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VCs aren’t your friends

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Re: VCs aren’t your friends

#271

Post by vidarh »

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…

It might seem weird, but most VCs are fairly low-margin businesses day to day, then they either get a big payday or not (mostly not), once the fund starts to wind down. The odds of making it big as a general partner in a VC fund are not great.

A VC has to live of management fees for the fund, which are a tiny fraction, typically half a percent, and that needs to cover both the initial investment process and all management of the portfolio, and it's not a lot.

You can't afford to spend a lot of time scrutinizing every pitch deck, because you'll be inundated by them, so you look for quick filters. Many of which will be bad, because they're wild guesses. Yes, that means they'll miss amazing opportunities. But they're gambling what will be left will at least not be worse.

Upside is, VC's wildly disagree on which things make decent quick filters, so what will get you binned one place will often interest another, or at least not annoy them.

Re: VCs aren’t your friends

#272

Post by SkyBelow »

knifie_spoonie wrote: post #99
mef wrote: post #73

Earlier 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?

>Is this really a sensible factor to consider?

Sensible or cognitive bias that is in play regardless if it is sensible? I've seen a little research on jobs that discriminate against people not currently employed, with longer periods of unemployment leading to greater discrimination. I haven't seen anything about if this is actually justified or not.

I've also heard of this in other areas, like with date, but I haven't been able to find any research and the topic borders some controversial areas that research has struggle handling.

My guess is that it does happen as a bias, related to peer pressure and following a crowd, but like with other biases, even if it makes sense in some cases historically it will lead to illogical behavior in our current society.

Re: VCs aren’t your friends

#273

Post by conductr »

max_ wrote: post #253
dpflan wrote: post #236

Earlier quoted context omitted.

Would you mind expanding upon this, detailing the exploitation: "It was only after Steve Jobs exploited their preferential attachment & tendency of VC to succumb to herding effects that he was given investment."

There is a very good documentary called Something Ventured[1]. It's really good. I think everyone into Startups must watch this. It's not second hand narration but the real VCs them selves telling the stories so I find it very reliable. So in the documentary there is a section about VCs meeting Steve Jobs & Wozniak for the first time. They passed on the investment saying that they were "not impressive". One of the VC…

Even if you think a founder is not impressive, if you see an impressive product you are more likely to take the bet. It’s the same old “sales cures all” sentiment where many organizational dysfunctions can be tolerated if the company’s products are in demand

Re: VCs aren’t your friends

#274

Post by s1artibartfast »

duggan wrote: post #196
fakedang wrote: post #186

Earlier quoted context omitted.

Honestly, I would have too, if I were in that VC's place. Hindsight is everything obviously but at that moment, if a founder were to arrive to an important meeting 20 minutes late without good reason, either the meeting was of little importance to the founder, or the lack of punctuality speaks volumes of his dedication to his company and his potential partners. Dave McClure once told me that he passed on Travis Kalan…

If lack of punctuality being used as a signal causes these VCs to drop Steve Jobs or Travis Kalanick I think it's safe to say it doesn't speak volumes. Otherwise you're optimizing for criteria other than "selecting whether to invest in Apple or Uber."

>Otherwise you're optimizing for criteria other than "selecting whether to invest in Apple or Uber.

They arent single-mindedly optimizing to invest in the next apple or uber at all cost! They are balancing it against the need to screen out no-name bums that look and sound the same.

Re: VCs aren’t your friends

#275

Post by blueblisters »

nextworddev wrote: post #265
max_ wrote: post #253

Earlier quoted context omitted.

There is a very good documentary called Something Ventured[1]. It's really good. I think everyone into Startups must watch this. It's not second hand narration but the real VCs them selves telling the stories so I find it very reliable. So in the documentary there is a section about VCs meeting Steve Jobs & Wozniak for the first time. They passed on the investment saying that they were "not impressive". One of the VC…

The longer you work in tech industry, you will viscerally "feel" just how rare Steve Jobs was as a talent.

he had an amazing feel for mass consumer psyche ("taste") and along with a good dose of charisma

Re: VCs aren’t your friends

#276

Post by jkaplowitz »

d_burfoot wrote: post #256

This is probably a good reminder. But you could write an article like this about every institution: - The police aren't your friends - Your employer isn't your friend - Your colleagues aren't your friends - The government isn't your friend - Small businesses aren't your friends - Big corporations aren't your friends - Elon Musk isn't your friend - Your landlord isn't your friend - Your professors aren't your friends…

The article is useful because, while most of your other examples don’t pretend to be your friends, VCs often do, at least at a superficial level. Understanding that this seeming friendship isn’t real is important.

VCs do have a helpful role to play in funding many types of startups, but the role of investor is very different from the role of friend.

Re: VCs aren’t your friends

#277

Post by giansegato »

vidarh wrote: post #271
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…

It might seem weird, but most VCs are fairly low-margin businesses day to day, then they either get a big payday or not (mostly not), once the fund starts to wind down. The odds of making it big as a general partner in a VC fund are not great. A VC has to live of management fees for the fund, which are a tiny fraction, typically half a percent, and that needs to cover both the initial investment process and all manag…

VC management fees are typically 2%/y. if a VC fund has $100 million in committed capital, the annual management fees would generally be between $2 million and $2.5 million. it's a lot of money.

Re: VCs aren’t your friends

#278

Post by s1artibartfast »

davedx wrote: post #150
YetAnotherNick wrote: post #32

Earlier quoted context omitted.

Nikola Tesla received funds, in fact quite a bit of it. JP Morgan invested $150,000(~$5M in today terms) for just one project[1]. He died penniless because of his too much confidence in his ideas and he overused the money he got. Even with hindsight, funding Tesla was a bad decision for investors return wise. [1]: https://en.wikipedia.org/wiki/Wardenclyffe_Tower

> Even with hindsight, funding Tesla was a bad decision for investors return wise. He invented the brushless motor and types of transformers that were instrumental to building Westinghouse's empire. When Westinghouse was running low on money Tesla tore up the patents he'd sold to him to save the company. Tesla was definitely not a "bad decision for investors", the ROI for his inventions is some significant fraction o…

>Tesla was definitely not a "bad decision for investors", the ROI for his inventions is some significant fraction of the economic value of the global electrical system. But yeah, a couple of his projects failed at some point. Surely a terrible investment!

I feel like this is soo close to getting it. Yes, for those investors it was a bad investment. Their goal isnt global economic value and the success of other projects isnt a consolation.

Re: VCs aren’t your friends

#279

Post by s1artibartfast »

data_maan wrote: post #224
YetAnotherNick wrote: post #89

Earlier quoted context omitted.

VCs put lot of money on solving climate change. I feel climate change is one of the most overinvested field, where companies like Helion are valued $3B not only without any working prototype, but also with an idea which many experts say is not feasible at all, and even in the case they could make the prototype work, it is highly unlikely it could compete with solar in terms of cost per unit energy. But yeah we should…

Overinvested? How is it overinvested if no one (government, companies, you name it) come even close to "solving" climate change?? There's a very clear benchmark (CO2 increase) and we're failing spectacularly year-on-year!

>How is it overinvested if no one (government, companies, you name it) come even close to "solving" climate change??

The two arent related in any way. Overinvested means that most current investors will lose money. It says nothing about the progress toward climate change

Re: VCs aren’t your friends

#280

Post by duggan »

s1artibartfast wrote: post #274
duggan wrote: post #196

Earlier quoted context omitted.

If lack of punctuality being used as a signal causes these VCs to drop Steve Jobs or Travis Kalanick I think it's safe to say it doesn't speak volumes. Otherwise you're optimizing for criteria other than "selecting whether to invest in Apple or Uber."

>Otherwise you're optimizing for criteria other than "selecting whether to invest in Apple or Uber. They arent single-mindedly optimizing to invest in the next apple or uber at all cost! They are balancing it against the need to screen out no-name bums that look and sound the same.

All I'm saying is that a "screen out the bums" heuristic is also a "screen out some of the wealthiest companies to ever exist" heuristic then it's probably not rooted in anything other than vibes.
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