Sequoia’s Doug Leone to Mike Arrington: Why You Want to Be a VC is Beyond Me
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Re: Sequoia’s Doug Leone to Mike Arrington: Why You Want to Be a VC is Beyond Me
#2"Too much money is already chasing startups, including from Europe, Russia, and the likes of Goldman Sachs, Leone then told Arrington, “You’re joining the abundant side of market, instead of the scarcity side of the market…Why you want to join [the world of venture capital] is beyond me.”"
Is that really the case ?
Re: Sequoia’s Doug Leone to Mike Arrington: Why You Want to Be a VC is Beyond Me
#3"Too much money is already chasing startups, including from Europe, Russia, and the likes of Goldman Sachs, Leone then told Arrington, “You’re joining the abundant side of market, instead of the scarcity side of the market…Why you want to join [the world of venture capital] is beyond me.”" Is that really the case ?
Maybe from his perspective? I'm sure people with a startup idea may have a different opinion?
Re: Sequoia’s Doug Leone to Mike Arrington: Why You Want to Be a VC is Beyond Me
#4Maybe I'm missing something, but VCs take a management fee, correct? So, if you raised a $200M fund, and your management fee was %5 a year, then you'd be bringing in $10M a year before you even get started. If you have 5 partners, that's $2M a year each.
Then, if you make some good investments, your firm gets a cut of the returns, plus being on boards often results in stock options in the company, etc. etc.
It seems to me that being a VC is the catbird seat of leverage. You invest other people's money and get a cut of the results.
Re: Sequoia’s Doug Leone to Mike Arrington: Why You Want to Be a VC is Beyond Me
#5Maybe I'm missing something, but VCs take a management fee, correct? So, if you raised a $200M fund, and your management fee was %5 a year, then you'd be bringing in $10M a year before you even get started. If you have 5 partners, that's $2M a year each. Then, if you make some good investments, your firm gets a cut of the returns, plus being on boards often results in stock options in the company, etc. etc. It seems…
Generally, the management fee is 2%, and you get 20% of all profit (known as 'two and twenty').
Re: Sequoia’s Doug Leone to Mike Arrington: Why You Want to Be a VC is Beyond Me
#6The firm also seems to prefer investing in very young entrepreneurs. Leone said it typically invests in people who are age 25 or younger these days. [...]
Leone called the shift a thankful one, explaining that if you want a founder to serve as the VP of product or in a very important technical role or as the CEO, it’s possible to have such conversations, whereas it’s “different conversation” with a 45-year-old founder who’s “bent on being CEO.”
Read: We'd rather fund a young person who's thankful just to get funding and doesn't know his rights, because it's easier to ask for onerous terms and to boot him later.
Re: Sequoia’s Doug Leone to Mike Arrington: Why You Want to Be a VC is Beyond Me
#7"Too much money is already chasing startups, including from Europe, Russia, and the likes of Goldman Sachs, Leone then told Arrington, “You’re joining the abundant side of market, instead of the scarcity side of the market…Why you want to join [the world of venture capital] is beyond me.”" Is that really the case ?
Demand for founders who've already been through an exit is high, because (especially given how the past decade has been) the number of people out there who've done an exit and are up for a second go is small. These are the people who can raise $25 million before a launch.
Demand for unproven but capable talent is nearly zero.
Re: Sequoia’s Doug Leone to Mike Arrington: Why You Want to Be a VC is Beyond Me
#8The firm also seems to prefer investing in very young entrepreneurs. Leone said it typically invests in people who are age 25 or younger these days. [...] Leone called the shift a thankful one, explaining that if you want a founder to serve as the VP of product or in a very important technical role or as the CEO, it’s possible to have such conversations, whereas it’s “different conversation” with a 45-year-old founde…
I read it more as a younger founder is more likely to accept that at a certain point they might not be best in the CEO spot at that stage in their professional development(and at some stages of the companies development) while still retaining "creative control" through a more product focused role.
Re: Sequoia’s Doug Leone to Mike Arrington: Why You Want to Be a VC is Beyond Me
#9The firm also seems to prefer investing in very young entrepreneurs. Leone said it typically invests in people who are age 25 or younger these days. [...] Leone called the shift a thankful one, explaining that if you want a founder to serve as the VP of product or in a very important technical role or as the CEO, it’s possible to have such conversations, whereas it’s “different conversation” with a 45-year-old founde…
Also there is an aura with a younger person. Similar to real estate that is fresh on the market and hasn't been sitting. You can believe you have discovered something and are grabbing it before anyone else sees the potential.
Re: Sequoia’s Doug Leone to Mike Arrington: Why You Want to Be a VC is Beyond Me
#10Leone then told Arrington, “You’re joining the abundant side of market, instead of the scarcity side of the market…Why you want to join [the world of venture capital] is beyond me.”
Because by being a VC not only is someone else doing the work but you are spreading around risk over many possibilities rather then investing years in 1 idea you have.
And of course it makes sense which is why many successful entrepreneurs after their one or two hit wonders go into investing and don't start another risky business. They only need 1 hit to stay on top and can have many failures in the ideas they invest in.