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VC isn't VC anymore

anildash.com

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Re: VC isn't VC anymore

#161

Post by palata »

slowin wrote: post #131
cratermoon wrote: post #3

Earlier quoted context omitted.

Startups define different classes of stock. The class A shareholders are the founders and investors. Everyone else gets class B shares. The A class shares don't get diluted, and they are inherently worth more anyway.

This is not standard. Normally founders and employees get common stock and investors get preferred stock. Founders may get more stock issued in a round, and VCs/founders can pretty much rework the cap table to their liking if they really want to. The difference in return between founders and employees is down to percentages. Founders get 25-75% where employees get 0.01-1%, maybe a bit more if they're lucky.

> Founders get 25-75% where employees get 0.01-1%, maybe a bit more if they're lucky.

So that's a scam by the founders to the employees, in my book. It's fine, it's just that I am not sure young professionals joining a startup know that.

Said differently, if you join a startup, you should not work too much without compensation, and you should not care about making it super valuable, because you don't benefit from it. If you have a super good idea or realise you have expertise that would make the startup valuable, you should leave and become a founder yourself.

Re: VC isn't VC anymore

#162

Post by slowin »

palata wrote: post #161
slowin wrote: post #131

Earlier quoted context omitted.

This is not standard. Normally founders and employees get common stock and investors get preferred stock. Founders may get more stock issued in a round, and VCs/founders can pretty much rework the cap table to their liking if they really want to. The difference in return between founders and employees is down to percentages. Founders get 25-75% where employees get 0.01-1%, maybe a bit more if they're lucky.

> Founders get 25-75% where employees get 0.01-1%, maybe a bit more if they're lucky. So that's a scam by the founders to the employees, in my book. It's fine, it's just that I am not sure young professionals joining a startup know that. Said differently, if you join a startup, you should not work too much without compensation, and you should not care about making it super valuable, because you don't benefit from it.…

I agree it's a scam. I just wanted to point out the way the scam works, by ownership percentage and new shares issued during new rounds (and cap table shenanigans), not generally through a different class of stock issued to founders vs employees. That's much more rare.

Re: VC isn't VC anymore

#163

Post by palata »

BeetleB wrote: post #104
palata wrote: post #92

Earlier quoted context omitted.

> Nobody ever promises you any specific valuation or fraction of the company Would you mind asking before saying what I have been promised? Also it feels like you have never been in a startup. The whole language of growth everywhere, the "billion-dollar startup", the "becoming a unicorn", this is all suggesting that "you're part of it and it matters to you if it becomes a unicorn". But it doesn't, really. Because you…

> But it doesn't, really. Because you get diluted. At this day and age, if you don't understand dilution before you join, it's entirely on you. This isn't a new concept - it was the case decades ago. Even when I left school over 15 years ago, the standard advice when trying to get a job with a startup was "Get a good salary and value the equity at zero." And class A vs class B isn't even a rich vs everyone else thing…

> At this day and age, if you don't understand dilution before you join, it's entirely on you.

I don't know what to tell you. Young graduates get an offer to work at a startup, nobody tells them how it works. They are just excited, as I was. And they don't think about "what happens if the startup is successful" because they do know it probably won't be.

And when the startup is successful (happened to me) is when they realise that they got scammed. But all they can do is see their founders become rich and tell everyone why THEY deserve it because it was THEIR idea and THEY are the best.

> the standard advice when trying to get a job with a startup was "Get a good salary and value the equity at zero."

That does not say AT ALL that the founder gets rich when you get nothing. It says "be careful, most startups fail, so make sure you get a salary". Usually that salary is subpar.

Re: VC isn't VC anymore

#164

Post by andix »

I think tech founders need to think smaller. Build software for a few thousand people and make a profit from it. Something niche. Something that is sustainable with a small team.

VC eats up everything that's becoming bigger. And they will kill it. Their goal is not to run a healthy business that serves their customers. They try to take out as much money as possible and then trash it.

Re: VC isn't VC anymore

#165

Post by jbs789 »

bix6 wrote: post #100
anildash wrote: post #86

Earlier quoted context omitted.

I think “regular” VCs are one of the cohorts of people I feel worst for! I have a lot of friends who got into the business wanting to help entrepreneurs, and now they’re stuck on a cap table with folks who they’d never want to do business with. It’s not any different than the founders or employees who don’t want to be saddled with these guys, either. The hard part is figuring out how to change these structures so tha…

Great write up anil! Agreed it’s so difficult. And every time I think we have things all figured out, someone flips the table! I’ve seen some ruthless terms for angels too. My buddy took an uncapped SAFE to get in a deal while the deal runners gave themselves a cap.

One thing that always exists in financial markets is cycles. It just might last longer than we care for.

I’m a small biz guy and not interested in VC. Very boring.

Re: VC isn't VC anymore

#166

Post by palata »

sershe wrote: post #139
palata wrote: post #92

Earlier quoted context omitted.

> Nobody ever promises you any specific valuation or fraction of the company Would you mind asking before saying what I have been promised? Also it feels like you have never been in a startup. The whole language of growth everywhere, the "billion-dollar startup", the "becoming a unicorn", this is all suggesting that "you're part of it and it matters to you if it becomes a unicorn". But it doesn't, really. Because you…

I was given a very large number of very low value shares. The company was about 60 people iirc and I think the hr guy said well we won't IPO soon but when we do, these shares might be worth a lot! Companies often aim for shares to be worth 10, 20, 50 dollars at IPO! Something like that. But it's obviously just vague pep talk. They also sometimes say everyone is there to make the world a better place... It would be a…

It is a scam to me because they imply "if the founders get rich, we all get rich" because "we're on the same boat". And it's not the same boat at all: the founders may get rich, the employees most likely not.

Re: VC isn't VC anymore

#167

Post by tootie »

BeetleB wrote: post #106
fhub wrote: post #39

I was living in SF Bay Area when a16z started. They had good marketing and a good reputation. Their analyst posts were insightful and well received here. My perception of a16z has changed drastically. I’m ashamed just how badly that marketing worked on me in the early years.

Indeed. I was once an Andreesen fan (many years ago). I've been trying to like him despite all the negatives for many years, but reading this I just can't any more.

His manifesto was an unvarnished call for corporatist fascism.

Re: VC isn't VC anymore

#168

Post by jgord »

I think the current gold-rush of nearly all money into GPU Datacenter and frontier LLMs is essentially starving the economy of innovation.

Academics and founders who might work on developing practical products using NN / ML / RL techniques to solve a realworld problem in engineering/logistics/medicine are not getting investment money. VCs and most people are blind to the fact there is AI outside of LLMs, despite the fact that we have seen AlphaGo and AlphaFold as evidence of non-LLM AI progress in hard domains.

This is perhaps a sub-problem of a larger issue - hyper-inequality means that capital is not allocated to talent [ capital is localized, talent is more widely spread throughout the population ].

We are not getting money to things that will grow our future such as :

  - small innovative startups
  - university science research
  - people who are young enough to have kids, being able to afford them
  - new garage bands / authors / musicians / photographers
  - public works / infrastructure / libraries
  - local retail : bookshop, artisanal bakery, cafe
My thesis is that during the 70s-90s we had higher tax, lower inequality, lower median income to median house price ratio, higher levels of innovation and more original art, literature and music being made.

AI could be a golden age of human flourishing - but thats not where we are heading, what we are seeing is a territory rush by the megacorps.

The fact that RAM and GPU prices have risen so fast, is evidence of supply and demand effect where inequality steals resources from the commons [ middle of the economy ].

Can a talented garage inventor / math or arts student afford a Ryzen AI dev platform, let alone a DGX spark on which to create the next important technology innovation ?

Re: VC isn't VC anymore

#170

Post by newspaper1 »

panabee wrote: post #154

I think a lot about fixing broken VC-founder dynamics, and this post by Marc Pincus ( https://x.com/markpinc/status/2089572143344599079 ) crystallized one plank of the platform. The principle is simple. VCs are soccer stars, but founders play basketball. Basketball and soccer share much in common. For instance, both involve teams dribbling, passing, and shooting a round ball. But successful abilities and traits in on…

Marc Pincus is one of the worst of the worst when it comes to toxic VCs:

https://x.com/search?q=from:markpinc%20israel&src=typed_quer...

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