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VCs aren’t your friends

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Re: VCs aren’t your friends

#151

Post by DEDLINE »

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 an incredible post for me. You need to have a marketable CV, you need to have a few growth metrics and you need to be in on the joke.

Re: VCs aren’t your friends

#152

Post by [deleted] »

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…

[deleted]

Re: VCs aren’t your friends

#153

Post by borgdefense »

earnesti wrote: post #52
braza wrote: post #43

For folks that are working on a product right now, given the incentive structures behind venture capital, are there genuine reasons to pursue that kind of money? Let me rephrase: How many folks out there are searching for for some kind of niche business with enough to cover expenses and had some profit in a small scale? I had a short experience with the music industry and the whole enterprise + VC sounds the same dyn…

If you have a business that can get off the ground without funding, great. That just isn't reality for most. There is maybe some people who raise money "because it is cool", but I would think it is in the minority. If you have a business that is profitable, you are happy with the growth, etc, there is little sense in going to the investors begging for money. The couple bootstrapped businesses I have seen didn't have…

[flagged]

Re: VCs aren’t your friends

#154

Post by leashless »

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…

Paul Graham, Black Swan Farming: https://paulgraham.com/swan.html

> "The two most important things to understand about startup investing, as a business, are (1) that effectively all the returns are concentrated in a few big winners, and (2) that the best ideas look initially like bad ideas."

_initially look like bad ideas_ meaning "we can't pick them out of the crowd of other bad ideas"

> "there is probably at most one company in each YC batch that will have a significant effect on our returns, and the rest are just a cost of doing business"

> "For that reason one of my most valuable memories is how lame Facebook sounded to me when I first heard about it."

> "We'll probably never be able to bring ourselves to take risks proportionate to the returns in this business."

So it's not like this model is alien to Our Kind Hosts at YC. They understand that this is a crap shoot with a slightly tilted table, but they're optimising for staying out of the zones where everybody else is betting and not that much more.

To be remembered: if you're having a hard time getting funded, the VCs are also having a hard time funding you, because the huge returns go to things that look odd, lame, and weird.

For the most part.

Re: VCs aren’t your friends

#155

Post by mattmaroon »

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…

Nobody who writes a comment like that wants to know why they’re wrong. “Money people bad” is their mantra. You’ll never change it, they’ve swallowed too much propaganda.

Re: VCs aren’t your friends

#156

Post by StackRanker3000 »

saberience wrote: post #120
StackRanker3000 wrote: post #65

Earlier quoted context omitted.

> 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…

That's like saying you should take VC money because you can end up being like Mark Zuckerberg. It's a 1/50'000'000 sort of case or perhaps even less likely.

I wasn’t suggesting anyone do anything, I was mostly trying to point out that large acts can make a lot of money on touring. Most make very little, if any at all.

Re: VCs aren’t your friends

#157

Post by StackRanker3000 »

throw_nbvc1234 wrote: post #94
StackRanker3000 wrote: post #65

Earlier quoted context omitted.

> 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.

If you look outside the 99th percentile, you won’t find anyone living off their music career.

Re: VCs aren’t your friends

#158

Post by kreck »

saberience wrote: post #105
kreck wrote: post #93

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

The whole "hate VCs" thing is kind of silly in my opinion. VC wouldn't exist if founders didn't want and need capital and have no other way of getting it. Also, for every other "evil VC" story, there are other stories where founders are really happy with their VC board members, have a strong and positive relationship with their VC partners, and end up getting some kind of positive exit which wouldn't have happened at…

I generally agree. Maybe to add to your argument:

A - Just as with customer reviews on amazon unhappy customers are often times the majority to leave a review whereas fewer happy customers voice their opinion in the form of a review. I suspect the same goes for VC interactions.

B - Due to the way the VC business is structured the variance in "quality" of VCs is heavily skewed and not normally distributed, tricking our perception of what to expect. In other words i suspect that you have a much higher likelihood in to interact with a very "low quality" VC or absolute "top VC" than with an "average" VC. If you amplify this with A you may get an even worse public opinion.

Nevertheless I think on an individual basis you're always better off if you don't need VC for your business - if you have that option.

Re: VCs aren’t your friends

#159

Post by leashless »

b112 wrote: post #142
leashless wrote: post #139

Earlier quoted context omitted.

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 accurat…

Do you know if those stats took into account massive economic events? Such as market crashes? Which tend to happen at least once a decade? People often have a point to make, and will often ignore such data to make it. To add to this, outside of honest intent prejudiced with personal bias, there are parties lookong to undermine any aspect of success the West has, by invalidating those successful models.

I don't understand what you are saying or asking. We can only measure against real world data.

Re: VCs aren’t your friends

#160

Post by leashless »

mattmaroon wrote: post #155
chollida1 wrote: post #123

Earlier quoted context omitted.

> 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…

Nobody who writes a comment like that wants to know why they’re wrong. “Money people bad” is their mantra. You’ll never change it, they’ve swallowed too much propaganda.

Hardly, I'm a CEO.
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