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VCs aren’t your friends
171–180 of 383 posts
Re: VCs aren’t your friends
#172Remember: 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 makes a lot of sense. I have always wondered how it is that VCs give so much weight to perceptions. Coming from academic background, it seems so strange that your school rank weights much more in getting VC funding than in PhD admissions.
Re: VCs aren’t your friends
#173Earlier quoted context omitted.
Hardly, I'm a CEO.
Is that supposed to mean something? Half of Hacker News is a startup CEO. By your own logic, you better pay yourself a $0 salary, $0 on secondaries, and invested all your personal savings into the project, because otherwise clearly you don't believe in your own company. Right? And I hope that is also true about every one of your employees?
Check the bio.
Re: VCs aren’t your friends
#174Just 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…
VC wouldn't exist if founders didn't want and need capital and have no other way of getting it.
This is too reductive. A lot of founders have to raise because they're competing with other companies with VC funding, often dumping their product on the market at a loss to starve out bootstrapped competitors and lock in customers.
Re: VCs aren’t your friends
#175Earlier quoted context omitted.
"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.
Yes, and that's healthy. Any ecosystem of companies, people, animals has failures. As far as I can see, it works fine. Just like tech companies, some VCs do amazingly, some fail. We get new VCs starting each year just like tech companies, some succeed, some fail, there's no issue here.
Agreed. VCs are companies, start ups are companies, they've got very similar dynamics.
There's no magic anywhere in here.
Re: VCs aren’t your friends
#176Earlier quoted context omitted.
Fees such as trading costs are a percentage of trading volume. Therefore, the more money you are managing, the higher your trading costs. (i.e those costs are "fixed" but its a "fixed percentage" rather than a static number.)
I highly doubt trading costs are part of the 2% management fee.
In my experience they absolutely are part of the 2% fee. Why do you think they aren’t?
Re: VCs aren’t your friends
#177One of the things I'm surprised isn't covered more is the liquidation preference that VCs take... an investment is basically an extremely expensive loan. If shit hits the fan, they are entitled to the payout of up to their original investment, so all of the company's assets, when liquidated, fund those proceeds. If your company succeeds, the VC owns a percentage of your success.
The interest rate on the loan, is your ROI. This is reasonable because it's a very risky loan.
> If shit hits the fan, they are entitled to the payout of up to their original investment, so all of the company's assets, when liquidated, fund those proceeds.
I thought all loans are structured that way? I am not sure why this should not be the case here.
Re: VCs aren’t your friends
#178Earlier quoted context omitted.
> If startup employees truly believe in their company they would also take no salary at all and just live on ramen noodles. Not if you have no capital -- You still have to eat and be housed and that costs a lot if you don't have family wealth or other income streams, even with a good salary. People also naturally have different levels of risk aversion. Not everyone can/should be putting it all on red every day. > Thi…
> Not if you have no capital -- You still have to eat and be housed and that costs a lot if you don't have family wealth or other income streams, even with a good salary. That's exactly their point; this exact same logic can be applied to VCs, too.
Do you mean to the employees of VCs? LPs do have capital, that's why they're LPs.
For the employees, the sentiment that you should bet on the sales pitch "I won't get you fired" over "I will make you wealthy beyond measure" still holds.
Re: VCs aren’t your friends
#179In my experience founders that have raised vc regard them as bankers. Founders who haven't successfully raised (for whatever reason) and people that dream about being founders postulate on these things. Funding is simple. Seed or before you/team are fundable, based on some signal of you've done it or can do it. Post seed, it's not you, it's the business. If in 2 months you haven't gotten interest or intros, you're bu…
Bankers with good PR.
But for the first time founders out there please don't sweat it if you can't get funded for a long time, you may just be early. I gave up on a great idea (that my partner later worked into a great product within an existing company) because we were unable to get funded for 3 months. And later got VC funded after working on a worse idea for a year. It can take time, It may require you to get customers first, but if you get along with your partners and can see business progression don't worry to much about VCs, they are mostly capricious up until the point you can show that its a good business. Then they are, as OP said, just bankers.
Re: VCs aren’t your friends
#180Earlier quoted context omitted.
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?
The charitable interpretation, especially for early stage investors, is that your investment will not be the last one necessary to realize a successful outcome.
If a company is having a hard time finding investors now, in the future when it needs more money it may fail for lack of takers, spiking current investments.