Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

VCs aren’t your friends

openvc.app

Post reply on HN
Print view View original

91–100 of 383 posts

Re: VCs aren’t your friends

#91

Post by dustingetz »

dheera wrote: post #41
hiddencost wrote: post #2

Every blog post about VC should have a disclaimer with the interest rate at the time of writing.

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%

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

Re: VCs aren’t your friends

#92

Post by saberience »

leashless wrote: post #78

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…

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.

Re: VCs aren’t your friends

#93

Post by kreck »

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

Re: VCs aren’t your friends

#94

Post by throw_nbvc1234 »

StackRanker3000 wrote: post #65
indigochill wrote: post #57

Earlier quoted context omitted.

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 t…

> 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 an…

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.

Re: VCs aren’t your friends

#95

Post by leashless »

saberience wrote: post #92
leashless wrote: post #78

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…

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 c…

As noted, the VC would raise capital like any other business to cover its operating costs.

Think about why they don’t do that.

Re: VCs aren’t your friends

#96

Post by kabouseng »

MichaelZuo wrote: post #45
max_ wrote: post #29

Earlier quoted context omitted.

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.

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.

VC's don't have the ability to distinguish between genius and super genius...

Re: VCs aren’t your friends

#97

Post by michaelt »

dheera wrote: post #41
hiddencost wrote: post #2

Every blog post about VC should have a disclaimer with the interest rate at the time of writing.

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%

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.

Re: VCs aren’t your friends

#98

Post by swores »

spullara wrote: post #56
dmurray wrote: post #30

Earlier quoted context omitted.

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.

Nah. I know a VC that passed on Apple because Steve was 20 min late to their meeting.

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.)

Re: VCs aren’t your friends

#99

Post by knifie_spoonie »

mef wrote: post #73
michaelt wrote: post #69

Earlier quoted context omitted.

> 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?

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?

Re: VCs aren’t your friends

#100

Post by Negitivefrags »

tomp wrote: post #88
leashless wrote: post #78

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…

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?

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?

Post reply on HN