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Watch a VC use my name to sell a con

jwz.org

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Re: Watch a VC use my name to sell a con

#161

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corin_ wrote: post #150
patio11 wrote: post #147

Earlier quoted context omitted.

you aren't putting in a lot of money that you might lose, which they did. VCs make money win or lose. Limited partners actually have capital risk. People know this, right?

Afraid not (afraid I don't know, not you're wrong) - how does a VC make money if a company they invested in goes bust and shuts down?

VCs are (primarily) investing other people's money. The basic overview is this:

VC raises a $100m fund that is expected to last for 10 years. They charge a 2%/yr management fee, for their work as investors. Then, they also keep 20% of the gains from their investments.

So if the fund operates for 10 years and exits for $400m, my understanding is that they'd take $20m for managing the fund, plus $60m "carried interest", and return the rest to the limited parters (the investors whose money was actually at risk).

If the fund operates for 10 years and the companies sell for a combined total of $50m, they still charge the $20m management fee, and the investors have $30m returned to them.

Thus, VCs themselves have very limited downside.

Re: Watch a VC use my name to sell a con

#162

Post by paganel »

dskhatri wrote: post #61
prawn wrote: post #11

I'm glad he finished with a note for the people who actually get something out of hard work on their personal project because I doubt I'm alone in getting a lot of personal satisfaction in performing like that. It's not all the time that I pull an all-nighter or a couple of weeks of hard slog, but I often feel better for them. And I'd rather be doing that for myself on a side project or in the start-up lottery or wit…

I appreciated the final words too. I've noticed an increase in the number of people offering advice about how to do things "right", followed by comment streams about why that's wrong, and "right" would be doing things a different way. But what's right for one person is not for another. I too find myself working super hard on projects that may seem worthless to some, trading off my sleep once in a while. It makes me f…

> I appreciated the final words too. I've noticed an increase in the number of people offering advice about how to do things "right", followed by comment streams about why that's wrong, and "right" would be doing things a different way.

Yeah, amen for that. I also have at least 3 personal projects to which I dedicate as much time as possible. I don't want nor expect to make any money out of them, and when one of my co-workers asked me why didn't I spend my free-time on freelancing to gain even more money (like he does) I answered that what I was doing made me feel good and that was that :)

Re: Watch a VC use my name to sell a con

#163

Post by vidarh »

jwr wrote: post #157
dschobel wrote: post #55

I love that this is the top story on HN. I only wish that PG got as much flack for his startup economics hype piece[1] and proposition to compress a lifetime's worth of work effort into four years. [1] http://www.paulgraham.com/wealth.html

The difference is that PG actually did this stuff, while Arrington did not. PG is one of us, Arrington is not.

Mike (disclaimer: I know him) has done more startups than PG, and he did pretty much sleep under his desk for the first couple of years of Techcrunch (well, his desk was in his bedroom, and the Techcrunch "office" was the rest of his house) and has worked equally hard in the other startups he's done while I've known him. Including as a regular employee (that's how I met him - he worked at a startup I co-founded years ago).

So he's not a programmer. There are non-programmers that also work hard, you know.

Re: Watch a VC use my name to sell a con

#164

Post by patio11 »

corin_ wrote: post #150
patio11 wrote: post #147

Earlier quoted context omitted.

you aren't putting in a lot of money that you might lose, which they did. VCs make money win or lose. Limited partners actually have capital risk. People know this, right?

Afraid not (afraid I don't know, not you're wrong) - how does a VC make money if a company they invested in goes bust and shuts down?

VCs invest money from so-called limited partners: universities, pension funds, wealthy families, etc. They're partners in the VC firm by dint of providing money, but they don't get operational control of deals.

The fee structure of a VC firm is similar to that of a hedge fund: they take a management fee (based on the committed fund size) and a performance fee (based on the profits, if any, from investing). Typical numbers are 2% annually and 20%, respectively.

If a VC fund invests $100 million in a company and, after four years, the company goes kablooey, that actually cost the LPs about $110 million or so. The VCs made $10 million.

Re: Watch a VC use my name to sell a con

#165

Post by corin_ »

patio11 wrote: post #164
corin_ wrote: post #150

Earlier quoted context omitted.

Afraid not (afraid I don't know, not you're wrong) - how does a VC make money if a company they invested in goes bust and shuts down?

VCs invest money from so-called limited partners: universities, pension funds, wealthy families, etc. They're partners in the VC firm by dint of providing money, but they don't get operational control of deals. The fee structure of a VC firm is similar to that of a hedge fund: they take a management fee (based on the committed fund size) and a performance fee (based on the profits, if any, from investing). Typical nu…

Of course, and I did know that had I been thinking straight, but I don't think it detracts from the point I was trying (badly) to make.

Obviously advice from a VC is given selfishly, as you doing well means he does well, but for them to do well (i.e. get the performance fee), that will mean that you have done well too.

Re: Watch a VC use my name to sell a con

#166

Post by vidarh »

akkartik wrote: post #60
betterlabs wrote: post #58

Earlier quoted context omitted.

I was actually referring to PG's views on that issue that Arrington wrote about. And the whole discussion definitely applies to founder and their startups too, imo. The issues are the same and so are the trade-offs. Would you give you your life for your startup but not for anyone else'?

Ah, I assumed the three startups you mentioned were your own. jwz talked about working hard and enriching others. That's not an issue if it's your own startup.

It is an issue if there are VC's involved. One of the startups I co-founded and owned 25% on at outset ended up with a whopping 1% of the proceeds of the exit. I'm not bitter - in this case the exit recovered maybe 30% of the cash the VC's injected, after about 8 years - and so the dilution was understandable. But unless you bootstrap, you will increasingly be working to also enrich others, after VC's, options to other employees etc..

Exceedingly few VC-funded businesses end up with founders holding on to massive stakes all the way through to an acquisition or IPO. That is the tradeoff you make whenever you take VC money: You hope you accelerate your growth enough to more than offset the piece you give away. That is also why it is often more financially attractive for regular employees to join a VC funded startup: the growth rates are often similarly faster (but you often fail faster too, and more spectacularly; though failing faster is not necessarily a bad thing if you're first going to fail)

Re: Watch a VC use my name to sell a con

#167

Post by sector »

corin_ wrote: post #165
patio11 wrote: post #164

Earlier quoted context omitted.

VCs invest money from so-called limited partners: universities, pension funds, wealthy families, etc. They're partners in the VC firm by dint of providing money, but they don't get operational control of deals. The fee structure of a VC firm is similar to that of a hedge fund: they take a management fee (based on the committed fund size) and a performance fee (based on the profits, if any, from investing). Typical nu…

Of course, and I did know that had I been thinking straight, but I don't think it detracts from the point I was trying (badly) to make. Obviously advice from a VC is given selfishly, as you doing well means he does well, but for them to do well (i.e. get the performance fee), that will mean that you have done well too.

A VCs risk profile does not look like yours, due to the fact that they're diversified and you're not. Imagine your company is doing well and there are two ways to proceed:

option 1: your company can be sold today for $75m.

option 2: you can try for $1,000m or zero, with an 85% chance that you'll fail.

The VC is likely to prefer option 2, whereas if you aren't already rich, you'd likely prefer option 1.

Many a VC funded company has died because the VCs needed you to make a ton of money very quickly, or die trying, in order for their model to work. When considering VC investment, one really needs to be certain that their business needs align closely with your own (and are likely to continue in alignment) if you want to avoid heartbreak.

Re: Watch a VC use my name to sell a con

#168

Post by antirez »

Humans are not designed to:

1) Stay long hours sitted, immobile. It ruins your health.

2) To provide a steady high quality output in creative disciplines (writing code qualifies) for more than a 4/5 hours a day (add to this the time to do breaks, install your updates, check news sites, fix the email client, and you'll reach the 7/8 hours per day figure).

It makes sense in a startup to work hard in crucial weeks, you can sustain that for a few days both from the point of view of your body and your productivity, but making this the rule is just plain silly.

Also, remember that a startup has a small percentage of probabilities of making you rich, so better for you to also enjoy life while working at a startup. Try hard in your working hours (but it is more a matter of doing the right things than the wrong things for a lot of hours), but enjoy life when it's 6 pm.

What's silly is that also VCs are likely to don't really get more return from you by overworking you, but there is nothing than humanity has seen more often than a silly boss that feels more comfortable if you are overworking yourself.

Re: Watch a VC use my name to sell a con

#169

Post by galactus »

kamaal wrote: post #77

Oh, C'mon. So I'm not supposed to work hard and get rich because as a side effect that some one else also is? My dad is a cab driver. He really works his life off. Under absolutely dismal financial conditions he and may mom have given their whole lives to bring us out of poverty. They got me and my sister decent education. They did what every poor family in India does. They worked hard, saved money, invested it and g…

Was he working 12-16 hours when you were a kid? So did you use to see him only the weekends?

Re: Watch a VC use my name to sell a con

#170

Post by duncanj »

mjijackson wrote: post #130
felipemnoa wrote: post #8

>>Follow the fucking money. When a VC tells you what's good for you, check your wallet, then count your fingers. This is just gold.

Been thinking a lot about this statement, but still not sure exactly what he means by it. I could interpret it a few different ways, and I'm probably over-thinking it. How do you interpret this?

You may think you're shaking hands with someone but he's actually picking your pocket. "Count your fingers after shaking hands with that guy" is an idiom suggesting that the guy will steal one.
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