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VC isn't VC anymore

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Re: VC isn't VC anymore

#171

Post by unknownfuture »

chris_marino wrote: post #151

The article does not mention or address an important contributor to the current state of VC. The increase in regulations, post GFC, made it impractical/impossible for small companies to go public. And, until recently M&A was actively avoided. The alternative was to stay private longer offering higher returns for private investors wanting to capture a (previously non-existent) illiquidity premium. The co-dependency of…

> The increase in regulations, post GFC, made it impractical/impossible for small companies to go public.

Care to be more specific? "Regulations bad" is a pretty common platitude around here but you've stated your main thesis, here, without a hint of support to back it.

My observation is that the glut of available private credit has meant for at least 15 years you could just raise funds from those markets, and that's the ultimate reason IPOs have become less common.

This hasn't made it "impossible" for companies to go public. It just eliminated the need. If you can raise billions of dollars in a G round why go to the public markets at all?

Re: VC isn't VC anymore

#172

Post by johnnyanmac »

tistoon wrote: post #120
palata wrote: post #2

Let's keep praying for fewer and fewer regulations, it's going great! I didn't know that VCs were ever "not cancer", I've always known them like that. Also my experience with startups is that it is a big scam for employees, but I understand it's not always the case (maybe it depends on where in the world?). I have been an early employee in multiple startups that got the founders rich, and what I got from the stocks d…

Just move to EU, you will have all the regulations you want (maybe even more) :-)

It's an increasingly enticing offer. But they aren't exactly that open to immigration either as of late.

Re: VC isn't VC anymore

#173

Post by claytongulick »

cyberax wrote: post #142
claytongulick wrote: post #128

Earlier quoted context omitted.

I have so many thoughts about this, I'm not sure where to start. Doing a raise has always been weird, there are lots of things that impact it, and different players in PE have totally different theses and motivations. As a founder, finding the right investment partner has always been one of the most important and difficult things. As a rule of thumb, I recommend to founders that only about 50% of the value of the inv…

It's not our first fundraise, and not our first startup. But something _is_ distinctly different this time. People are no longer willing to wait for years and are betting on nebulous claims in hopes of a huge payout. And I feel that this goes far beyond the usual VC risk-taking.

Interesting, I'm curious about the changes - I know AI has drawn most of the pump & dump sharks, just like crypto before it, but there were always a set of responsible holdouts that resisted fad-tech for real value opportunities.

Are you seeing a difference there?

Re: VC isn't VC anymore

#174

Post by jaggederest »

unknownfuture wrote: post #171
chris_marino wrote: post #151

The article does not mention or address an important contributor to the current state of VC. The increase in regulations, post GFC, made it impractical/impossible for small companies to go public. And, until recently M&A was actively avoided. The alternative was to stay private longer offering higher returns for private investors wanting to capture a (previously non-existent) illiquidity premium. The co-dependency of…

> The increase in regulations, post GFC, made it impractical/impossible for small companies to go public. Care to be more specific? "Regulations bad" is a pretty common platitude around here but you've stated your main thesis, here, without a hint of support to back it. My observation is that the glut of available private credit has meant for at least 15 years you could just raise funds from those markets, and that's…

They're poking at SOX and Dodd-Frank I think, but it's a bit of a specious argument, in my opinion the rise of massive private equity (plus the absurd market orientation around short term results) is more of the story, as you say.

Re: VC isn't VC anymore

#175

Post by conqrr »

andix wrote: post #164

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.

This is it. Sustainability. Not everything has to be about more money quickly. You don't even need VCs for that. More win to bootstrappers! I see a lot of folks bootstrapping in the LLM era, but that can be defeaned in the VC noise.

Re: VC isn't VC anymore

#176

Post by rexreed »

cyberax wrote: post #102
bix6 wrote: post #25

I’m a VC and agree with much of this. The mega firms have totally warped VC and the desire for massive cash appreciation has led to a host of bad characters getting involved. I still love working with early stage companies but it is hard to cut your own lane when these mega groups control so many aspects of the stack and have such outsized capital and political influence. There are so many issues destroying early sta…

I'm in a startup, and we are (somewhat lazily) trying to do Series A fundraising. We _are_ a company that has AI as a part of our app, but not an LLM company. The advice from our early investors was to basically overhype ourselves, telling that we can transform the world overnight. And also to remove any mentions of our _actual_ product that has real paying users because it can muddy the grand vision. Another hot thi…

Don't take any sort of business advice from VCs. They aren't even competent at running their own business, which is a financial play, not an operational business building and selling products or services. 90% of VC firms don't provide a net positive return to their own investors. That should tell you something. Their advice is self-serving to help inflate your equity value and has nothing to do with your current or future business.

Re: VC isn't VC anymore

#177

Post by Karrot_Kream »

unknownfuture wrote: post #171
chris_marino wrote: post #151

The article does not mention or address an important contributor to the current state of VC. The increase in regulations, post GFC, made it impractical/impossible for small companies to go public. And, until recently M&A was actively avoided. The alternative was to stay private longer offering higher returns for private investors wanting to capture a (previously non-existent) illiquidity premium. The co-dependency of…

> The increase in regulations, post GFC, made it impractical/impossible for small companies to go public. Care to be more specific? "Regulations bad" is a pretty common platitude around here but you've stated your main thesis, here, without a hint of support to back it. My observation is that the glut of available private credit has meant for at least 15 years you could just raise funds from those markets, and that's…

There's no strong consensus, but there's weak consensus that post-GFC regulation is a factor behind but is not causal in any way, for the decrease in IPOs. Here's a paper [1] (well it's the paper author discussing his paywalled paper lol) exploring SOX regulations and their effects on IPOs. There's other papers and I think a good survey will help you on this topic. I don't think there's consensus on regulations being the causal factor, but it is one of many.

I thought GP was modest in calling it out as simply a contributing factor. Regulation is complicated and reaching for it should be something done with care.

(Also FWIW, I think you're being a bit cheap by appealing to culture war talking points.)

[1]: https://corpgov.law.harvard.edu/2009/09/21/the-effect-of-sox...

Re: VC isn't VC anymore

#178

Post by martythemaniak »

chris_marino wrote: post #151

The article does not mention or address an important contributor to the current state of VC. The increase in regulations, post GFC, made it impractical/impossible for small companies to go public. And, until recently M&A was actively avoided. The alternative was to stay private longer offering higher returns for private investors wanting to capture a (previously non-existent) illiquidity premium. The co-dependency of…

I reject that for simple reasons of linear time. The GFC happened in 2008 and Dodd-Frank passed in 2010. Since then, there have been no large, notable regulations passed and Dodd-Frank was watered down a bit in 2018.

While Sarbanes-Oxley did make it substantially harder for small companies (market cap Now, you're right that IPOs have grown a lot more expensive over time, but you're absolutely wrong to attribute it to increased regulations post GFC. The actual answer is much more closely related to what the article is talking about - VCs realized how much growth and returns they were leaving on the table and there has been substantial pressure on firms to stay private as long as possible, as well a huge increase in larger rounds and private credit. In fact, rather than increased regulations, there has been a loosening of regulations that allow investors to use SPVs (and SPVs of SPVs, and SPVs of SPVs of SPVs, a veritable matrioshka of SVPs) to get around the maximum number of shareholders a private company can have.

I have seen this first-hand - part of my investing strategy was to blindly buy cheap tech IPOs and that got me some great returns, but this strategy no longer works, because the VCs have effectively managed to hoover up any decent returns retail investors could get. Today you gotta be on AngelList or other platforms (only qualify investors, obviously, more exclusion) buying secondaries if you want decent returns.

Re: VC isn't VC anymore

#179

Post by unknownfuture »

jaggederest wrote: post #174
unknownfuture wrote: post #171

Earlier quoted context omitted.

> The increase in regulations, post GFC, made it impractical/impossible for small companies to go public. Care to be more specific? "Regulations bad" is a pretty common platitude around here but you've stated your main thesis, here, without a hint of support to back it. My observation is that the glut of available private credit has meant for at least 15 years you could just raise funds from those markets, and that's…

They're poking at SOX and Dodd-Frank I think, but it's a bit of a specious argument, in my opinion the rise of massive private equity (plus the absurd market orientation around short term results) is more of the story, as you say.

And further, if the goal is to eliminate regulatory frictions in public markets that keep companies staying private, then you're effectively advocating for eliminating public markets.

The entire damn deal we make when a company goes public is that the company can raise money from a much broader, potentially less sophisticated investor base that don't have to be accredited, etc, and in exchange there are more stringent requirements around reporting and so forth.

So sure, we could just throw away that regulatory and social contract, but at that point the public market serves no purpose.

Re: VC isn't VC anymore

#180

Post by unknownfuture »

Karrot_Kream wrote: post #177
unknownfuture wrote: post #171

Earlier quoted context omitted.

> The increase in regulations, post GFC, made it impractical/impossible for small companies to go public. Care to be more specific? "Regulations bad" is a pretty common platitude around here but you've stated your main thesis, here, without a hint of support to back it. My observation is that the glut of available private credit has meant for at least 15 years you could just raise funds from those markets, and that's…

There's no strong consensus, but there's weak consensus that post-GFC regulation is a factor behind but is not causal in any way, for the decrease in IPOs. Here's a paper [1] (well it's the paper author discussing his paywalled paper lol) exploring SOX regulations and their effects on IPOs. There's other papers and I think a good survey will help you on this topic. I don't think there's consensus on regulations being…

I think you're being oversensitive or just looking for a fight if you detect even a hint of "culture war talking points" in my comment.
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