 6%?”

“No, 1.5%. See, in Japan they got really low interest rates. I was able to get the loan in yen, and then just convert it over to dollars to buy the boat. But the interest is the same!”

Wow. Amaranth and all other wackiness aside, you know financial markets are getting screwed up when average noodle-shop patrons are using the yen carry trade to finance trivialities.

Posted in finance | No Comments »

Guy Kawasaki Hates Me

January 16th, 2007

In a post entitled The Venture Capital Aptitude Test, quasi-famous blogger and sorta-VC Guy Kawasaki rags on junior venture investors in general and on young VC associates in particular. He prescribes “contempt” for “any young person who opt[s] for venture capital” and implies that such people are “full-of-shi[t]” (saying “shiitake” when you mean “shit” is just barely cute enough to countenance the first time, Guy, but let’s call a deuce a deuce).

In other words, Guy Kawasaki hates me.

Now, I am by no means the archetypal target of Guy’s scorn — his sharpest comments are reserved for MBA and I-banking types without operating experience, and he has a soft spot for those of us with engineering and sales backgrounds. I have, in fact, nothing but operating experience (two software startups, one profitable, one defunct) in my career to date, but being in my late twenties and working for Voyager Capital is inexcusable to Guy.

Guy sets up a straw-man argument, viz:

1. Working in VC is the best way for a young person to learn entrepreneurship.

2. Young seekers of VC positions are motivated by gigantic ($500k) salaries and massive carried interest portions.

3. Young VC associates are great candidates for shepherding along startups through their challenges.

Unsurprisingly, Guy knocks down that straw man, says “shiitake” a couple times, and then congratulates himself. Hurrah! He does so with the help of an interactive, Cosmo-style quiz that asks fairly shallow questions about who one is (“background”), what one has done (“first-hand experiences”), and what knowledge one has (“necessary knowledge”). Cognitive dissonance must set in for him around here, since his California-Bay-Area-influenced emphasis on “direct experience” was offset by an ancien regime-style weighting toward character and background (it’s Baba Ram Dass vs. the Greek chorus). Finally, Guy racks up the comments — mostly strokes for Guy with a bunch of self-reported high (or low!) scores and self-strokes — and takes the very odd approach of appending his replies, separated by a line of asterisks, to the three negative comments that dared to challenge his post.

Where should my criticism start?

A decent kickoff would be to work backwards through his straw-man points. Guy’s pointing out that VC associates aren’t necessarily the best mentors and board members for startups is not only obvious, but pointless. A VC associate isn’t supposed to be the wizened old sage who shepherds a company to success; indeed, I would suggest that in most VC firms, associates aren’t even allowed to take board seats.

Guy disingenuously ignores the idea of division of labor. A quick primer on investment team roles for those who aren’t familiar with finance (from which VC borrows a lot of titles):

  • General Partner / Managing Director: A “General” or “Admiral.” Not only a full investor, but an owner of the firm.
  • Venture Partner: A “Commodore” or “assistant undersecretary of defense.” Sometimes acts like a GP / MD, in other firms is more like a part time advisor.
  • Principal: A “Captain” or “Colonel.” Able to take board seats and have one’s “own” investments.
  • Associate: A “Lieutenant.” Might lead deals, but doesn’t “sign checks.” Not usually on boards.
  • Analyst: An “Ensign” (or maybe a sailor). Helps with deals and “bird-dogs” leads, but doesn’t do deals. Definitely not on boards.

Associates and analysts are generally MBA or pre-MBA types, and are expected to do much of the due diligence, financial modeling, and to follow up on the colder end of the lead spectrum (all the way down to cold calls, in some cases). In effect, they are doing exactly the work that their MBA, I-banking job, or consulting gig prepared them to do: spreadsheets, ginning up pitch books for LPs, reading of contracts and term sheets, talking to people and vetting their credibility, sanity-checking business models, etc.

It is at the GP / MD and Principal levels that advising of portfolio companies comes into play. (Now, will you in practice see overzealous associates running their mouths in situations they shouldn’t? Of course; in the mix of ambitious people you hire associates from, you’ll get some arrogant and / or impudent overachievers. But it’s the exception that Guy takes for a rule.)

And, if anybody is making the mythical $500k salaries, it’s folks in the GP / MD bracket. But don’t take my word for it; you can make a reasonable estimate of GP salaries for a given firm. Simply multiply the total assets under management of a VC firm by a reasonably high management fee (say, 2.5%) to find a credible upper bound for the firm’s non-carry revenues (ignoring for the moment “franchise” firms that essentially license their brands to others). Then, take a slice off the top (say 25% minimum) for rent, support staff, auditors, lawyers, insurance, and any “private jets” that Guy imagines, and you’ve got the total allocable to investment team compensation (salary, benefits, etc.).

Let’s take Guy’s firm, Garage Technology Ventures, for example. They’ve raised a first fund rumored to be $20M (with CalPERS as the “principle [sic] limited partner”), and possibly a second fund. Let’s assume that there’s a second Garage fund of $40M. That would bring total AUM to $60M; 2.5% fees would gross $1.5M annually for the firm. Let’s slice off 25% for rent, etc. — now we’ve got $1.125 M. Garage has three MDs and two VPs (venture partners); let’s assign the MDs 3x the salary of the VPs (who are probably part-time). That gives us 11 units of salary from the $1.125, or roughly $300k per MD and $100k per VP. Don’t forget that a chunk of that goes out the window to the employer costs of payroll taxes and benefits, so you’re probably looking at base salary to the MDs of more like $200k and to the VPs of perhaps $75k.

That took about three minutes (and I don’t even have a Wall Street I-banking background!). Admittedly, Guy’s firm is a remarkably small VC in terms of assets under management. Still: would any sane ex-banker think he has a shot at $500k base by going to work for Guy or any other VC?

Clearly, nobody is asserting these silly ideas (except Guy’s man of straw). This brings us full circle back to the straw man’s original plank: that VC is a great way to learn entrepreneurship. Well, precisely, this is false, and we must grant Guy that concession. There are a thousand things an entrepreneur must do that a VC associate, no matter how duly diligent he may be, will never observe him in.

But merely because the VC vantage point is insufficient to learn entrepreneurship does not mean that it cannot be helpful. Indeed, to the extent that raising investor capital (from someone other than your inner circle) is something you foresee doing, being on the VC side of the table is remarkably helpful. I speak from experience here: I roughly bootstrapped two startups using a combination of the five F’s: Friends, Families, Fools, Physicians, and Float (off of credit card convenience checks!). Yet my knowledge and ability concerning raising investor capital was nil. After my time so far at Voyager, I now have a relatively huge sample size to see what works and what doesn’t (and why!) in investor pitches.

Now: if I had spent the last two years pitching VCs, would I have more and different knowledge about entrepreneurship than that which I gained listening to such pitches? Certainly. And it’s almost undoubtedly better for the skill of raising capital to actually practice raising it than to observe others pitching you. But to the 25-year-old entrepreneur without a “base hit” or previous connection to the venture industry, practicing raising VC by just doing it isn’t ge
nerally a realistic option.

Guy also ignores the fact that a VC is supposed to be different from an entrepreneur. They operate on different logical levels; a VC must be at a meta-level to the entrepreneur’s. Meta-level occupations, such as consulting or I-banking, prepare individuals for this by having them view many businesses and compare among them for patterns, valuations, etc. It’s the difference between being an antiques appraiser and being Carl Faberge.

A better and more useful caveat to young VC position-seekers is simply to remark on the dearth of positions available. There are, to a first approximation, no jobs in VC. If VC wants you, it’ll find you; if not, you’re almost certainly better doing something besides quixotically questing for a junior venture job.

That said, I chose VC as a detour on my route to entrepreneurship. Although I wasn’t originally looking for VC as a next step, it was recommended to me by one career advisor around the same time as I learned of an open position looking for an analyst with operating experience. The money isn’t princely, but it’s steady. The learning isn’t everything I’ll need to succeed, but it’ll help. And frankly, it’s absolutely a blast and the next best thing to starting my own new company.

A final note: a subtext to Guy’s entry and its comments implied that junior VC personnel were all young whippersnappers who couldn’t hold a candle to the grizzled but worldly wise entrepreneurs they worked with (and that they ought to hold their tongues besides!). That thought is OK, I guess: I certainly am humbled when I have to communicate a pass to a repeat entrepreneur who’s sold more companies than I’ve founded. But seriously: if you’re a tough, worldly entrepreneur who gets offended by talking to some young VC associate, you need to suck it up and give less of a shiitake about what us whippersnappers say.

Posted in vc | No Comments »

« Older Entries
Newer Entries »