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VCs aren’t your friends

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Re: VCs aren’t your friends

#131

Post by notahacker »

leashless wrote: post #90
tomp wrote: post #88

Earlier quoted context omitted.

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?

Take 40% and raise capital for the VC operations as a separate transaction than from the LPs, of course. Efficient markets.

So they take 40% of future portfolio returns, and then sell half of that up front in return for investment of 2% of total funds managed and end up exactly where we are now but with added complexity....

Re: VCs aren’t your friends

#133

Post by wbl »

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?

Strangely the 0.05% management fee I pay covers the fix costs of my mutual fund.

Re: VCs aren’t your friends

#134

Post by keiferski »

jorvi wrote: post #108
keiferski wrote: post #21

The way VCs filter out potential investments seems fairly similar to the way Ivy League schools filter out potential students. (Probably because they are comprised of the same people.) It is not really about technical brilliance, or innovation, or anything that is written on their website as a core value. It's more about whether you're smart enough and can follow instructions and fit into the overarching institutiona…

> can't imagine someone like Steve Jobs or Nikola Tesla passing these VC/Ivy League kinds of tests. My "favorite" "test" is the one more for soft studies (think law or public policy) rather than STEM: for example UN internships typically have no compensation and they often require you to relocate to extremely expensive CoL areas, meaning there is an automatic filter built in where only children of very well-off paren…

This is a big thing in journalism and fashion, too. Doing an unpaid internship in NYC isn’t exactly cheap

Re: VCs aren’t your friends

#136

Post by TrackerFF »

keiferski wrote: post #21

The way VCs filter out potential investments seems fairly similar to the way Ivy League schools filter out potential students. (Probably because they are comprised of the same people.) It is not really about technical brilliance, or innovation, or anything that is written on their website as a core value. It's more about whether you're smart enough and can follow instructions and fit into the overarching institutiona…

I wrote it in another post here, but a bunch of these VCs are cut from the same cloth. They went to some Ivy League school, worked as investment bankers / management consultants / etc. and spent their first year(s) aligning images/tables/etc. and checking power point decks for typos.

If you do stuff like that 100 hours a week, it kind of becomes ingrained.

Re: VCs aren’t your friends

#137

Post by stanleydrew »

andrewstuart wrote: post #17

The is all "investing theater", in which stuff other than the business and product is what the VC uses to make a decision.

It's not. VCs are investment professionals and are trying to avoid adverse selection just like everyone else. Here's a relevant quote from a recent Matt Levine newsletter:

> I think that, if you had only five minutes with a world-class trader, and you asked her “teach me the essentials of trading,” probably she would spend the five minutes on adverse selection. The essential lesson is that, if you are being offered a trade, that probably means it’s a bad trade; your job is to understand that thoroughly so you can figure out the exceptions.

Re: VCs aren’t your friends

#138

Post by jordanb »

leashless wrote: post #115
saberience wrote: post #104

Earlier quoted context omitted.

They already do that... they raise funds from LPs which include a fee which covers the costs. And it works fine, LPs repeatedly invest in the same firms which they wouldn't do if they thought it was a bad deal. There are firms which have been investing for 20-30 years with the same LPs. If the business model wasn't working it would have failed and the VC firm would have closed a long time ago.

"If the business model wasn't working it would have failed and the VC firm would have closed a long time ago." Tons of VCs do fail.

As a class VC is a lousy investment.

Warren Buffett has described PE as a horrible investment class populated entirely by grifters who lock up your money for 10 years and fuck around with it, producing awful returns. The way he describes it, VC sounds very similar from a LP's perspective.

So why does anyone invest? Buffett's theory is that LPs are mutual fund and pension fund managers who like the fact that there's a 10 year lockup in a private, illiquid investment because it means that the value can't be marked to market. They won't still be managing the fund at the end of the lockup and in the mean time they can mark to expectation and let the next guy deal with the fallout.

Re: VCs aren’t your friends

#139

Post by leashless »

chollida1 wrote: post #123
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…

> Remember: if VCs believed in what they were doing they would not take a 2% annual management fee and 20% of the upside. This makes no sense. Companies have fees, junior associates have student loans, buldings require rent to be paid. This is a foolish sentiment, unless you would apply it to all employees everywhere. If startup employees truly believe in their company they would also take no salary at all and just l…

VC as an asset class loses money.

Within that loss, some companies do better than others.

Whether that is skill, luck or finding some way to tilt the board in your favour (political influence for example) depends on who you ask.

I have read that the statistics the distribution of success in the VC field was compatible with a random distribution with a very small skill bias.

I do not know if that analysis was accurate and it will be 10 years out of date now.

But that there are winners and losers does not mean that it is not a game of chance.

Re: VCs aren’t your friends

#140

Post by MacsHeadroom »

chollida1 wrote: post #123
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…

> Remember: if VCs believed in what they were doing they would not take a 2% annual management fee and 20% of the upside. This makes no sense. Companies have fees, junior associates have student loans, buldings require rent to be paid. This is a foolish sentiment, unless you would apply it to all employees everywhere. If startup employees truly believe in their company they would also take no salary at all and just l…

> If startup employees truly believe in their company they would also take no salary at all and just live on ramen noodles.

Yes.

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