The way VCs filter out potential investments seems fairly similar to the way Ivy League schools filter out potential students. (Probably because they are comprised of the same people.) It is not really about technical brilliance, or innovation, or anything that is written on their website as a core value. It's more about whether you're smart enough and can follow instructions and fit into the overarching institutional structure of school and work.
For companies that are at the point of raising venture capital, this might be what is actually needed. But it certainly seems like it filters out a lot of the more idiosyncratic, brilliant types that aren't concerned with (from their perspective, irrelevant) details, like the date on a pitch deck. It seems like a good way to get institutional operators, not rare but not-quite-conformist innovators. I can't imagine someone like Steve Jobs or Nikola Tesla passing these VC/Ivy League kinds of tests.
My "favorite" "test" is the one more for soft studies (think law or public policy) rather than STEM: for example UN internships typically have no compensation and they often require you to relocate to extremely expensive CoL areas, meaning there is an automatic filter built in where only children of very well-off parents can do these kinds of internships and segue into the jobs connected to them.
VC Analyst Internships are very well paid because they are competing with IB Analyst and FAANG SWE/PM internship offers.
Imo the easiest way to get a VC Analyst internship is to do EECS@Cal/MIT or CS@Stanford with a Business (or in Cal+Stanford's case Econ or MS&E) minor, do a SWE internship in Frosh summer, and be prominent in your university's entrepreneurship or hackathon scene.
That said, my question would be WHY would you want to do that as an undergrad? I'm firmly in the camp that you need to build domain experience in the industry you are investing in, and that takes a decade of SWE, PM, and Sales experience - and that is reflected by the career trajectory of most VCs I work with.
Edit: This is not a snipe at Top Programs and VC Analyst roles. They have value in incubating new founders (plenty of successful YC founders have been VC Analysts who leveraged their VC network to start a successful startup).
Most of the replies below are just salty.
The number of Stanford Juniors with 1 summer internship at a VC posting 'deep' Startup insights or advice is shocking. Like what do these kids with literally no experience running or starting anything know about companies? It's mind boggling.
VC Internships are intense, and not every Stanford student can land one. While some advice might be a bit meh, a lot of it is information that has value.
And, no offense, but there is a massive difference in calibre between a Stanford/Cal/MIT/T10 CS program (they tend to have 2-4% acceptance rates to either the college or the CS department) and other programs. This doesn't mean that there aren't high calibre candidates at non-T10 programs (I've known plenty of successful SJSU, CUNY, UMinn, etc founders, EMs, SWEs, PMs, and yes even a couple angels and VCs), but it seems that you have a chip on your back.
A lot HAVE tried starting something or are in the process of starting a company. Most VC Analysts are hired explicitly so when those Analysts hit the 2 year mark, they can start their own startup.
This leads me to a broader question: What does their acceptance rate of high schoolers have to do with anything? We're always using that as some kind of proxy, but high schoolers (even the top ones) don't know much...
They probably meant universities (bachelor or masters program), but yeah I agree with you. People place way too much faith in institutions and take it as universal endorsement of ability, meanwhile many competent people are "misfits" that have all the brains and ability but can't stand the rules and mind games of these institutions; and those accepted are not significantly better than the ones below the acceptance line.
Nope. I meant departments. The T10 programs handle CS admissions at the College (Engineering) and Department level.
When you apply for a BS EECS at Cal or BSCS at CMU, it is the CS department (or School of Computer Science) that handles the entire application review process.
Only more traditional LACs (the kinds modeled after Harvard College or Dartmouth College) put all applicants in the same bucket.
I think we agree, my point was that you are not talking about high school (15-19 year old children where I live).
But now I see that their reply could also mean that the people are highschoolers at the time they are applying. I understood it as acceptance to high school itself.
Makes sense!
Does a low acceptance rate necessarily say anything about the calibre of the students? These schools can be filtering for a great many things that have nothing to do with intelligence or competence. Legacy admissions as an obvious example.
Majority of the T10 CS programs have deprecated legacy admissions. Most are public universities.
The de facto bare minimum you need to get into a BSCS at UIUC, UCB, or CMU is a high (3.8+ out for 4) GPA and a high SAT/ACT (1500+ or 34+).
In reality, these are minimums, and most applicants have taken college level CS courses in high school either at your local flagship or community college, taken 6 or more AP classes, and have a fairly robust roster and background in Extracurriculars like sports, non profits, and even a couple founders. One of my peers at my undergrad literally sold his bootstrapped company for $1m while he was in high school and he was from Cincinnati.
The point is, because admissions are so rigorous, you end up with very prepared students who already know the ins and outs of the major and industry they are targeting, and as such are able to hit the road running (getting internships in their freshman summer, participating in research from freshman year, graduating early or accelerating MS admissions).
If I need to take a financial bet on someone (which is what VC and hiring is), I can justify my choice based on the data provided above.
This does NOT mean that life ends at college. I know a lot of T10 grads who did dick (no internships, minimal research) and probably would have been better off going to another school or another program. I also know and am friends with plenty of people who went to non-T10 programs who had an AMAZING career trajectory because of how driven and hard working they were.
That said, your credentials are very important - having a successful academic and professional career will open plenty of doors.
Wait until you find out the work experience of people consultancies send out to clients. It's often one experienced person with a bunch of grunts pumping out "work."
In a previous life I worked for a health insurance company that paid a million dollars to the Boston Consultancy Group on if we should use agile or not for development. The best part was seeing the half dozen or so people in our offices working so diligently to argue for something we were already doing, even better when speaking to these consultants they had zero experience programming or developing software.
I often wonder what it takes to win these contracts over McKinsey, Bain, BCG, Deloitte; because it sure feels like it's not aptitude that's the defining quality but more quasi-legal corruption.
IME it's not like McKinsey and friends are necessarily sending highly qualified people either. So it wouldn't take much to "beat" them on merit. It's frustrating to watch them get paid so much to recommend the thing we already recommended in house, except their version is missing all the hard parts because they never bothered to check whether the required infrastructure exists or can even be legally installed at the project site.
McKinsey is about as close as it gets to cartoon supervillains in real life. And they must know it, right? Maybe they hide their role from the rank n’ file, but I doubt it. Truly a useless industry, and a significant symptom of our corporatist malaise.
The amount of money the government spends on useless contractors… shudders
It's sophomoric, which probably shouldn't be all that surprising from those so recently sophomores.
When you've been told all your life that you are better than others, you believe it
Unpaid internships in general are the same "people with rich parents only" filter, to a lesser extent.
On the other hand, it's a way to get inside without being evaluated too harshly because they might lose money on you. I know people who started from nothing, couldn't pay the scholarships and were self taught, and the unpaid internship was what propelled them into a serious well paid career.
This is a big thing in journalism and fashion, too. Doing an unpaid internship in NYC isn’t exactly cheap
My wife found a workaround for it, which is when she realized she didn’t want to continue her PhD she landed the UN internship and used her stipend money for that year to live in Queens off the 7. It paid off in the long run since it gave her an opening to do contracting for them, which gave her the knowledge to pass the entrance exam (which is its own soft studies filter, since many who passed had received formal private education that included how to pass international org entrance exams)
In the tweet the wrong date was not a red flag due to lack of detail as such, but because it signaled:
a) they had been raising for a while now
b) the recipient was not their first choice (ouch, you can hear the ego taking a glancing hit)
So ”the market” did not consider the startup investable, and they did not think about their sales pitch strategically enough … this VC would have liked to be sold to, not just a source of funds.
The implied peer signaling is the key thing here IMO.
> the recipient was not their first choice (ouch, you can hear the ego taking a glancing hit)
It baffles me that a person successful enough to get put in charge of an investment fund can have such incredibly thin skin.
How would you even function in the real world if you were so easily offended?
consider that this is sending a negative signal to the VC that other VCs have already passed, rather than that it hurts their feelings
Is this really a sensible factor to consider? Canva's was founder was rejected 100 times before someone took a chance.
Is there any hard evidence that founders who secure funding earlier are more likely to provide a VC with a successful exit?
"Nobody ever got fired for hiring IBM"
--> GP's point was: You need to look good while losing all your LP's money.
Fair point. If that's the signal who the people financing the VC believe in, then I guess it makes sense them to follow along.
This is the smart comment. If, as a VC, you know the outliers are hard to find, would you really get distracted by someone being on the market for 1-2 months?
There really isn't much hard evidence about any correlative patterns about early stage VCs. Which is why their model is essentially spray and pray. The successful ones (Sequoias, a1z, etc.) are just signaling rods whereby high growth startups gravitate towards well known VCs, which in turns means signaling to M&A markets.
The charitable interpretation, especially for early stage investors, is that your investment will not be the last one necessary to realize a successful outcome.
If a company is having a hard time finding investors now, in the future when it needs more money it may fail for lack of takers, spiking current investments.
Sensible or cognitive bias that is in play regardless if it is sensible? I've seen a little research on jobs that discriminate against people not currently employed, with longer periods of unemployment leading to greater discrimination. I haven't seen anything about if this is actually justified or not.
I've also heard of this in other areas, like with date, but I haven't been able to find any research and the topic borders some controversial areas that research has struggle handling.
My guess is that it does happen as a bias, related to peer pressure and following a crowd, but like with other biases, even if it makes sense in some cases historically it will lead to illogical behavior in our current society.
Why not both? VCs are human, hurt feelings are probably a negative signal
Add to that how “small” and tight knit the VC community is and that’s a major signal.
Is that how it works?
They DON'T function in the real world. Rich people, especially the uber new rich in SV do not interact with the real world, but rather with a purchased world from companies selling "lifestyle". They have people bring them groceries that they never see the bill for, because everything is handled by their accountant. They are thin skinned, so they surround themselves with yesmen to continually tell them they are awesome. They write trite, useless blog posts about "working harder" and their army of loyal sycophants eat it up.
Not necessarily ROI successful, though certainly successful in making connections to get the job. It seems, however, from their website that some of their capital made it into big companies. It's not clear whether they disclose the previous funds performances.
Not to defend the VC in this case, but thin skin assumes that the VC did not take the meeting because they were offended by not being picked first. VCs and Investors are more often than not lemmings with strong FOMO bias, and perceiving no other VC is interested is enough of a signal to not waste time.
From my own experience having met with VC's and investors is that most are inundated with pitches, and the old addage of 'Take every meeting you can' has been replaced with 'Say No by default.' There is no exact science, and so there are proxy signals they use in their heuristic.
It reminds me of the scene in money ball where the scouts are complaining about a baseball player who does not date an attractive women, so therefore they should not sign him because he doesn't have confidence. https://www.youtube.com/watch?v=6naO8n6HsqE
They can’t function, Michael.
We can be as cynical about this part as we want, but I think what is meant here is that startups should try to raise investment from VC's or investors who are a good match. If I'm down to the 20th VC on my list - that list is sorted a way for a reason by the startup founders.
It's easy to assign this to ego but I think being a rational actor, it is also a signal like the pitch deck date.
Absolutely true I think. My intent was not to be too cynical (but feelings do matter though, especially if all you have are weak signals meaning you have to call it by gut feel).
Early stage vcs are successful when other vcs think the outcome is a good investment. Taking a bet that other VCs have already rejected will usually lead to a mixed payout.
I'd say Jobs would have blown them away. He was a businessman and an obsessive who knew when to focus on the design versus the product versus the money. If investors in his era wanted a perfect pitch deck, his pitch deck would have been perfect.
Tesla might have been more likely to focus on having the tech working at the expense of everything else.
Nah. I know a VC that passed on Apple because Steve was 20 min late to their meeting.
Honestly, I would have too, if I were in that VC's place. Hindsight is everything obviously but at that moment, if a founder were to arrive to an important meeting 20 minutes late without good reason, either the meeting was of little importance to the founder, or the lack of punctuality speaks volumes of his dedication to his company and his potential partners. Dave McClure once told me that he passed on Travis Kalanick for similar reasons.
If lack of punctuality being used as a signal causes these VCs to drop Steve Jobs or Travis Kalanick I think it's safe to say it doesn't speak volumes.
Otherwise you're optimizing for criteria other than "selecting whether to invest in Apple or Uber."
They arent single-mindedly optimizing to invest in the next apple or uber at all cost! They are balancing it against the need to screen out no-name bums that look and sound the same.
All I'm saying is that a "screen out the bums" heuristic is also a "screen out some of the wealthiest companies to ever exist" heuristic then it's probably not rooted in anything other than vibes.
It is a huge amount of vibes. There is no scientific way to know the future and predict rare events. The whole VC business model isnt about having good predictions. It is about being a few percent more accurate than random chance.
If you can win a coin flip 51% of the time instead of 50, you have a viable business model.
Perfection isnt the goal.
You're only considering the false negatives while forgetting about the true negatives. VCs don't have infinite funds at their disposal; a heuristic like "being late to a meeting leads to a rejection" can be beneficial even if the false-negative-rate is non-zero.
That's not necessarily evidence of how he treated all VCs rather than one VC one time. (Though I'm inclined to guess it's more accurate than the idea you replied to.)
Jobs also had to be convinced to not smell like a hobo before a meeting because he did not believe in showers (his fruit diet was pure!).
If he did make it to an important investor meeting, he'd sit there massaging his naked dirty feet.
Like it or not - the business world requires some level of shallow ritual you have to buy into.
If nothing else, the stench would have blown them away. He didn't bathe for _years_.
What a ridiculous exaggeration.
Jobs definitely didn't present himself that way, at the beginning at least:
To build the company, Jobs adroitly tapped the network of support services that has made Silicon Valley such a fertile place for fledgling businesses. Says he: “We didn’t know what the hell we were doing, but we were very careful observers and learned quickly.” Jobs pestered Regis McKenna, the area’s premier public relations specialist, to take on Apple as a client. After refusing twice, McKenna finally agreed. For advice on how to raise money, Jobs consulted both McKenna and Nolan Bushnell, his former boss at Atari. They suggested that he call Don Valentine, an investor who frequently puts money into new firms. When Valentine came around to inspect the new computer, he found Jobs wearing cutoff jeans and sandals while sporting shoulder-length hair and a Ho Chi Minh beard. Valentine later asked McKenna: “Why did you send me this renegade from the human race?”
https://time.com/3462424/the-seeds-of-success/
I'd be curious what woz saw between garage days and apple incorporation in terms of Jobs' views about marketing/behavior/appearances.
Looks like he did exceed everyone's expectations.
OTOH people who prefer the conventional are not likely to recognize the most promising outliers for what they are, it can go right over their head as if there was no difference from those having below-average potential.
If I recall Jobs' biography correctly, that came waaay later. First he had to get thrown out of his own company, with the Apple 3 debacle.
If you're brilliant and idiosyncratic and delivering something truly compelling, then vcs are more than happy to look past these things. God knows how many very eccentric founders have received funding
It is impossible for something in very early stages, that needs money to be "truly compelling".
For VCs a compelling product means great traction but to get great traction you need initial funding so it's always a catch 22.
Not if they are a bonafide super genius, then it's entirely possible.
That's the minimum bar without traction however. A regular genius isn't that impressive.
VC's don't have the ability to distinguish between genius and super genius...
The competent ones can.
That is a ridiculous claim belied by the distribution of positive outcomes in VC. Any VC making this claim with any confidence is immediately dismissible IMO. I would literally never speak to that person again.
Like in all fields, true competence comes with a deep skepticism of one’s own capabilities. Especially in a field absolutely chock full of luck, uncontrollable variables, motivated reasoning, and outright deception.
I would say that if an investor was intending to partner with someone who was uniquely advanced intellectually, it would be from spending enough time directly with the potential partner to be able to well recognize the upper echelon like it could not be accomplished any other way.
The most competent at this would sensibly not be relying very much on slides at all, and capable of clearly seeing beyond the factors like luck and uncontrollable elements.
It couldn't happen overnight, and especially not in a single slideshow, much less an email.
What happens when a founder is open to investment and only a super-genius capitalist would be appropriate?
The relevance of a slideshow might still mainly be in the "signaling" more than anything else.
How about a stable genius?
As we have seen, you can be very stable at ones utmost intellectual level year after year, and sometimes it can amazingly be someone who is naturally the complete opposite of advanced anyway.
A stable super genius is quite literally even better.
Traction doesn't always mean paying users.
Even just having people on a waitlist can be all you need.
I have 70 trillion people on the waiting list. It doesn't mean anything. Only people that pay for your product matter
That usually happens once you already gain traction.
Getting the critical capital to get there is big problem, and I recall some places explicitly snubbing VCs after having to get to "impressive" without them.
It might seem weird, but most VCs are fairly low-margin businesses day to day, then they either get a big payday or not (mostly not), once the fund starts to wind down. The odds of making it big as a general partner in a VC fund are not great.
A VC has to live of management fees for the fund, which are a tiny fraction, typically half a percent, and that needs to cover both the initial investment process and all management of the portfolio, and it's not a lot.
You can't afford to spend a lot of time scrutinizing every pitch deck, because you'll be inundated by them, so you look for quick filters. Many of which will be bad, because they're wild guesses. Yes, that means they'll miss amazing opportunities. But they're gambling what will be left will at least not be worse.
Upside is, VC's wildly disagree on which things make decent quick filters, so what will get you binned one place will often interest another, or at least not annoy them.
VC management fees are typically 2%/y. if a VC fund has $100 million in committed capital, the annual management fees would generally be between $2 million and $2.5 million. it's a lot of money.
There's a lot of nuance here. A $100mm fund could be a single guy/gal working from her office, running money in an industry she knows with a little bit of admin support. In that world, $2mm a year in fees is plenty to keep the lights on. Some fund managers I know in this situation don't call all the fee; there may be social considerations / signaling the manager prefers to make. Some spend it all and then some of their own. Absolutely none of them think that the fee is 'retirement money'; they all have eyes on the prize of a 3-5x and carried interest getting them to $100m or so, when they can do whatever thing it is they want to do that got them into running the fund.
On the other hand, a $100mm fund could be a 'contender' fund that wants to raise a large fund, and is in a competitive industry -- it's trying to get on the cap tables that, say, Mayfair gets on to, and so it needs to staff recruiting support, tech help, marketing people. Perhaps it's multi-jurisdiction. In that world, $2mm is way, way too little, and the GPs may well be financing the fund personally through fund 1 and into fund 2, depending on the follow-on raise. They are aiming at running, eventually, $1bn+ per fund in three to four stacked funds, and taking home $1bn after 20 years (or less?) of good effort for each of the original GPs.
These are caricatures, and there's much more than this to the lifecycle of venture funds, but since we're at HN and VC is a big part of the conversation, I think it's good for hackers and founders to understand the counterparties they do business with, and particularly to be able to read the signals of the VCs they talk to, while the VCs are reading the signals of a desperate, out of date deck.
You are sure you can speak for all of them? There are tons of VCs...
To me the 2% running fee sounds pretty nice, combined with somewhat low pressure job compared to many others. Of course it is not nice if your fund doesn't make it but you are guaranteed somewhat cushy position for 5-10 years.
Yep I'm sure I can speak for all of the $100M-fund work out of your home office types. Or at least > 99%. The Venn overlap between "content with promising people you'll make money for them believably", "too cheap to spend on office / marketing because your fake pitch was so good nobody will need it to feel comfortable", "enough executive function to make believable calls on believable companies while doing no sourcing work" and "$2mm for three years until people catch on, but def don't send me to prison" is absolutely zero or very close to it.
Most who run a fund like this do not think of it as low pressure or cushy, regardless of goals. Something I tell my portco CEOs a lot is that as much as they want to raise money, or need money for their company, in general, VCs they are talking to need to write checks even more. Just not bad checks.
I've not lost billions twice, but have definitely lost tens of millions, and worked alongside at lost one person who lost a billion once... It's an "interesting" business to be in...
You've already spent a lot of time to raise the fund, unpaid or paid out of proceeds from a previous fund first. Then you have to put in a massive effort to find, sort through and vet investments. Either there are quite a few of you, or you have a nightmare work pressure for several years unless you already have a massive rep (and it's still work).
And most LP's will expect the GP's to have significant skin in the game. E.g. at my previous employer, every staff member was expected to have at a minimum the equivalent of 1x gross yearly salary committed within a few years.
VC salaries are not that great outside the top tier funds or unless you're one of the GP's.
It could be "retirement money" for a handful of the GP's at the top tier funds, but they're only in that position in the first place because they have a lengthy track record, and so their past earnings from carry etc. will still dwarf any operating fee from their current fund.
It really varies. I worked for a VC for years, and it often takes substantial reputation to be able to demand fees like that. It also takes substantial reputation to be able to get high enough quality inbound dealflow to be able to do so with few people.
E.g. I know of a decent number of funds that size or smaller with a staff in the range of 10, a few with well above that. Even at 2% it's suddenly not so much money then, even less so when you start to factor in costs.
EDIT: You may also sometimes "on paper" have fees like that, but quietly offer discounts etc. to convince investors. On top of that comes often quite substantial requirements to buy into the fund for at least senior staff that seriously reduce the de facto salary unless the fund also does well enough that it's the carry that matters.
This is a clearly beneficial requirement, but your point is fair about it leading to 'on-paper' comp looking high. But I'd even go so far as to say that the majority of comp for senior people should be contingent (not sure if that's typical).
So around 5-10 software engineers (compensation in finance seems mostly similar to SW), not including any other costs like office, etc? That's not a lot of money.
There's a reason most small VC funds have mostly useless infrastructure.
Is that 2% on cash the VC fund directly contributed, or is it 2% on total funds injected into the business including loans the VC saddles the business with? (Or is that kind of leverage typically only done by private equity funds?)
VCs like Don Valentine & The founder of Atari actually passed on Steve Jobs because "they were not impressive".
It was only after Steve Jobs exploited their preferential attachment & tendency of VC to succumb to herding effects that he was given investment.
Would you mind expanding upon this, detailing the exploitation:
"It was only after Steve Jobs exploited their preferential attachment & tendency of VC to succumb to herding effects that he was given investment."
There is a very good documentary called Something Ventured[1].
It's really good. I think everyone into Startups must watch this. It's not second hand narration but the real VCs them selves telling the stories so I find it very reliable.
So in the documentary there is a section about VCs meeting Steve Jobs & Wozniak for the first time.
They passed on the investment saying that they were "not impressive".
One of the VCs (that refused to invest) was begged to show up at some computer conference to see how people were interacting with the Apple Computer.
The VC saw a very huge crowd of people around the Apple booth waiting for a turn to use the Apple computer.
The VC then completely changed his mind & decided to invest in Apple. When he did so, even the likes of Don Valentine now begged to enter the round.
My suspicion is that the crowd was artificial, Steve Jobs knew that if he could prove (or construct) some kind of hype around his Apple computer at the conference. It would conjure fear of missing out in the VCs or something akin to traction.
Note that everything else remained the same the product, the founders etc. He just added an ounce of hype.
[1]: https://youtu.be/7eV2L7CHCSQ?feature=shared
The longer you work in tech industry, you will viscerally "feel" just how rare Steve Jobs was as a talent.
he had an amazing feel for mass consumer psyche ("taste") and along with a good dose of charisma
so he was good at marketing
FOMO is the number 1 VC trait to exploit.
Even if you think a founder is not impressive, if you see an impressive product you are more likely to take the bet. It’s the same old “sales cures all” sentiment where many organizational dysfunctions can be tolerated if the company’s products are in demand
There's a famous old photo of the first Microsofties[0], and is often captioned by "Would You Invest?"
[0] https://i.insider.com/53ad82026bb3f7237a3347bf?width=800&for...
i'll play devils advocate: what if getting shot down hard by a few respected investors was a push to improve / get slicker with their approach?
Nikola Tesla received funds, in fact quite a bit of it. JP Morgan invested $150,000(~$5M in today terms) for just one project[1]. He died penniless because of his too much confidence in his ideas and he overused the money he got. Even with hindsight, funding Tesla was a bad decision for investors return wise.
[1]: https://en.wikipedia.org/wiki/Wardenclyffe_Tower
Yeah I was going to say this- idiosyncratic geniuses like Tesla are behind some of the most important technogical advancement of the human species, but isn't what VCs are optimising for.
For sure, there's a wider question about how society can reward more than just the ability to return profit. That would help with a lot of today's issues, like climate change, but it's a much bigger issue than just one of where VCs put their money.
VCs put lot of money on solving climate change. I feel climate change is one of the most overinvested field, where companies like Helion are valued $3B not only without any working prototype, but also with an idea which many experts say is not feasible at all, and even in the case they could make the prototype work, it is highly unlikely it could compete with solar in terms of cost per unit energy.
But yeah we shouldn't put onus on VC to make society better. Government should invest more in research which benefits society.
Overinvested?
How is it overinvested if no one (government, companies, you name it) come even close to "solving" climate change??
There's a very clear benchmark (CO2 increase) and we're failing spectacularly year-on-year!
The two arent related in any way. Overinvested means that most current investors will lose money. It says nothing about the progress toward climate change
He invented the brushless motor and types of transformers that were instrumental to building Westinghouse's empire. When Westinghouse was running low on money Tesla tore up the patents he'd sold to him to save the company.
Tesla was definitely not a "bad decision for investors", the ROI for his inventions is some significant fraction of the economic value of the global electrical system.
But yeah, a couple of his projects failed at some point. Surely a terrible investment!
I feel like this is soo close to getting it. Yes, for those investors it was a bad investment. Their goal isnt global economic value and the success of other projects isnt a consolation.
Investors don't operate charity funding to accrue value for the mutual collective benefit of some global system.
Investors MUST accrue ROI to their own account and/or that of their own investors, the limited partners. If they do not, they're done. Going bankrupt personally while providing huge value to the world at large is a TERRIBLE outcome for any investor.
Tesla invented great things that provide huge positive ROI to the global electrical system, yes. Nonetheless, giving Tesla 150k was a rather poor investment for JP Morgan. If Morgan had made many more such bad investments, he'd be bankrupt, and unable to fund any further value for anyone.
It sounds like he had to talk to a number of people first:
Tesla made the rounds in New York trying to find investors for his system of wireless transmission, wining and dining them at the Waldorf-Astoria's Palm Garden (the hotel where he was living at the time), The Players Club and Delmonico's. Tesla first went to his old friend George Westinghouse for help. Westinghouse seemed like a natural fit for the project given the large-scale AC equipment Westinghouse manufactured and Tesla's need for similar equipment.
Tesla asked Westinghouse to "…meet me on some fair terms in furnishing me the machinery, retaining the ownership of the same and interesting yourself to a certain extent". While Westinghouse declined to buy into the project, he did agree to lend Tesla $6,000. Westinghouse suggested Tesla pursue some of the rich venture capitalists. Tesla talked to John Jacob Astor, Thomas Fortune Ryan, and even sent a cabochon sapphire ring as a gift to Henry O. Havemeyer. No investment was forthcoming from Havemeyer and Ryan but Astor did buy 500 shares in Tesla's company. Tesla gained the attention of financier J. P. Morgan in November 1900.
Morgan, who was impressed by Guglielmo Marconi's feat of sending reports from the America's Cup yacht races off Long Island back to New York City via radio-based wireless the previous year, was dubious about the feasibility and patent priority of Tesla's system.
In several discussions Tesla assured Morgan his system was superior to, and based on patents that superseded, that of Marconi and of other wireless inventors, and that it would far outpace the performance of its main competitor, the transatlantic telegraph cable. Morgan signed a contract with Tesla in March 1901, agreeing to give the inventor $150,000 to develop and build a wireless station on Long Island, New York, capable of sending wireless messages to London as well as ships at sea. The deal also included Morgan having a 51% interest in the company as well as a 51% share in present and future wireless patents developed from the project.
So? Everyone has to talk to multiple investors. Even if first investor you talk to agrees to invest on the first meeting, you need to talk to talk to many investors to come up with a fair valuation.
Yeah pretty much
So much that playing videogames during a VC meeting can swing them the "right way" if you fit the structure enough
You can say a lot of shit about this person. But this is so inspiring. Like, this is a good example for young people out there. You don't have to change your ways for boomers even though they have a lot of money you need.
The lesson I got here is just be you. Let others change for you.
And do not fuck with the IRS in any circumstances.
SBF was able to fit the image of the boy genius that the partners at the VCs (who mostly were probably not boomers) were looking for, while still coming off as "one of them."
They thought that the crazy hair and the video game stuff was an act meant to project an image to the world, and the real SBF was Stanford and Jane Street.
The real SBF was Stanford and Jane Street
In case anyone doesn't know this reference:
https://www.businessinsider.com/ftx-sam-bankman-fried-league...
“I LOVE THIS FOUNDER,” “I am a 10 out of 10,”
He was even featured on the Forbes under 30!
I think “nepotism” might be more succinct?
Nepotism to me implies a kind of incompetence, in that people are selected purely for their relationship to the decision maker. I don’t think these people are generally incompetent at all, although certainly some exceptions exist. It’s more that the filtering mechanism eliminates anyone that doesn’t color in the lines exactly.
I don't think it implies incompetence, but rather, an ability to not know the world outside of the one that was made for the recipient of the nepotism.
I grew up in a fabulously wealthy suburb of NYC, a town often dubbed the "hedge fund capital of the world". I went to school with the kids of people who managed or worked at some of these funds, or worked on Wall Street. These kids were not and are not dumb, let alone incompetant by any stretch. I'm talking top scores on SAT & AP exams, Ivy League acceptance, Consulting/Banking internships, and top tier jobs out of college. Some extremely book smart people, and some with a degree of street smarts too. They all ended up working for the same types of businesses their peers and parents worked at. People would hire their golfing buddy's kids without blinking.
However, there's something these kids all lacked: practical real world knowledge and a complete inability to see outside their biases and inability to perceive outside of their bubble. It's not on them though, not at all - it's just how their experiences shaped them.
It takes an outsider to see the value in another outsider. Insiders are clouded by their own experiences that they can't understand disruption or change in an unknown way.
That same disruption or change is what oftentimes makes for startups whose early investors see insane returns.
First I’d like to thank you for the thoughtful, introspective, self-aware comment.
I have no grievance with people who had slightly better starting conditions than others. My background wasn’t exactly fun but I didn’t grow up in the same postal code as Easy E, a lot of people have it a lot worse than being pushed around as a kid. My childhood was like: “you’re on your own”.
My ex-wife’s background was a horror film, an Ellis novel and she cleanly tests 185-ish on proctored Stanford-Binet. I’m at least somewhat aware of the difference.
What I have an issue with is the fungibility of one’s parent’s or lover’s or advocates wealth into further capture. That’s the thing I’ll be running for office to make not only a felony but one that gets enforced.
You sound like a cool person who is aware you supplied two of three ingredients around success: long hours and table stakes, but my quasi-informed read of your remarks is that you paid that rake.
It also sounds like you understand good cards tend to be the dominant term, and I find that even more noteworthy and admirable than the first two.
Good day Sir or Madame.
With the exception of Jack Dorsey and Mike Krieger, every tech zillionaire I’ve spent time with is distressingly incompetent.
I appreciate that as Palmer Luckey can tell you, this is now an industry driven entirely by fear of reprisal by people lacking in competence.
So let’s add criminal corruption.
Don’t take my word for it, Carmack publicly expressed regret at not fighting it harder.
And on hacker news? I don’t really care if someone disagrees with Engine John.
In my little experience, most of the deals I see closing with VCs are because they/we were already linked to VCs through strong trust networks or directly. I see more deals that are close just by phoning/messaging someone that following the typical startup funding round that is read on Internet.
Not saying that most of the cases are not hard work from the startup team but saying that if I would have to raise funds I will put laser focus in the people I know instead of trying to reach VCs that are not in my network.
I will repeat this a little bit differently: I see many yes that are related to the team links, not their product or market.
Finally, when I talk about the team, I don't talk about their real capacity to execute but to sell to a VC like selling to an important customer.
This is the most common piece of advice all VCs and Founders give. Even YC has called it out on multiple occasions
I don't think the message is clear in the startup industry (yes, industry). The startup industry gives a lot of noise to inexperienced founders (obviously the great majority) making them think the game is more even.
The corollary are the following questions:
- What a founder without VC connections should do?
- How long will it take?
Even if they have a super product in mind (not a time machine) they will have an annoying experience pitching VCs who doesn't have any idea of what you are talking about.
Fair point. I have noticed a drastic lack of good startup advice outside of the Bay Area and Seattle scene. Both those two have very entrenched entrepreneurship networks so information percolates
Network, network, network.
Finding a VC is the same process as finding your first customer. Sales is a grind, as is running a company. It acts as a filtering function to find seriousish players.
If you raise funding, at least 10-15 years to even get the chance to potentially list or get a high 9 figure low 10 figure acquisition.
Its the same for the entire education system as Chomsky explains: It seeks to educate people smart enough to do what they are told, but dumb enough to not question it.
There are SO MANY VCs and every VC is different. if your idea is truly great there is probably one whose investment thesis is aligned with your idea
Also…
“Smart” and “brilliant” are all highly subjective.
Pride and ego lead to an amazing amount of bias when you start to think you know “smart” when you see it.
There are no “tests” for legacy admissions and for students whose parents have donated millions.
That's not really how the Ivy League works. Ivy League admissions balances a number of conflicting goals:
1. Legacies: this is the single biggest group of admitted students (eg ~36% of Harvard's undergraduate class). This by itself destroys any merit argument;
2. Athletes: people forget or don't know that the Ivy League is an athletics conference, despite the academic prestige and social proof. Ivy League schools don't offer true atheltics scholarships like you might get for D1 football recruits at, say, UAlabama or USC, but it is an important part of the admissions process;
3. The nebulous idea of "diversity". I don't mean in the DEI sense because it's much broader than that, like you can have better odds of getting an acceptance from an Ivy League school by simply coming from a low-population (and thus low applicant) state like Wyoming or Montana rather than Texas, California or New York;
4. Extra-curriculars, many of which are a proxy for wealth and privilege. For example, not everyone can do an unpaid internship living in NYC or LA or take unpaid opportunities requiring international travel;
5. Other random factors like filling out an orchestra. There's an old cliche that you should study the viola instead of the violin if you want to get into Harvard because there are fewer viola players.
6. Whether admissions believe you will enhance the reputation they've so carefully cultivated. An Ivy League degree is a powerful form of social proof. Being a Harvard grad will help you get into any graduate program. The prestige of your medical school greatly affects your ability to get a residency in a competitive specialty. The point is that social proof diminishes if the perception of your graduates turns sour so admissions will absolutely look at how may reflect on them in future.
The only commonality with VC funding seems to be the power of social proof. That is, MIT and Stanford grads will have an easier time. VC firms will go and do presentations and recruiting at those schools.
That doesn't mean you can't get funded if you went to an unremarkable state school. It just means it's a more difficult road. Stanford or MIT will make it easier to get an internship and thus a returning offer at a prestigious Big Tech company. You'll potentially know more of the people in the VC and startup spaces because you went to school with them or someone they know. There's a real network effect here.
But the point is the similarity to Ivy League recruiting seems to be fairly superficial.
When you become a part of their portfolio, you are becoming part of the institution. They need to trust that you’re not going to rock their boat. Taking investment means taking on a grown up attitude towards the operations of your company In many ways. So I think this is kind of intended.
It still comes down to risk management.
VCs manage risk differently than bankers, but they still need some form of assurance that their investment will bear fruit. They are not as rigid as bankers but they are still in the same position of having to rely on proxy signals to predict the future.
They can catch more non-conformist value builders† but not every single one.
†For a VC, innovation is a means to building value, not an end to itself. Often the 2 are used interchangeably but only the finances matter in the end.
I wrote it in another post here, but a bunch of these VCs are cut from the same cloth. They went to some Ivy League school, worked as investment bankers / management consultants / etc. and spent their first year(s) aligning images/tables/etc. and checking power point decks for typos.
If you do stuff like that 100 hours a week, it kind of becomes ingrained.
Try imagining harder. (Or just google :-)
Sequoia was their first VC. Got the Apple II off the ground.