Things A Venture Capitalist and Startup Founder Will Never Say

Two very amusing slide decks were posted at TechCrunch.

"Things A Venture Capitalist Will Never Say"

VC Non Admissions

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"Things A Startup Founder Will Never Say"

Founder Non-Admissions

View more OpenOffice presentations from Chris Yeh.

Why Are Some VC Associates Tools?

Recently I've had several discussions with my friends that are entrepreneurs and VCs about some of the amusing but stupid behavior or arrogance of associates at venture capital firms. For those of you that don't know, associates are the the mid-level professionals at VC firms, who are typically recent MBA graduates.

For some reason, a small percentage of this group don't represent their firms well. One of my friends was telling us about one associate that was stating that he could tell whether a startup was worth investing in within 10 seconds of a presentation. Really? You can assess the technology, team and market of all startups within 10 seconds? He should be on Jeopardy, not a VC. The amusing part about this story was that he went on to found a company that was mediocre at best.

Another friend was telling me how during a pitch one associate had his head buried in his Blackberry typing away, so this seasoned entrepreneur stopped and loudly told him, "Excuse, you should stop being rude. Did you know that I'm childhood friends with your partner?"

The associate immediately stopped and paid attention. Tool.

One story had an associate chiming in with stupid questions, so the partner in the meeting politely asked him to get some coffee for those in the meeting. This happened twice. I assume he didn't last long at this firm.

Why Aren't There More Googles and Bold VCs?

Paul Graham wrote a good post initially commenting on Umair Haque's question on why there aren't more Googles and then examining the today's VC climate, which generated some buzz. First, as Paul stated, Umair's premise was incorrect. Google almost sold to Excite for what I read was $1.3 million versus their offer about $900,000 back in 1999. John Battelle's book stated $1.6 million was the asking price versus $750,000. Either way, imagine if Excite.com actually bought Google back then? My wife's employer and a major innovation engine in Silicon Valley wouldn't exist at all today.

I agree with Paul's assessment of venture capitalists:

Whoever the next Google is, they're probably being told right now by VCs to come back when they have more "traction."

Why are VCs so conservative? It's probably a combination of factors. The large size of their investments makes them conservative. Plus they're investing other people's money, which makes them worry they'll get in trouble if they do something risky and it fails. Plus most of them are money guys rather than technical guys, so they don't understand what the startups they're investing in do.

Many of them that state they are seed-stage VCs really aren't. How many times have entrepreneurs heard, "Well, come back to us when you have 500,000 or 1 million users... come back when you are profitable..."?

I do understand on the flip-side that it is cheaper to build a company today versus the boom times, so it could be easier to wait for tangible evidence of an entrepreneur's vision but where is the "risk" in risk capital?

I agree with Paul that there is this gap in the current landscape of startups that need $300,000 to under $2 million, and that VCs should play in this market. Not all but the ones that position themselves as seed or early-stage firms should evolve to support this place in the market because it is needed. I run into so many entrepreneurs that are in this limbo stage which needs to be addressed, so it will be interesting to see how this gap is filled.

Reflections on "A Unified Theory of VC Suckage"

I just randomly came across Paul Graham's website. He has some great essays that he wrote on his site, so check it out when you can. One of them, "A Unified Theory of VC Suckage," cracked me up:

A couple months ago I got an email from a recruiter asking if I was interested in being a "technologist in residence" at a new venture capital fund. I think the idea was to play Karl Rove to the VCs' George Bush.

I considered it for about four seconds. Work for a VC fund? Ick.

One of my most vivid memories from our startup is going to visit Greylock, the famous Boston VCs. [1] They were the most arrogant people I've met in my life. And I've met a lot of arrogant people.

I'm not alone in feeling this way, of course. Even a VC friend of mine dislikes VCs. "Assholes," he says.

But lately I've been learning more about how the VC world works, and a few days ago it hit me that there's a reason VCs are the way they are. It's not so much that the business attracts jerks, or even that the power they wield corrupts them. The real problem is the way they're paid.

The problem with VC funds is that they're funds. Like the managers of mutual funds or hedge funds, VCs get paid a percentage of the money they manage: about 2% a year in management fees, plus a percentage of the gains. So they want the fund to be huge-- hundreds of millions of dollars, if possible. But that means each partner ends up being responsible for investing a lot of money. And since one person can only manage so many deals, each deal has to be for multiple millions of dollars.

This turns out to explain nearly all the characteristics of VCs that founders hate.

It explains why VCs take so agonizingly long to make up their minds, and why their due diligence feels like a body cavity search. [2] With so much at stake, they have to be paranoid.

It explains why they steal your ideas. Every founder knows that VCs will tell your secrets to your competitors if they end up investing in them. It's not unheard of for VCs to meet you when they have no intention of funding you, just to pick your brain for a competitor. This prospect makes naive founders clumsily secretive. Experienced founders treat it as a cost of doing business. Either way it sucks. But again, the only reason VCs are so sneaky is the giant deals they do. With so much at stake, they have to be devious.

It explains why VCs tend to interfere in the companies they invest in. They want to be on your board not just so that they can advise you, but so that they can watch you. Often they even install a new CEO. Yes, he may have extensive business experience. But he's also their man: these newly installed CEOs always play something of the role of a political commissar in a Red Army unit. With so much at stake, VCs can't resist micromanaging you. (full post)

This totally reminded me of one of our investors/board members who called my co-founder and friend, Jimmy. On Saturday morning, he was driving by our office and he saw that the front doors were locked, so he calls Jimmy.

"Jimmy! Where are you?!"

A bit puzzled and startled he replied, "Uhh... in the office, Shmoe."

"Well, I see that your front door is locked, so I'm guessin you're not at the office! You should be since you have a long way to make this company a success."

"Well, Shmoe, I assure you that I am in the office working - hard - and there are about 15 engineers with me. We had the front lobby area cleaned today, so we all went through the back of the building."

(silence)

"Oh. I see. Okay, well work hard."


Shmoe's level of micromanaging was unnecessary and counter-productive. I believed that much of his behavior was due to his lack of ability to provide any real guidance or knowledge.