Venture capital isn't a game you can "win." The goal is to get a return on investment, not to fairly distribute money. Starting a company isn't a contest like american idol.
He addresses this point directly.
Venture capital has a self-dealing problem
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Re: Venture capital has a self-dealing problem
#12Earlier quoted context omitted.
It shouldn't be frightening. It should tell us all what we already know - ideas are worth exactly nothing and execution is worth everything.
Generally I agree, but an entrepreneur who walks into a VC pitch with execution at least partially accomplished should feel confident they're not going to get their idea stolen.
Why does it matter? If you actually have something valuable done, it's doubtful you transferred its value to them in a 15 minute keynote.
Re: Venture capital has a self-dealing problem
#13Earlier quoted context omitted.
It shouldn't be frightening. It should tell us all what we already know - ideas are worth exactly nothing and execution is worth everything.
Some companies pitching to Andreessen Horowitz et al. are a bit more than an "idea". None of them are likely to be labouring under the delusion that everything they say in that room is an absolute secret, but there's a big difference between some general idea of the direction of your growth filtering down to that VC's portfolio companies in the same space on the one hand, and on the other, a partner peppering you wit…
It's absolutely a dick move, but as a founder you need to be better equipped than the VC to execute. If you can't make that case convincingly, you shouldn't be pitching.
Re: Venture capital has a self-dealing problem
#14Venture capital isn't a game you can "win." The goal is to get a return on investment, not to fairly distribute money. Starting a company isn't a contest like american idol.
Not sure american idol the best example. Don't the "winners" usually get signed on the judges labels? Simon Cowell does this, it's really pretty brilliant. get paid to make them popular via the TV show, get paid producing the albums after you make them a star. If you squint your eyes right, all those contestants are getting angel funding, the top 12 get VC funding and the winner gets an IPO. The producers lose a little money at the angel level, break even to decent money at the mid tier, and rake in some serious dough once the album comes out.
I get your point, but you should pick a contest that isn't hit driven like VC money is. Starting a company isn't like the Olympics, for sure.
Re: Venture capital has a self-dealing problem
#15Venture capital isn't a game you can "win." The goal is to get a return on investment, not to fairly distribute money. Starting a company isn't a contest like american idol.
He addresses this point directly.
Yes, by going on a tangent about how investors might agree with him and think it's "totally unfair." He doesn't actually address the point.
If the people funding these VC's are unhappy about it they can pull their money out.
Re: Venture capital has a self-dealing problem
#16Venture capital isn't a game you can "win." The goal is to get a return on investment, not to fairly distribute money. Starting a company isn't a contest like american idol.
I think the bigger objections than "fairness" are:
1. These might not be good funding decisions. Maybe investing in Keith Rabois's new startup is a bad decision, but it is only happening because he's a partner at Khosla. If you're an LP in a VC fund, this is something you could reasonably be concerned about.
2. If you're an entrepreneur pitching to a investors, you expect that the pitch is being taken in good faith. If the investor is just taking your pitch so that they can access your proprietary information and use it to inform their own startup (funded by the firm you're pitching), that's pretty wack.
I have literally no information about these examples, so it wouldn't be meaningful for me to hold an opinion on whether or not impropriety is occurring. I also think that Keith Rabois probably has enough of a track record that he could easily raise funding for pretty much whatever he wants to do. I also suspect that most entrepreneurs aren't particularly worried about point 2.
Nonetheless, this is clearly right at the nexus of the objections that people raise about SV: that it's an old boy's network masquerading as a "meritocracy". It just smells fishy. Sometimes things smell fishy and are OK... but there's always a cost to doing things that smell fishy: the appearance of impropriety is often just as harmful as impropriety itself.
Re: Venture capital has a self-dealing problem
#17Two differing thoughts: I'm not sure I would think the LPs would be all that concerned with this. After all, a VC firm is going to live and die by its performance reputation, so if their funds fail to return gains, it will haunt their firm for a long time. What I do buy though is Kevin's other point in the conflict of interest of potential entrepreneurs walking into VC offices and pitching a great product (editing ou…
VCs with execution capability are rare and word would get around if someone pulled a stunt like this.
Re: Venture capital has a self-dealing problem
#18Two differing thoughts: I'm not sure I would think the LPs would be all that concerned with this. After all, a VC firm is going to live and die by its performance reputation, so if their funds fail to return gains, it will haunt their firm for a long time. What I do buy though is Kevin's other point in the conflict of interest of potential entrepreneurs walking into VC offices and pitching a great product (editing ou…
VCs with execution capability are rare and word would get around if someone pulled a stunt like this.
I agree, and I choose to believe this fear is irrational, but it's still a thought that might creep around in the back of my mind. I do think the key thing once again touches on my first point, that a VC firm's reputation needs to be positive for both LPs and entrepreneurs to want to do business with them.
Re: Venture capital has a self-dealing problem
#19Imagine if you gave money to Warren Buffett to invest and he turned around and invested it in a company started by one of his own cronies?!
Re: Venture capital has a self-dealing problem
#20If the entrepreneurs, venture partners and investors are fine with it then who are we to argue?