Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

VCs are scared when they should be greedy

blog.aaronkharris.com

Post reply on HN
Print view View original

231–240 of 255 posts

Re: VCs are scared when they should be greedy

#231

Post by leroman »

lpolovets wrote: post #22

(Context: I'm a VC) Some great points in the post, but I also see a few additional dynamics at play: 1) The last 10 years have been great for VCs and startups, but now VCs are thinking about how to make their funds last longer. Two reasons for this: first, time diversification matters. If you think markets might go down even more, you don't want to deploy the rest of your fund quickly, you want to spread it out over…

Am I correct to understand that VCs get the same share of the pie, now, that the valuations are lower? So the valuation changes, the amount the VC puts in changed but not the % VCs get from the deal?

This seems that the founders get the short end of the stick, no?

Re: VCs are scared when they should be greedy

#232

Post by jacquesm »

marketerinland wrote: post #223
jacquesm wrote: post #43

Earlier quoted context omitted.

As an LP in a large fund: that's definitely not how it is. As an LP you pre-commit to a certain level, and when the capital call comes you perform or you will be found to be in default when a whole pile of clauses kicks in that you really do not want to have to deal with. You will have to have an extremely good reason (such as being already bankrupt) to be able to avoid a capital call that you have committed to.

This is understandable, but wouldn’t it also happen that the LP uses various signals to communicate to the VC that now’s a bad time? Such as opening the small talk a Zoom call by saying ‘it’s been a very difficult month for us.’ There are very few VCs who won’t be influenced by a signal even as simple as this one.

That could happen, but it would affect all LPs equally. If proof of such a call ever leaked the fund would be open to lawsuits from a whole pack of hyenas (high net worth individuals for whom the LP commitment is roughly equal to a scratch lottery ticket to an ordinary citizen) and who collectively represent the larger part of the funds' total commitment.

The people running these funds are not idiots and would not willingly put themselves into a position like that.

Also, if credibly alleged there won't be a next installment of that particular fund.

Re: VCs are scared when they should be greedy

#233

Post by pedalpete »

SilverBirch wrote: post #220
pedalpete wrote: post #153

Earlier quoted context omitted.

I've been trying to understand the medium-term implications of your first point for the market. My understanding is that if a VC raised a $1B fund, and the fund lasts for 10 years, the investments really need to be made in the first 5 years. If VCs are sitting on the sidelines now, AND making smaller investments, what happens in year 2 or 3 when they have to deploy those funds? Do you think deal sizes will get outrag…

It's perfectly possible for funds to return the capital to investors and just say "Hey, we couldn't find anything to invest in at a good price, so we didn't", and that'll look better for them because their ROI will still be good. This is also likely to happen because big investors generally have their investments split between lots of asset classes by some ratio, so let's say for the sake of argument that Harvard's e…

If I'm understanding you correctly, a capital call is a commitment to provide the capital if the VC firm requests it. I thought it was also a commitment on the part of the VC firm to find investments.

So VCs will have smaller Capital Calls until the market picks up again.

I suspect some VCs will get greedy as their Carry is tied to the amount invested, but the smart ones will play the long game.

Re: VCs are scared when they should be greedy

#234

Post by biztos »

rypskar wrote: post #213
lotsofpulp wrote: post #208

Earlier quoted context omitted.

Assuming you are referring to the US, buy side real estate agents get paid by the sell side real estate agent (technically the real estate seller pays commission to the sell side real estate broker, which then pays the sell side real estate agent and the buy side real estate broker which then pay the buy side real estate agent).

Is buyer side real estate agent normal in other countries and what do they do except making it even more expensive to buy a house? It is still the buyer who pays even if it is the seller who pay the commission since the commissions are baked into the sell price

In Germany the agent’s commission — IIRC about 7% — is paid by the buyer, and is in addition to the cost of the property.

In Hungary the amount varies a lot, but it’s paid by the seller so not the buyer’s problem. Because of this, you always try to sell without an agent, and use an agent only if you can’t find a buyer by yourself.

Dunno about other countries.

Re: VCs are scared when they should be greedy

#235

Post by unity1001 »

openfuture wrote: post #31
fdgsdfogijq wrote: post #15

Rather than complain about how VCs arent good investors, people should rail on the system that selects VCs. Which is mostly admittance to prestigious MBA programs/colleges. So please write a post about how those schools arent selecting for good investors, because these diatribes about a "flawed" industry are very surface level compared to the underpinning power structures in america

Central planners 2.0, welcome to the soviet union.

In the USSR, there was democratic control by the public at each given level of the economy. Which is why people who were born to poor rural farmers were able to get education, and then get to the top of the USSR's economy and politics.

In the US, that never has been the case. Even in its golden years.

https://whorulesamerica.ucsc.edu/power/class_domination.html

Even in 1960s, 30,000 people (families, children included) dominated all US economic and political institutions. This group was an exclusive group with class consciousness, thwarting any reduction of their control and keeping outsiders out. This phenomenon continues today. Some freak successes in tech space did not change the pattern.

Re: VCs are scared when they should be greedy

#236

Post by kubami »

intelVISA wrote: post #228
simonbarker87 wrote: post #200

Earlier quoted context omitted.

I’ve often heard the modern VC route described as a Ponzi scheme with the public market being the greatest of the fools, I don’t totally buy into the idea but your 3rd point really does highlight how close it all is to a Ponzi scheme. So much value is absorbed in the VC pipe than by the time a company IPOs the chance of retail investors seeing returns is minimal to none.

I'm fairly certain they're mostly laundering schemes at this point -- half of the tech founders I've seen seem to be pitching MVPs that could be readily found in any CS undergrad's Git repo lol.

This is classic engineering thinking.

Sure the core technology, right now, might be "obvious", but a company is so much more than the tech. Without a story, marketing and sales, the company is nothing!

The founders might be bringing connection, validation of the product, LOIs, etc. All of which are much, much* more difficult than the tech.

*usually.

Re: VCs are scared when they should be greedy

#237

Post by unity1001 »

vcfundedmylife wrote: post #21
skippyboxedhero wrote: post #9

Earlier quoted context omitted.

> I think tech investors are unable to see their bias for just how awful most tech companies today are I agree. Ecomm broke first in other markets, and I am seeing profitable ecomm companies still having to raise capital. Uber is one of the worst ones (they took a business that is very profitable, and lost absolutely staggering amounts of money, they probably need to cut 50% of the workforce to start with, and then k…

I agree, crypto and fintech will be the first dominos to fall - they’re in free fall already. There’s a lot of copycat B2B startups that extremely dependent on crypto and fintech for their revenue. They will be the next domino to fall. After that, it would be infrastructure, security, and analytics vendors that will face a revenue crunch and will be unable to raise another round of funding. And then, all the startups…

> An economic downturn coupled with destigmatized remote work is an environment ripe for outsourcing.

It isnt. That cheap outsourced software engineer wont be staying for ages with any company. They get promoted or found their own businesses. They dont keep slavering away for dimes for an US company that wants to have them as sweatshop labor.

Designing, engineering and maintaining highly scalable systems is not something that you could outsource to have it done for $15/hour.

Re: VCs are scared when they should be greedy

#238

Post by unity1001 »

danjac wrote: post #210
vcfundedmylife wrote: post #21

Earlier quoted context omitted.

I agree, crypto and fintech will be the first dominos to fall - they’re in free fall already. There’s a lot of copycat B2B startups that extremely dependent on crypto and fintech for their revenue. They will be the next domino to fall. After that, it would be infrastructure, security, and analytics vendors that will face a revenue crunch and will be unable to raise another round of funding. And then, all the startups…

The Bay Area has never really reconciled being a protective property market (the old money NIMBYs) and being a high-growth business hub. One of the two had to give, and another tech market crash plus remote work becoming the norm (despite wailing and gnashing of teeth from some CEOs and VCs) will probably see SF reverting to the former.

When there arent NIMBYs, high rises are quickly built, every place is turned into a overcrowded, concrete jungle and the property prices still remain high. Hong Kong. Tokyo. Many examples.

Re: VCs are scared when they should be greedy

#239

Post by sooheon »

SilverBirch wrote: post #219
sooheon wrote: post #214

Earlier quoted context omitted.

If early capital thought they would get better risk adjusted returns holding on to companies, they wouldn't exit. When considering a trade, you have to ask yourself "what do I know about the future prospects of this asset that the other party doesn't?" For IPOs you can see how stacked this transaction is against the public.

I don't think this is right. The reason VCs exit is simple, they're VCs. They exist to invest in start ups. Their job is to invest in high growth, high risk start ups, and the risk premium reflects that, they're a certain type of asset class. That's why people give them money. People don't give money to VCs to buy Walmart stock. If a VC thinks it can get a better risk adjusted return investing in Walmart then they're…

All good points. Those are justifications for VC's existence as a financial instrument. But that's orthogonal to whether retail should buy into IPOs.

Elsewhere in this thread there's discussion of VC concern regarding downstream investment/valuations, reluctance to have down rounds, etc. Clearly VCs can and will delay rounds unless they can earn a premium. It's self evident that this extends to IPOs, the last "downstream investor". Due to self selection, these IPOs will be biased toward times when the VCs judge that hype/expectations are high enough to unload at a premium. Part of their job is ensuring such conditions exist at exit, via marketing, etc.

Apparently the evidence bears this out -- the first two years after IPO, companies tend to underperform after adjusting for equity risk factors: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2929733

Re: VCs are scared when they should be greedy

#240

Post by amadeuspagel »

unity1001 wrote: post #238
danjac wrote: post #210

Earlier quoted context omitted.

The Bay Area has never really reconciled being a protective property market (the old money NIMBYs) and being a high-growth business hub. One of the two had to give, and another tech market crash plus remote work becoming the norm (despite wailing and gnashing of teeth from some CEOs and VCs) will probably see SF reverting to the former.

When there arent NIMBYs, high rises are quickly built, every place is turned into a overcrowded, concrete jungle and the property prices still remain high. Hong Kong. Tokyo. Many examples.

https://apartments.gaijinpot.com/en/rent
Post reply on HN