I think the author's Simon Cowell example actually disproves his point. If you wanted someone to win American Idol who would choose to do it? Someone who who you have to train to sing well and coach them on the judges preferences? Or would you choose the person who has worked with the judges for years, knows exactly what makes contestants win or lose, and helps to make the decision themselves. I would choose Simon Cowell, not because it would warm my heart to see him win, and make me believe in the Meritocracy of American Idol, but because he would be the best bet. Venture Capital is about making money, not about giving everyone a chance to make their start up happen.
Venture capital has a self-dealing problem
41–50 of 90 posts
Re: Venture capital has a self-dealing problem
#42Earlier quoted context omitted.
Bootstrapping is not a conflict of interest. When people are operating as both VCs and executives there are conflict of interest considerations. Situations involving conflicts of interests are not inherently unethical, but greater care is needed.
How can it be a conflict of interest if it is in the end their own money ? They get to spend it any way they want it and of course they will spend it on those that they know better more readily than elsewhere. It's not as if VCs are distributing public funds and those VCs that have taken public funds (or pension funds) would likely never engage in a deal like this. If you think you're 'in competition' with the VCs pa…
It sounds like you're defending a particular scenario that I'm not understanding.
Do you agree that there exist hypothetical situations in which a company and a VC firm investing in said company might have differing interests? Doesn't it follow that someone with responsibilities to both parties has a conflict of interest situation?
Re: Venture capital has a self-dealing problem
#43Two 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…
It shouldn't be frightening. It should tell us all what we already know - ideas are worth exactly nothing and execution is worth everything.
The VC has access to a lot more than the "idea" from a pitching company. A lot of time and effort goes into researching a market opportunity and iterating on the idea to refine it. You learn which aspects of the idea, though they sounded sexy, turn out to be dead ends. Getting that information for free could give the VC's company a significant head start.
Re: Venture capital has a self-dealing problem
#44If the entrepreneurs, venture partners and investors are fine with it then who are we to argue?
The article addresses that point directly.
Investors (specifically LPs) might not know that it's happening.
Re: Venture capital has a self-dealing problem
#45I think the author's Simon Cowell example actually disproves his point. If you wanted someone to win American Idol who would choose to do it? Someone who who you have to train to sing well and coach them on the judges preferences? Or would you choose the person who has worked with the judges for years, knows exactly what makes contestants win or lose, and helps to make the decision themselves. I would choose Simon Co…
You hit the nail on the head.
This just in:
Startups success found to not be purely meritocratic, Valley in turmoil
Edit: couldn't help myself.
Put together a few words of commentary on the piece: https://medium.com/@StartupLSatoshi/vc-incest-d9f5bece5b73
tl;dr - vcs shouldn't allow theft of knowledge from founders who pitch the firms. which is nothing new. oh, and please send all term sheets from General Partners at tier one firms my way.
Re: Venture capital has a self-dealing problem
#46Earlier 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.
> ideas are worth exactly nothing and execution is worth everything. there is 3rd component - money. You may have good idea and be executing it well. The VC has money, has your idea and in this situation hey have choice - your execution or to implement their own. Due to money asymmetry, even having somewhat worse execution, they may still do better than you.
Part of your pitch is making the case that you can do better than them, even when they have a money advantage.
Re: Venture capital has a self-dealing problem
#47Earlier quoted context omitted.
How can it be a conflict of interest if it is in the end their own money ? They get to spend it any way they want it and of course they will spend it on those that they know better more readily than elsewhere. It's not as if VCs are distributing public funds and those VCs that have taken public funds (or pension funds) would likely never engage in a deal like this. If you think you're 'in competition' with the VCs pa…
It sounds like you're defending a particular scenario that I'm not understanding. Do you agree that there exist hypothetical situations in which a company and a VC firm investing in said company might have differing interests? Doesn't it follow that someone with responsibilities to both parties has a conflict of interest situation?
This conflict is nothing new and is inherent to the model of organized private investors picking companies to invest in. The exact same problem emerges when an investor decides to invest in a portfolio competitor, or invests in a company that pivots to that role. It's why startups are antsy about who they allow to hold board seats.
Re: Venture capital has a self-dealing problem
#48Earlier 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.
The VC has access to a lot more than the "idea" from a pitching company. A lot of time and effort goes into researching a market opportunity and iterating on the idea to refine it. You learn which aspects of the idea, though they sounded sexy, turn out to be dead ends. Getting that information for free could give the VC's company a significant head start.
Yup. This is why you need to have execution, instead of just an idea. You need to bring to the pitch something that indicates that you are better-suited to pursue this opportunity than the VC is.
Re: Venture capital has a self-dealing problem
#49Two 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.
Big VC firms are populated with people on the bubble between permanent partner-track involvement with the fund or an operating role (often CEO) of a future portfolio company; they're called EIRs. The underlying concern here --- which I agree is overblown in this thread --- is almost universal, isn't it?
Re: Venture capital has a self-dealing problem
#50Earlier quoted context omitted.
How can it be a conflict of interest if it is in the end their own money ? They get to spend it any way they want it and of course they will spend it on those that they know better more readily than elsewhere. It's not as if VCs are distributing public funds and those VCs that have taken public funds (or pension funds) would likely never engage in a deal like this. If you think you're 'in competition' with the VCs pa…
It sounds like you're defending a particular scenario that I'm not understanding. Do you agree that there exist hypothetical situations in which a company and a VC firm investing in said company might have differing interests? Doesn't it follow that someone with responsibilities to both parties has a conflict of interest situation?
Every VC firm has different interests from the firms that it invests in. That's the major pitfall of accepting investor money, their goals and your goals will never be perfectly aligned and sometimes are very much not aligned.
Beware of who you accept money from, especially if that money comes with strings attached (board seats, various preferences and so on).