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VCs aren’t your friends

keiferski
126 replies
11h31m

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.

jorvi
19 replies
7h46m

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.

alephnerd
14 replies
5h44m

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.

humansareok1
13 replies
4h25m

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.

alephnerd
7 replies
4h7m

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.

Like what do these kids with literally no experience running or starting anything know about companies

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.

dblohm7
4 replies
3h17m

(they tend to have 2-4% acceptance rates to either the college or the CS department)

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...

throwaway11460
3 replies
2h58m

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.

alephnerd
2 replies
2h31m

meant universities

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.

throwaway11460
1 replies
2h25m

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.

alephnerd
0 replies
2h21m

Makes sense!

ryandrake
1 replies
2h50m

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.

alephnerd
0 replies
2h33m

Legacy admissions as an obvious example

Majority of the T10 CS programs have deprecated legacy admissions. Most are public universities.

These schools can be filtering for a great many things

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.

azemetre
2 replies
4h5m

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.

mrgoldenbrown
1 replies
2h30m

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.

bbor
0 replies
1h57m

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

thfuran
0 replies
4h18m

It's sophomoric, which probably shouldn't be all that surprising from those so recently sophomores.

mrguyorama
0 replies
54m

When you've been told all your life that you are better than others, you believe it

RobotToaster
1 replies
6h16m

Unpaid internships in general are the same "people with rich parents only" filter, to a lesser extent.

throwaway11460
0 replies
2h52m

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.

keiferski
0 replies
7h26m

This is a big thing in journalism and fashion, too. Doing an unpaid internship in NYC isn’t exactly cheap

jakevoytko
0 replies
4h38m

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)

fsloth
19 replies
9h53m

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.

michaelt
15 replies
9h29m

> 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?

mef
9 replies
9h19m

consider that this is sending a negative signal to the VC that other VCs have already passed, rather than that it hurts their feelings

knifie_spoonie
6 replies
8h7m

other VCs have already passed

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?

rrr_oh_man
1 replies
7h59m

"Nobody ever got fired for hiring IBM"

--> GP's point was: You need to look good while losing all your LP's money.

knifie_spoonie
0 replies
7h47m

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.

verticalflight
0 replies
4h14m

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?

mbesto
0 replies
4h52m

Is there any hard evidence that founders who secure funding earlier are more likely to provide a VC with a successful exit?

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.

kasey_junk
0 replies
6h24m

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.

SkyBelow
0 replies
4h3m

Is this really a sensible factor to consider?

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.

zarathustreal
0 replies
8h49m

Why not both? VCs are human, hurt feelings are probably a negative signal

noashavit
0 replies
4h16m

Add to that how “small” and tight knit the VC community is and that’s a major signal.

petesergeant
0 replies
9h5m

successful enough to get put in charge of an investment fund

Is that how it works?

mrguyorama
0 replies
49m

How would you even function in the real world if you were so easily offended?

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.

csomar
0 replies
7h30m

It baffles me that a person successful enough to get put in charge of an investment fund

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.

balls187
0 replies
1h30m

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

RACEWAR
0 replies
9h16m

They can’t function, Michael.

davedx
1 replies
7h4m

b) the recipient was not their first choice (ouch, you can hear the ego taking a glancing hit)

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.

fsloth
0 replies
4h22m

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).

lumost
0 replies
4h43m

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.

dmurray
15 replies
11h17m

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.

spullara
8 replies
10h1m

Nah. I know a VC that passed on Apple because Steve was 20 min late to their meeting.

fakedang
5 replies
6h11m

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.

duggan
4 replies
5h54m

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."

s1artibartfast
2 replies
3h59m

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.

duggan
1 replies
3h50m

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.

s1artibartfast
0 replies
3h31m

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.

adwn
0 replies
3h24m

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.

swores
0 replies
8h9m

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.)

renegade-otter
0 replies
5h43m

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.

shermozle
1 replies
9h51m

I'd say Jobs would have blown them away.

If nothing else, the stench would have blown them away. He didn't bathe for _years_.

jb1991
0 replies
8h1m

What a ridiculous exaggeration.

keiferski
1 replies
11h14m

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/

agumonkey
0 replies
10h0m

I'd be curious what woz saw between garage days and apple incorporation in terms of Jobs' views about marketing/behavior/appearances.

fuzzfactor
0 replies
2h18m

Jobs would have blown them away.

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.

Quimoniz
0 replies
9h37m

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.

smabie
12 replies
11h24m

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

max_
10 replies
11h21m

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.

MichaelZuo
7 replies
10h25m

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.

kabouseng
3 replies
8h25m

VC's don't have the ability to distinguish between genius and super genius...

MichaelZuo
2 replies
7h9m

The competent ones can.

llamaimperative
1 replies
5h39m

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.

fuzzfactor
0 replies
2h51m

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.

data_maan
2 replies
5h20m

How about a stable genius?

fuzzfactor
0 replies
2h40m

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.

MichaelZuo
0 replies
1h25m

A stable super genius is quite literally even better.

threeseed
1 replies
10h4m

Traction doesn't always mean paying users.

Even just having people on a waitlist can be all you need.

ganeshkrishnan
0 replies
4h35m

I have 70 trillion people on the waiting list. It doesn't mean anything. Only people that pay for your product matter

p_l
0 replies
10h50m

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.

vidarh
11 replies
4h3m

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.

giansegato
10 replies
3h57m

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.

vessenes
4 replies
3h42m

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.

earnesti
3 replies
3h12m

Absolutely none of them think that the fee is 'retirement money'

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.

vessenes
1 replies
2h15m

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.

vidarh
0 replies
1h27m

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...

vidarh
0 replies
2h35m

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.

vidarh
1 replies
3h14m

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.

ska
0 replies
27m

On top of that comes often quite substantial requirements to buy into the fund for at least senior staff

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).

throwaway11460
1 replies
3h46m

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.

vidarh
0 replies
2h30m

There's a reason most small VC funds have mostly useless infrastructure.

npongratz
0 replies
2h14m

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?)

max_
9 replies
11h23m

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.

dpflan
7 replies
4h51m

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."

max_
5 replies
4h24m

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

nextworddev
1 replies
4h8m

The longer you work in tech industry, you will viscerally "feel" just how rare Steve Jobs was as a talent.

blueblisters
0 replies
3h58m

he had an amazing feel for mass consumer psyche ("taste") and along with a good dose of charisma

red-iron-pine
0 replies
3h12m

so he was good at marketing

dpflan
0 replies
4h5m

FOMO is the number 1 VC trait to exploit.

conductr
0 replies
4h0m

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

red-iron-pine
0 replies
3h15m

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?

YetAnotherNick
9 replies
11h5m

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

benrutter
3 replies
9h21m

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.

YetAnotherNick
2 replies
8h46m

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.

data_maan
1 replies
5h18m

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!

s1artibartfast
0 replies
3h51m

How is it overinvested if no one (government, companies, you name it) come even close to "solving" climate change??

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

davedx
2 replies
7h2m

Even with hindsight, funding Tesla was a bad decision for investors return wise.

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!

s1artibartfast
0 replies
3h53m

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.

pjlegato
0 replies
1h16m

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.

keiferski
1 replies
10h54m

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.

YetAnotherNick
0 replies
8h49m

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.

raverbashing
6 replies
11h1m

Yeah pretty much

So much that playing videogames during a VC meeting can swing them the "right way" if you fit the structure enough

yard2010
2 replies
9h53m

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.

jordanb
1 replies
7h9m

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.

fallingknife
0 replies
5h15m

The real SBF was Stanford and Jane Street

blitzar
1 replies
10h24m

“I LOVE THIS FOUNDER,” “I am a 10 out of 10,”

ganeshkrishnan
0 replies
4h33m

He was even featured on the Forbes under 30!

benreesman
5 replies
5h49m

I think “nepotism” might be more succinct?

keiferski
3 replies
5h45m

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.

NickC25
1 replies
4h18m

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.

benreesman
0 replies
1h58m

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.

benreesman
0 replies
5h42m

With the exception of Jack Dorsey and Mike Krieger, every tech zillionaire I’ve spent time with is distressingly incompetent.

benreesman
0 replies
5h44m

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.

wslh
3 replies
9h8m

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.

alephnerd
2 replies
5h42m

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

This is the most common piece of advice all VCs and Founders give. Even YC has called it out on multiple occasions

wslh
1 replies
5h12m

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.

alephnerd
0 replies
5h10m

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

what a founder without VC connections should do

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.

How long will it take?

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.

zrn900
0 replies
2h50m

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.

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.

mepiethree
0 replies
5h50m

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

jollofricepeas
0 replies
6h3m

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.

jmyeet
0 replies
3h30m

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.

conductr
0 replies
4h5m

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.

athenot
0 replies
5h46m

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.

TrackerFF
0 replies
7h24m

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.

JohnCClarke
0 replies
2h32m

I can't imagine

Try imagining harder. (Or just google :-)

Sequoia was their first VC. Got the Apple II off the ground.

leashless
61 replies
9h6m

Remember: if VCs believed in what they were doing they would not take a 2% annual management fee and 20% of the upside.

They’d take 40% of the upside and live on ramen noodles.

VCs make money by raising money from LPs.

They spend this money on investments which don’t look too bad if they fail, because nearly all of them fail. Looking good while losing all of your investors money on companies which go broke is the key VC skill.

Once in a while you get a huge hit. That’s a lottery win, there is no formula for finding that hit. Broad bets helps but that’s about it. The “VC thesis” is a fundraising tool, a pitch instrument, it makes no measurable difference to success. It’s a shtick.

Sympathy, however, for the VC: car dealership sized transactions paired with the diligence burdens of real finance. It’s a terrible job.

Once you understand that VC is one of the worst jobs in finance and they don’t believe most of their own story — it’s fundraising flimflam for their LPs - it’s a lot easier to negotiate.

1) we are a sound bet not to get you in trouble if we fail (good schools and track records)

2) we will work hard on things which your LPs and their lawyers understand, leaving evidence of a good effort on failure

3) we know how the game works and will play by the unwritten rules: keep up appearances

The kind of lunatics who actually stand to make money with a higher probability than average - the “Think Different” category - usually violate all of these rules.

1) they have no track record

2) they work on esoteric nonsense

3) they look weird in public

And they’re structurally uninvestable.

Once you get this it’s all a lot easier: the job of a VC is not to invest in winners, that’s a bonus.

The job of a VC is to look respectable while losing other people’s money at the roulette wheel, and taking a margin for doing so.

I hope that helps.

chollida1
18 replies
7h32m

Remember: if VCs believed in what they were doing they would not take a 2% annual management fee and 20% of the upside.

This makes no sense. Companies have fees, junior associates have student loans, buldings require rent to be paid.

This is a foolish sentiment, unless you would apply it to all employees everywhere. If startup employees truly believe in their company they would also take no salary at all and just live on ramen noodles.

But if you think this through you realize that employees also have costs in their lives that they need money for.

Once you get this it’s all a lot easier: the job of a VC is not to invest in winners, that’s a bonus.

The job of a VC is to look respectable while losing other people’s money at the roulette wheel, and taking a margin for doing so.

This really makes me question which VC firm you work at as you don't seem to understand how they work. If VC firms had no alpha then they wouldn't be able to raise a second fund at all. And you'd never see VC funds stick around.

They fact that Y combinator exists for all these years and A16Z, sequoia, etc are all around for so long indicates that they are good at their job and their job is to make returns for the LPs.

I work at a firm, i'd be happy to help you understand how these firms work as you seem to have a very outsiders view on it, i can help clear up alot of your blind spots if you want to talk!!

mattmaroon
6 replies
6h58m

Nobody who writes a comment like that wants to know why they’re wrong. “Money people bad” is their mantra. You’ll never change it, they’ve swallowed too much propaganda.

leashless
5 replies
6h51m

Hardly, I'm a CEO.

n2d4
2 replies
6h38m

Is that supposed to mean something? Half of Hacker News is a startup CEO.

By your own logic, you better pay yourself a $0 salary, $0 on secondaries, and invested all your personal savings into the project, because otherwise clearly you don't believe in your own company. Right? And I hope that is also true about every one of your employees?

leashless
1 replies
6h34m

Check the bio.

adwn
0 replies
2h31m

Check the bio.

Mattereum

Still none the wiser.

jaysonelliot
1 replies
6h40m

Of a company with how many employees?

leashless
0 replies
6h36m

Seven years in business. Number of staff varies with the environment but we've had as many as 40 on all hands, mostly part-timers with specialised skills.

It's not a very ordinary company. Too many lawyers.

pwillia7
4 replies
7h11m

If startup employees truly believe in their company they would also take no salary at all and just live on ramen noodles.

Not if you have no capital -- You still have to eat and be housed and that costs a lot if you don't have family wealth or other income streams, even with a good salary.

People also naturally have different levels of risk aversion. Not everyone can/should be putting it all on red every day.

This really makes me question which VC firm you work at as you don't seem to understand how they work. If VC firms had no alpha then they wouldn't be able to raise a second fund at all. And you'd never see VC funds stick around.

You're looking at it at the 'fund' level not the individual businesses that make up the fund. To use the roulette example, if I bet specific numbers or splits, I will expect any one of those to certainly lose, but I just need one to hit to cover the rest. Since the individual bets here are human beings and companies and not chips on a table, there's definitely an element of what the top commenter said IMO.

n2d4
3 replies
6h45m

Not if you have no capital -- You still have to eat and be housed and that costs a lot if you don't have family wealth or other income streams, even with a good salary.

That's exactly their point; this exact same logic can be applied to VCs, too.

pwillia7
1 replies
6h26m

Do you mean to the employees of VCs? LPs do have capital, that's why they're LPs.

For the employees, the sentiment that you should bet on the sales pitch "I won't get you fired" over "I will make you wealthy beyond measure" still holds.

n2d4
0 replies
2h23m

The LPs pay 2% management fee so the employees make some money regardless of the outcome, just like startup founders want to make some money even if the startup fails.

sqeaky
0 replies
5h23m

If startups had capital to coast on they wouldn't needs VCs. If VCs didn't have capital to invest they wouldn't be VCs.

One of these groups clearly has more money at the start of this arrangement and you seem to be ignoring the change in npower dynamic that creates.

leashless
4 replies
7h22m

VC as an asset class loses money.

Within that loss, some companies do better than others.

Whether that is skill, luck or finding some way to tilt the board in your favour (political influence for example) depends on who you ask.

I have read that the statistics the distribution of success in the VC field was compatible with a random distribution with a very small skill bias.

I do not know if that analysis was accurate and it will be 10 years out of date now.

But that there are winners and losers does not mean that it is not a game of chance.

bbarnett
2 replies
7h13m

Do you know if those stats took into account massive economic events? Such as market crashes?

Which tend to happen at least once a decade?

People often have a point to make, and will often ignore such data to make it. To add to this, outside of honest intent prejudiced with personal bias, there are parties lookong to undermine any aspect of success the West has, by invalidating those successful models.

leashless
0 replies
6h52m

I don't understand what you are saying or asking. We can only measure against real world data.

hobs
0 replies
6h39m

If your strategy is successful 8/10 years and your lose enough money during the other 2 to be marked as unsuccessful, is that really a "successful model"?

fairity
0 replies
2h58m

VC as an asset class loses money.

If you're actually open to changing your mind, provide the source for this claim.

I think you'll find you're wrong by most reasonable definitions of "losing money".

MacsHeadroom
0 replies
7h22m

If startup employees truly believe in their company they would also take no salary at all and just live on ramen noodles.

Yes.

tomp
16 replies
8h49m

This doesn't make sense.

I worked in hedge funds, even there the management fee (2%) covers the fixed costs (legal, trading operations, treasury, IT operations, etc.) whereas the performance fee (20%) incentivises the alpha.

In VC it's even worse, because at least hedge funds are liquid. VC investments don't realize their value for 5-10 years! Are they supposed to work for free for 10 years? Even the support staff?

Negitivefrags
7 replies
8h6m

If they have fixed costs, why is it a percentage based fee?

Why not just be upfront with a fixed dollar value per year of fees for that part?

LysPJ
5 replies
7h58m

Fees such as trading costs are a percentage of trading volume.

Therefore, the more money you are managing, the higher your trading costs. (i.e those costs are "fixed" but its a "fixed percentage" rather than a static number.)

csomar
4 replies
7h45m

I highly doubt trading costs are part of the 2% management fee.

kasey_junk
2 replies
6h33m

In my experience they absolutely are part of the 2% fee. Why do you think they aren’t?

csomar
1 replies
6h2m

In that case, how can the rate be fixed or does that mean that the hedge fund limits its trade turn-over. In other words, if your trading fees are 0.2% and your trading volume is 10 times the capital raised, you already burned through your management fee.

kasey_junk
0 replies
4h44m

That’s why they are fixed percentage not fixed. Trading fees go up with the amount of capital moved but mostly in a linear fashion.

Calculating your trading costs (and usually more importantly slippage) is absolutely table stakes for a fund that trades.

For most funds that’s relatively easy as the trading component is a cost center that you can outsource for predictable prices.

For funds that aren’t treating trades as cost centers, well it’s presumably part of what you are selling so you better be good at it.

SkyMarshal
0 replies
7h43m

What else would they be part of? It's an operational cost.

kzrdude
0 replies
7h39m

Prices of products in general are not based on costs, they are based on what share of the cake is available to take.

leashless
3 replies
8h41m

Take 40% and raise capital for the VC operations as a separate transaction than from the LPs, of course.

Efficient markets.

SkyMarshal
1 replies
7h41m

How would you raise capital for operations separately from LPs? What's the upside of that for any investor? Do they get part of fund returns? Nobody is giving any kind of fund any money unless they get part of the fund returns for it.

leashless
0 replies
7h30m

They would take equity in the fund, of course.

notahacker
0 replies
7h28m

So they take 40% of future portfolio returns, and then sell half of that up front in return for investment of 2% of total funds managed and end up exactly where we are now but with added complexity....

wbl
1 replies
7h26m

Strangely the 0.05% management fee I pay covers the fix costs of my mutual fund.

brilee
0 replies
5h22m

A market is very liquid and trading is cheap, and the relevant starts are publicly aggregated. Transactions for an index fund are probably billions a day in rebalancing, withdrawal, and purchases. Startup transactions take $x0,000+ in legal fees, travel costs, due diligence from domain experts, and weeks of labor for single or double digit million dollar deals. Are you seriously comparing the two?

dsr_
1 replies
7h31m

"incentivises the alpha"

If they knew where the alpha was, they would go get it.

If they could make alpha happen, they would do that.

blantonl
0 replies
6h39m

Carrot? Stick?

saberience
13 replies
8h36m

This is nonsense...

VCs have a whole staff of people needed to do business and a ton of costs. There's a legal team, marketing/events, human resources, finance, some executive assistants. Screening, meeting founders, traveling to meet founders, takes up a TON of time and obviously most of the time, no investments are made! Also don't forget, VCs have an office, usually not in a cheap place, so lease costs, cleaning costs etc.

If VCs had to work for free, where would you be meeting them? Ok it's all virtual now, let's say. But the truth is, meeting people face to face when you're going to write them a cheque for 10-20M is generally a good idea. So VCs and founders will almost always need to travel. You're also always going to need lawyers and finance people, since you're dealing with term sheets and large amounts of money.

As others have said, VC investments are not liquid at all and the timeline is 10 years for any returns. So a VC investor in your world has to travel around the US, Europe or India meeting founders, has to work with lawyers, financial folks for free, gets zero benefits in terms of healthcare, etc. All for the chance at 40% of something in 10+ years, that might not work out anyway?

If run this way, the industry would simply not exist and the founders would not get any investment. And the truth is this, there are many founders out there who want and actively seek VC investment and "shock" actually are happy with the relationship with their investors because they understand a good relationship benefits both parties in the deal.

I will also add, most employees in VC firms get no percentage of the profits of the fund (i.e. the carry). Most VC employees just get a regular salary (which is often far less than tech company salaries). So if there were no fee associated, these people would never get paid, since even when the fund finishes, they wouldn't get any of the 20% carry.

leashless
6 replies
8h27m

As noted, the VC would raise capital like any other business to cover its operating costs.

Think about why they don’t do that.

saberience
5 replies
7h54m

They already do that... they raise funds from LPs which include a fee which covers the costs. And it works fine, LPs repeatedly invest in the same firms which they wouldn't do if they thought it was a bad deal. There are firms which have been investing for 20-30 years with the same LPs. If the business model wasn't working it would have failed and the VC firm would have closed a long time ago.

leashless
4 replies
7h41m

"If the business model wasn't working it would have failed and the VC firm would have closed a long time ago."

Tons of VCs do fail.

saberience
1 replies
7h34m

Yes, and that's healthy. Any ecosystem of companies, people, animals has failures. As far as I can see, it works fine. Just like tech companies, some VCs do amazingly, some fail. We get new VCs starting each year just like tech companies, some succeed, some fail, there's no issue here.

leashless
0 replies
6h34m

Agreed. VCs are companies, start ups are companies, they've got very similar dynamics.

There's no magic anywhere in here.

jordanb
1 replies
7h23m

As a class VC is a lousy investment.

Warren Buffett has described PE as a horrible investment class populated entirely by grifters who lock up your money for 10 years and fuck around with it, producing awful returns. The way he describes it, VC sounds very similar from a LP's perspective.

So why does anyone invest? Buffett's theory is that LPs are mutual fund and pension fund managers who like the fact that there's a 10 year lockup in a private, illiquid investment because it means that the value can't be marked to market. They won't still be managing the fund at the end of the lockup and in the mean time they can mark to expectation and let the next guy deal with the fallout.

leashless
0 replies
7h13m

I think the answer is marginal utility of money. If I have $20 million, and I take $1m to the casino and bet it all on Red 21, maybe I come back with another $20m after taxes. Or I lose $1m then and there.

But in the process there's no control and no sense of skill or judgement or expertise. I'm just a gambler.

If on-the-other-hand I gave that money to a GP in a fund to invest on my behalf, they could come back with a game-changing amount of money in some circumstances, and there's a plausible claim of skill and expertise in my selection of the GP, and the GP's selection of investments.

Same potential for asymmetric returns as gambling, but in a format that reinforces the illusions of skill and control and just maybe really is a question of skill at some level.

I want to say that losing money by being bad at things is always possible, but making money by being good at things is far more a matter of intangibles than anybody want to admit, and proving that any success was deterministic rather than little turtles racing down the beach to the sea and on-average half make it is nearly impossible.

We all love the illusion of control. But the statistics just don't bear it out as a fact in business.

csomar
5 replies
7h43m

If VCs had to work for free, where would you be meeting them?

It's interesting you are pointing exactly at the OP point without realizing it. If you are assuming that the VCs will be doing this for "free", it means they simply don't believe they'll have any ROI, let alone one that beats the market.

saberience
4 replies
7h30m

What? That makes no sense.

VC is a job like any other, it takes time and work/effort etc to produce output, it's also a job where you can improve with skill and experience. Just like writing code takes effort and skill, why would you spend 10 years writing code full-time for "free"?

Just like no one would edit books full-time for free, or write code full-time for free, or teach kids full-time for free, VC's wouldn't screen companies, interview founders, carry out significant due diligence processes for free either. Because they need to eat, need health-care, need money for rent/mortgages etc, just like every other professional.

It's just another job, and most people in VC are not rich, they are just earning a salary and get no carry/% of profits of the fund.

csomar
2 replies
6h7m

VC is a job like any other

No, it's not; or at least not supposed to. That's what communism is (regular plebs of the working class deciding how to allocate resources with no skin in the game).

It's funny that I heard a VC the other day claiming the US is turning into the Soviet Union...

leashless
1 replies
5h57m

So... where's the magic pixie in this story? If VC is not a job -- and remember most of the junior people in funds, it's like their first job in finance -- then what is it?

I mean you've gotta define terms here...

csomar
0 replies
2h22m

It’s a job but not like any regular jobs. In most regular jobs, you are given a set of requirements/tasks, you do them 9-5 and go home. VC decides who gets money and as a result what kinda of jobs there will be out there. Luckily, VC is only a part of the financing sector.

The problem, in my opinion, is the lack of skin in the game in many of these funds. If the alpha is the 2% of funds managed, then the investments are a side show and as a result VC are just a plunder of these funds and a misallocation of resources in the economy. (Hence my comparison with communism).

leashless
0 replies
7h6m

Nobody said work for free.

Raise money for the fund's operations with a separate investment product, and take no 2% management fee. Instead take 40% of the upside: this is _efficient_ if you think the upside will be huge.

In fact if you were certain of the huge upside, people would borrow the operating costs for the VC rather than selling equity in the fund. Most VCs in practice live off the 2% quite nicely, and pray for a big hit, but _the big hit is a bonus not the point of the fund_

The point of the fund is the 2%. The once-in-a-blue moon hit is just that.

And let me point out. The YC "big hit rate" is about 1 per 200 investments. Ballpark; you'd need to ask them the current stat.

So a fund that makes 100 investments, on those numbers, has a 50/50 chance of a big hit. 50 investments, a 25% chance.

To reliably get a big hit you either need to massively alter the odds of success for your portfolio companies, or kiss an awful lot of frogs hoping to hit the occasional prince.

VC is _extremely hard_ because it bakes in tech risk and projections about future society into a financial product called startup equity. The big hits are staggering - the best investments ever made by human beings at any point in history I would guess - but reliable prediction of those big hits is impossible.

Nearly every unicorn has a stack of 70 rejection emails. The special factor is intangible and invisible.

If it even exists.

I think Paul Graham explained all of this quite clearly in Black Swan Farming. It's slightly "between the lines" but he knows exactly what business he is in: spread betting and tipping the table as far as possible in his favour!

A good VC approach.

leashless
2 replies
6h59m

Paul Graham, Black Swan Farming: https://paulgraham.com/swan.html

"The two most important things to understand about startup investing, as a business, are (1) that effectively all the returns are concentrated in a few big winners, and (2) that the best ideas look initially like bad ideas."

_initially look like bad ideas_ meaning "we can't pick them out of the crowd of other bad ideas"

"there is probably at most one company in each YC batch that will have a significant effect on our returns, and the rest are just a cost of doing business"

"For that reason one of my most valuable memories is how lame Facebook sounded to me when I first heard about it."

"We'll probably never be able to bring ourselves to take risks proportionate to the returns in this business."

So it's not like this model is alien to Our Kind Hosts at YC. They understand that this is a crap shoot with a slightly tilted table, but they're optimising for staying out of the zones where everybody else is betting and not that much more.

To be remembered: if you're having a hard time getting funded, the VCs are also having a hard time funding you, because the huge returns go to things that look odd, lame, and weird.

For the most part.

jerrygenser
1 replies
6h21m

So it's not like this model is alien to Our Kind Hosts at YC. They understand that this is a crap shoot with a slightly tilted table, but they're optimising for staying out of the zones where everybody else is betting and not that much more.

Do you think this still applies, given recent waves of following the crowd in the last few years like crypto, and now AI? It seems that YC is actually in exactly the same hype zones as everyone else these days.

leashless
0 replies
5h38m

I'm too far away to know: based in London, mostly working in the legaltech domain, we're far far away from the SV cultural nexus (other than occasional trips to Burning Man for a refresher!)

I think there's a pretty good chance that as their original team is further and further from the operation that they're "reverting to the mean" but I have no evidence.

DEDLINE
1 replies
7h2m

This is an incredible post for me. You need to have a marketable CV, you need to have a few growth metrics and you need to be in on the joke.

leashless
0 replies
6h6m

Yes.

I learned this the hard way. I'm glad to see people _getting it_!

Good luck!

raincole
0 replies
7h31m

if VCs believed in what they were doing they would not take a 2% annual management fee and 20% of the upside. They’d take 40% of the upside and live on ramen noodles

So if you believed in something, you need to get rid of the concept of hedging and financial responsibility?

This kind of "believing" is what a religious zealot does. No wonder people say SV is a cult.

lemonwaterlime
0 replies
4h41m

This is the correct take, though it states a truth many don’t want to hear. Even the detractors have not been able to make solid counter arguments. Instead, they pile on hypotheticals to try and overwhelm this comment author (miring in bureaucracy).

edouard-harris
0 replies
6h6m

This correctly describes bad VCs, but not good ones. In my experience, the vast majority of VCs from outside the Bay Area are bad in this way (particularly true in Europe).

Not all VCs from the Bay Area are good, but the good ones are far more common there than anywhere else. One reason "move to SF" is such common advice.

davedx
0 replies
7h10m

Elegantly written presumption.

data_maan
0 replies
6h19m

Cool description :)

admissionsguy
0 replies
6h35m

This makes a lot of sense. I have always wondered how it is that VCs give so much weight to perceptions. Coming from academic background, it seems so strange that your school rank weights much more in getting VC funding than in PhD admissions.

caseyy
17 replies
11h34m

Most business founders don’t need VC money and are worse off for taking VC money.

I find the mindset “my pitch deck was 2 months old so I didn’t get funding” very out of touch of business realities. It is far more likely that that type of business doesn’t need VC funding. Your SaaS can probably be built with your daytime developer salary. No VC ever says “wow, what a great investment opportunity, one of the best, but the slides were old”. You don’t even need the slides, or the rehearsed elevator pitch. Just build a business that’s worth VC money (solid, profitable, and ready to scale up) if you absolutely insist on it.

__loam
5 replies
10h55m

Profitability is optional.

caseyy
4 replies
10h21m

Profitable companies attract much more VC interest and even competition.

tomnipotent
3 replies
9h3m

Doesn't a VC make money from valuation, not profitability. A profitable business has either reached market potential, or isn't spending enough on growth. Anecdotally I can think of many more examples of unprofitable businesses getting VC money.

stanleydrew
0 replies
7h36m

A profitable business has either reached market potential, or isn't spending enough on growth.

Yes, but spending money on growth is probably the number one thing VCs like to invest in. If you happen to be profitable, but also can demonstrate a clear path to growth, then VCs will lean in.

gumby
0 replies
4h50m

Doesn't a VC make money from valuation, not profitability

Sure, but if the business is profitable that means it works. Now the investment can be spent on bending the curve up (e.g. hire more salespeople that could have been afforded from the company’s revenue alone) rather than the more risky approach of spending the money to see if the product will make it at all.

A profitable business has either reached market potential, or isn't spending enough on growth.

This is a naïve view from the SaaS era propagated by SaaS and consumer app investors. Does not apply to most businesses and applied to none of the biggest companies today like Microsoft, Apple, NVIDIA, Google, et al.

Look at google: no, it wasn’t profitable (no revenue or even revenue model) but had huge uptake by the nerds without any effort to market it.

Anecdotally I can think of many more examples of unprofitable businesses getting VC money.

Sure, several of my own companies were funded in this mode. But that capital was more expensive because it was used figuring out if the tech would work and if there were actually customers for the product.

devoutsalsa
0 replies
7h31m

Not counting their 2% annual maintenance fee, a VC makes money from buying shares low, selling them high, and keeping 20% of the high price minus the low price. So yes, they make money if the valuation is higher than the when they bought it.

Example:

- buy 1 million shares at $1.

- sell 1 million shares for $101.

- (101 - 1) * 1_000_000 = 100_000_000

- 100_000_000 * 0.2 = VC gain of 20_000_000

renegade-otter
4 replies
5h57m

As someone who took more than a year off to build his SaaS - the days of stitching together a prototype at night are pretty much over. You need to be an incredible hustler and have a really good insight into a desperate business need.

Customers today expect polish and few bugs right out of the gate. I spent months on polish alone. If you don't, your product is going to be savaged like this:

"Former Yahoo CEO Marissa Mayer’s New Photo-Sharing App Has a Design From the Stone Age"

https://gizmodo.com/marissa-mayer-new-app-shine-photo-sharin...

ryanwaggoner
1 replies
5h13m

How’s your SaaS doing now, if you don’t mind my asking?

renegade-otter
0 replies
4h58m

friendlyfire.tech is pretty much dormant :)

The benefit of being bootstrapped, of course, is that it's designed with costs in mind, so I don't spend more on hosting than I do on my Netflix subscription.

ipaddr
0 replies
3h24m

The fact that writer Jody Serrano is trying to take down another women Marissa has very little to do with polish of the app. Look at OpenAI design.. it's not much better and it doesn't matter.

That article follows a long standing tradition of women attacking other women in power based on appearance to try to elevate themselves. No insight on polishing trends can be learned here.

AlienRobot
0 replies
4h22m

Before: I had no idea this app existed.

Now: I know this app existed.

Having no polish can't be worse than having no app.

threeseed
3 replies
9h4m

Your SaaS can probably be built with your daytime developer salary

Sure. But from experience it takes 3x as long.

After a long day of coding it’s not fun to come home and do another 8 hours.

timemct
2 replies
5h45m

Even if you love what you do at your day job... The cobbler's kids go without shoes, and the chef's fridge is full of condiments & takeout boxes.

threeseed
1 replies
5h33m

The first thing to go is your social life closely followed by your health.

Bootstrapping is in my opinion much harder than VC backed.

naltroc
0 replies
5h27m

The constant feeling of small wins keeps you going

When you finally take 1 day a month off and look down from 10,000 feet up

The reality of how things are going is gloomy

It might also help if you can mentally spin things to be more boomy. Optimists in the house

jordanb
0 replies
7h5m

I'm hopeful for this silicon valley downturn because while I think you're right that most software business plans are capital-light and could be bootstrapped, the problem with the boom times is that if you try to bootstrap and validate any market you will have a VC-funded competitor come along and blitzscale right over the top of you.

dangoodmanUT
0 replies
7h44m

Yeah that's why all large startups are bootstrapped

braza
9 replies
10h27m

For folks that are working on a product right now, given the incentive structures behind venture capital, are there genuine reasons to pursue that kind of money? Let me rephrase: How many folks out there are searching for for some kind of niche business with enough to cover expenses and had some profit in a small scale?

I had a short experience with the music industry and the whole enterprise + VC sounds the same dynamic between artists and record labels back in the day, where was not enough to play in local bars and have a steady presence there, but everyone wanna to be Metallica or Anthrax.

indigochill
6 replies
10h0m

I've never heard of a musical group or artist who can make a sustainable living on just a local scene (although maybe that's rather the point, since they stayed local to wherever they are). Even for huge artists, from what I've heard merch is where the money is, not ticket or record sales (or today, streaming, which is _ludicrously_ tilted against the artist actually making any money). Admittedly I last looked into this around twenty years ago and my sample is tilted more towards the folk singer-songwriter type rather than, say, DJs.

That's not to diss local artists, though. Some are incredibly talented, and I loved the scene I was in it. Just, if we're talking about investing, making music looked like 9 times out of 10 a money sink you do for the love of it, not an investment opportunity.

StackRanker3000
4 replies
9h46m

Even for huge artists, from what I've heard merch is where the money is, not ticket or record sales

That’s not quite true. It’s an extreme example, but Taylor Swift’s personal earnings from her current tour is expected to end up in the billions.

Back in the day, touring was something of a marketing tool to sell records, today the records are marketing for the tours (and they build hype, which yields sponsorships and so on). Merch is an important revenue stream, but a large chunk of that is sold on tour.

throw_nbvc1234
1 replies
8h28m

Agreed but using examples like Taylor Swift in music is far off from focusing purely on (exited) unicorns when talking about VC. You have to look outside the 99th percentile to find generalized insights.

StackRanker3000
0 replies
6h55m

If you look outside the 99th percentile, you won’t find anyone living off their music career.

saberience
1 replies
7h36m

That's like saying you should take VC money because you can end up being like Mark Zuckerberg. It's a 1/50'000'000 sort of case or perhaps even less likely.

StackRanker3000
0 replies
6h56m

I wasn’t suggesting anyone do anything, I was mostly trying to point out that large acts can make a lot of money on touring. Most make very little, if any at all.

ipaddr
0 replies
3h2m

Plenty of musical groups make a living locally and not only pop music. If you play a classic instrument you get opportunities for festivals, parades, weddings, local shows. Joining a marching band can pay for your schooling for example.

Many classic rock bands with members in their 40/50/60s perform live, have a local following and make good money without selling CDs.

Cover bands are often local and make good coin without album sales.

Then you have musicians performing children who get paid.

You are never going to be a pop star or a VC rocketship company but few are. But you can make a solid living just performing locally.

robertlagrant
0 replies
10h17m

Any business that needs up front capital needs to get it somehow. E.g. develop a medical device that has years of development, testing, and regulatory lead time. Who pays the salaries and for the laboratories and studies?

It's either: only allow companies that are already big to do new things, which they often aren't geared for in various ways, or have a mechanism to allow capital into new businesses from outside, that comes with certain expectations. You're free to decline both the capital and the expectations, of course, because this is a free agreement made between two parties.

earnesti
0 replies
10h5m

If you have a business that can get off the ground without funding, great. That just isn't reality for most.

There is maybe some people who raise money "because it is cool", but I would think it is in the minority. If you have a business that is profitable, you are happy with the growth, etc, there is little sense in going to the investors begging for money. The couple bootstrapped businesses I have seen didn't have much interest in raisin.

moralestapia
8 replies
11h59m

A VC receives 10 to 50 decks per week. Out of those, 10% are hot: think OpenAI.

1-5 OpenAIs per week

Yeah, ok man, quality blog post incoming.

billybones
5 replies
11h47m

I didn’t read this as “10% will become 100B businesses”,

I read this as “10% are hot”—probably the author meant “like a team out of OAI” but maybe they meant “like recent rounds of OAI have been”.

In any case this post read as sophisticated, reasonable, and helpful, to me.

moralestapia
4 replies
11h34m

It's orders of magnitude off. The guy is just LARPing poorly, even lacking common sense.

One single OpenAI-tier deal every two years, consistently, would put you into Legendary VC territory.

scotty79
1 replies
10h1m

I think he meant that they seem as exciting as OpenAI to investors. Not that all of them (or any) succeed.

You can bet on all 10% potential OpenAIs of the future and still loose all your bets.

notahacker
0 replies
7h46m

Still feels way off. If VCs receive 1-5 pitches per week that seem as exciting to them as OpenAI, they'd spread their money around a lot more startups. Don't think they're that excited by half the "solid metrics, good founders, there's plenty of money in generic B2B SaaS if we throw enough at the sales team" stuff they actually invest in.

Now I can believe that at least 10% of the pitchdecks they receive are "we hook $industry up to OpenAI's API"...

reducesuffering
0 replies
11h23m

What a colossal failure of OpenAI’s nonprofit charter that they’re repeatedly in a conversation about being good VC returns.

lmeyerov
0 replies
10h13m

I read that comment a bit differently:

- Volume: Former founders who hit the jackpot are investing in a bunch of startups every week. There are hundreds of unicorns etc out there, and thousands of Series A's every year. That's a bunch of competitive deals being signed every day!

- Quality: Early silicon valley startups can easily look like openai's early days. With hundreds of unicorns out there, their execs eventually leaving and recruiting smart folks for their next thing happens almost every day. Pitches that are "We're solving X" are a dime a dozen. Likewise, they're each flawed in different ways -- in OpenAI's case, an easy negative phrasing is: no real business plan, positioned mostly as a non-profit R&D lab that'd do open source for Elon Musk to get google IP more easily. Likewise, having Stripe's CTO was one of those cool unicorn exec things, but for 0->1 business, maybe not so obvious, and Sam Altman's only 0->1 gig was running a small failed social mobile social network. It's easy to phrase in positive vs negative lights. Now imagine getting 5 of those on your desk every week, and you only pick 0-3 a year, hoping each win pays for all the duds, and then some...

llm_trw
0 replies
11h45m

Those numbers are hilarious. I can see an associate getting that many decks a week, then culling them down to 1 to 3 for the next guy up the chain. But there will be 3 to 12 associates.

Then the number of deals is also hilarious. These people don't have unlimited money, even in the good old days, you'd be lucky to be doing a deal a week out of the pool the associates approved.

So basically there are a hundred times as many decks as what the OP thinks there are for each deal. And the successful ones aren't open AI, the majority of the time a successful exit is getting sold for $10m to the incumbents in the field.

drones
0 replies
11h53m

I actually laughed when I read that

openrisk
7 replies
6h3m

In transactional financial markets "friends" is not the right word, but there is something to be said about more or less effective alignment of interests and that is purely a matter of design.

There is more than enough money sloshing around, it all boils down to designing contracts and suitable information exchanges between parties. So anybody thinking that the current system is sub-obtimal can try their hand at disrupting the VC system and making history :-)

An arrangement that better utilizes the majority of the entrepreneurial crowd's energy and time is likely to at least carve a niche, if not dominate. It may not even be that hard. The chasing of planet-scale returns (with the corresponding discounting of the rest 99.99%) is a recent phenomenon and may be just an aberration.

benreesman
3 replies
5h51m

Financial accountants have a line item for not being a dick. It’s called “goodwill”. No shit.

bombcar
1 replies
5h31m

Goodwill is like dark matter; they have to account for value increases or decreases when doing double entry bookkeeping so they invented goodwill for that.

benreesman
0 replies
5h24m

The trivial necessity of valuing the intangible of being well-liked by one’s customers and partners has nothing to do with positing definitionally unobservable mass.

The cost and effort and intellectual integrity burnt on linking that mass to bosonic super partners even after a six sigma result at CERN on scalar field excitation at 125 GeV was found exactly as everyone knew it would be without a squark in sight is very on brand for what passes as rigor around here these days.

gumby
0 replies
4h59m

Ha ha, this is both hilarious and so true!

wcarss
0 replies
5h16m

To carve any niche in a space like this, one needs extensive personal connections, money of their own to apply and put in the game, time to spend on it, and the belief that this is the best use of all of it.

It may well be that far better arrangements exist, but how would a slumdog or a small time farmer or a stay at home parent ever get the ball rolling? Who would play ball with them?

It would pretty much require that an existing VC or an empowered member of their ecosystem have the idea and see a path to it enriching themselves in order for them to spend time on it.

This is a major issue with pure market maximalism like the above: not everyone has agency within and access to every market, and no agent within a market would just let it change unless they personally stand to gain. Many potential solutions pass through empowerment or enrichment of different groups than those currently holding the reins, and this may mean those solutions are impossible to explore.

ilrwbwrkhv
0 replies
4h11m

I do not know who Jason lemkins is but he seems like a random small fry saying bullshit to gain some clout.

I have worked with bigger vc firms such as matrix partners and they genuinely care about you and want your startup to succeed if they are interested.

Trick is to make something which is genuinely cool and matches with the thesis and talk to vcs who are respectable.

Yc is a great help in this regard. They help you understand which vcs are respectable and which vcs you should treat like mushrooms: feed them shit and keep them in the dark.

Lemkins seems like a mushroom.

PaulStatezny
0 replies
4h44m

money sloshing around

Meta-comment: What a creative and effective word picture. In just 3 words there's so much information that instantly comes across.

hiddencost
7 replies
12h8m

Every blog post about VC should have a disclaimer with the interest rate at the time of writing.

dheera
3 replies
10h50m

Why should VCs care about interest rates? They're looking for 30000% returns from 1/100 of their investments while the rest go to 0.

They aren't interested in your measly 5%

michaelt
0 replies
8h12m

Because VCs need to get investors, meaning they're competing with other investment opportunities.

When interest rates were 0.5%, a high-risk investment with a 12% return looked pretty attractive. So lots of people were handing over money to VCs. As they had wheelbarrows full of other people's money they were required to spend they didn't look too closely at what they were spending it on.

Now you can get 5.5% risk-free from a bank account, that high-risk VC fund looks a lot less attractive. As VCs have much less cash they need to spend, they can be a lot more selective.

dustingetz
0 replies
8h40m

interest rate changes shift optimal balance of stocks vs bonds at hedge fund scale, altering prices which rebalances vc allocation in LP portfolios (targeting some fixed %) as well as impacts the velocity and price of IPOs which proceeds are reinvested into subsequent venture funds

baq
0 replies
10h34m

yeah well if their cost to lever up is suddenly 6-7% instead of 1% some perceptions change

AnarchismIsCool
2 replies
11h44m

What do you mean?

zaptrem
0 replies
11h42m

When interest rates are lower, money is easier to come by so terms are usually more favorable to founders.

joegibbs
0 replies
11h42m

You can't compare VC behaviour when interest rates are low to when they're high, because when they're low they're handing out money to anyone with a pulse, and when they're high they're checking if pitches say March instead of May.

cajunboi34213
6 replies
6h45m

In my experience founders that have raised vc regard them as bankers. Founders who haven't successfully raised (for whatever reason) and people that dream about being founders postulate on these things.

Funding is simple. Seed or before you/team are fundable, based on some signal of you've done it or can do it. Post seed, it's not you, it's the business. If in 2 months you haven't gotten interest or intros, you're business is not VC fundable, or you suck at fundraising which means you're probably not the right venture backable CEO.

drdrek
5 replies
6h25m

Bankers with good PR.

But for the first time founders out there please don't sweat it if you can't get funded for a long time, you may just be early. I gave up on a great idea (that my partner later worked into a great product within an existing company) because we were unable to get funded for 3 months. And later got VC funded after working on a worse idea for a year. It can take time, It may require you to get customers first, but if you get along with your partners and can see business progression don't worry to much about VCs, they are mostly capricious up until the point you can show that its a good business. Then they are, as OP said, just bankers.

cajunboi34213
4 replies
5h36m

first time founders that have large followings in the community they are building for are the most fundable. Reason being, your first product or iteration will fail, but if you have a captive audience willing to try and give you feedback you're in the best position to achieve product market fit.

drdrek
3 replies
3h34m

My career is focused on B2B so I don't know a lot about communities, but the sentiment is the same. You have an edge if you know a lot about a subject and have good connections with professionals in the field that are willing to talk to you.

But I would say VCs usually prefer a team as its more likely to check all the boxes. I've heard 3 as the "optimum" for team resilience vs founding team social complexity, but that is just a general sentiment. If you have a community get a tech guy, if you are a techy get a product guy, if you are a product guy get a sales guy, etc. Don't try to be an ubermensch, just find a team you can work with.

cajunboi34213
2 replies
3h27m

Community of users applies to b2b as well. It could just be followers on linkedin where you get engagement from your ideal customer profile buyer. VCs looks for signal that you/team will execute. Best signal is undeniable evidence that you are executing and they are just getting on at the right time.

drdrek
1 replies
3h17m

Absolutely, so many people don't understand that a great deck and a tech demo is in 99.9% of the time not enough. You need a strong signal that you are on the right track: user engagement, LOIS, actual sales. The more you can show the better.

If you didn't get to that point don't be surprised if you get the canned response of "This just does not seem like the right opportunity for us".

The first investor in your startup is you. If you are not willing to put your money and time into it don't be surprised other people aren't willing to do it.

cajunboi34213
0 replies
1h29m

Here are two hard earned lessons from my experience fundraising. 1. If an investor isn't interested, cut bait. It's usually clear in the first 15 minutes. No follow-up with argument/data will convince them. Why they aren't may or may not teach you anything. Just move on and continue pitching. 2. Once one investor is interested, getting meetings with others is MUCH easier. If they can't lead, they will intro you to someone they've worked with that can. Getting in front of the A-list investors is hard as they see every deal and can pick and choose. If you can't get a B/C-list investor to term sheet, you or your biz isn't fundable (sorry). If you easily get B/C investors to term sheet you can probably get a brand name firm to steal the deal with better terms. In my experience A-listers aren't discerning on price if they believe in you and/or the biz. This seems to happen to the B/C investors all the time, that's why when they find you, like you/biz, they will drive you to close quickly. 2 months as referenced in OP is an eternity.

throwaway42668
5 replies
11h34m

The problem with the “signal” is that it’s based on pretty much nothing. It is just as valid or nuts as any other ad hoc random tea leaves & chicken bones “signal” someone decides to come up with a dubious justification for. Whether the deck said March, April, or May changed absolutely nothing about the underlying business and thus also nothing about the actual investment opportunity.

Maybe they made the deck two months ago and spent the last two months prosecuting pipeline and closing deals? Maybe they didn’t have a great investor network, so it took them a month or two to even be talking to the right investors (which more often than not is actually what’s important, and only superficially any given pitch or deck)? Maybe the VC in question was their first choice once they learned they existed and what their thesis is?

It’s absolutely true that VCs aren’t your friends. They’re middlemen for distributing other people’s money who pick winners at such a low success rate that one could be forgiven for wondering if random lottery might do just as well.

In terms of actual performance and criteria, they’re more like clergy. There are various performative religious traditions and ceremonies that have to be serviced and abided if one is to have any hope of them bestowing their blessings.

earnesti
3 replies
11h31m

The deck from March says that they have been sending the deck around since March, and are still looking for investments. It might be meaningful, but would have to measure how quickly the typical funding rounds are made for successful companies, to have an "academic" argument about it. However it doesn't really matter, a VC can invest for whatever reasons he wants.

shawabawa3
1 replies
6h41m

Also the fact they haven't updated their deck in April/May means they didn't have any huge growth in march/april/may to brag about, or even they had bad march/april/may results that they want to hide

throwaway42668
0 replies
5h38m

Whatever the reason. The VC objection is nonsense of the fortune cookie wisdom variety. We (venture backed founders) tolerate it because we need the inane spiritual blessings of these dubious kingmakers to make our world go around. So we smile, nod, grit our teeth, and move on to the next one. But none of them are secret geniuses with a unique skill to predict the future based on random made up nonsensical “signals”.

They’re herd animals where survivorship bias has a reinforcing function until a point where being luckiest longest makes it possible to put a finger on the scale of outcomes to make raising subsequent funds easier, makes it possible to set the trend the herd follows, and makes it possible to somewhat curate outcomes (“soft landings” instead of insolvency) for your portfolio.

Every single unicorn and/or significantly exited startup has a pile of VC rejections that’s miles high. The trick as the founder is to just figure out how to find better aligned investors. Typically ones who aren’t high on the ego trip of being an accidental kingmaker. Take the “feedback” like that of the VC in the post for what it is… complete nonsense from someone who’s accidentally successful enough to get away with such a silly criteria because nobody wants to insult the cult clergy to their face in case you might need their blessings at some point yourself… and move on.

Successfully raising money is first an exercise in qualifying who the right investors/funds are for what you’re doing as a venture and second it’s an exercise in number of shots on goal you can make in as short a period as possible until you find one, “Yes”. Full stop.

gwbas1c
0 replies
5h13m

The deck from March says that they have been sending the deck around since March, and are still looking for investments

You're assuming that most businesses seeking VC money are fundraising full-time.

I read this and assumed that the founder was was working on building their business full-time and passively looking for VC. For example, they might not be ready to do active fundraising, but want to "dip their toe" into VC so they're much better prepared in 6-24 months when they are ready to actively raise money?

The attention that a business needs gives to fundraising really depends on what the business is, and how well organic growth helps them now.

juped
0 replies
11h30m

Sure, they'd be better off just using a good source of randomness to pick the lucky ones, because then they wouldn't be self-deluding about having special insight.

kreck
5 replies
8h30m

Just an anecdote (no judgement here; VC has its place): An acquaintance of mine who works for a VC firm once said "Ultimately, VC money is a loan for people who are not bankable".

That really resonated with me as with that perspective I understood why behavior & practices are closer to what you'd experience if you personally need to take out a loan outside of the regulated banking system

saberience
4 replies
7h50m

The whole "hate VCs" thing is kind of silly in my opinion. VC wouldn't exist if founders didn't want and need capital and have no other way of getting it.

Also, for every other "evil VC" story, there are other stories where founders are really happy with their VC board members, have a strong and positive relationship with their VC partners, and end up getting some kind of positive exit which wouldn't have happened at all without the investment.

Sure, some VC companies may be shitty, some others may be amazing, but this is basically like everything in life. Some schools are shitty, some cops are shitty, some cars, tech companies, managers etc, are shitty. But some of all these things can also be great and awesome too. Thats life.

cageface
2 replies
6h34m

VC wouldn't exist if founders didn't want and need capital and have no other way of getting it.

This is too reductive. A lot of founders have to raise because they're competing with other companies with VC funding, often dumping their product on the market at a loss to starve out bootstrapped competitors and lock in customers.

saberience
1 replies
5h44m

Yeah but imagine trying to bootstrap a product which relies on network effects with no investment and where profitability is potentially years out. Social Networks are a good example here, or something like Uber.

There are many valuable and amazing businesses where self-funding/bootstrapping doesn't work. Or businesses which start out as one thing, get VC money and experiment, try to find product/market fit over a year or two, and then hit it big and create something really valuable to the market.

I agree that many companies would be better bootstrapping and creating a sustainable, profitable businesses, but the truth is, the VC model and ecosystem does enable certain businesses to exist which wouldn't exist otherwise as people wouldn't work for that long for free or almost no income.

cageface
0 replies
4h8m

Sure I think VC has value in some cases. I think the zero-interest period distorted their role and pushed them into areas that would have better been served by bootstrapped and profitable small companies. I'm hopeful that with interest rates back in a more reasonable range we'll get a better equilibrium.

kreck
0 replies
6h54m

I generally agree. Maybe to add to your argument:

A - Just as with customer reviews on amazon unhappy customers are often times the majority to leave a review whereas fewer happy customers voice their opinion in the form of a review. I suspect the same goes for VC interactions.

B - Due to the way the VC business is structured the variance in "quality" of VCs is heavily skewed and not normally distributed, tricking our perception of what to expect. In other words i suspect that you have a much higher likelihood in to interact with a very "low quality" VC or absolute "top VC" than with an "average" VC. If you amplify this with A you may get an even worse public opinion.

Nevertheless I think on an individual basis you're always better off if you don't need VC for your business - if you have that option.

bruce511
5 replies
11h48m

In so many ways raising funding is just like applying for a job. Here's what I can do, give me money.

The only difference is that the VC pays you your salary (and all your other expenses) in advance. And let's you keep some of the upside. By contrast an employer pays you a salary, and your (work) expenses as you go.

The VC "implies" by their funding how long your contract is. The employee goes "forever".

So all the things that apply to job-hunting apply to VC funding (Amplified). And make no mistake, the VC becomes your boss.

Once you understand it in these terms you can best evaluate if VC funding is for you.

skrebbel
4 replies
11h46m

the VC becomes your boss

Only if you give them board control.

pyrale
1 replies
11h36m

… Or if you expect to ever raise money again.

drdrek
0 replies
6h21m

Not exactly correct, you are now partners. You own X% of the company and they own Y%. If you want to continue raising you better not be that guy that is constantly fighting with their partners... but your partners are definitely not your bosses.

pavi2410
1 replies
11h39m

If someone gives you money, they become your boss

lotsofpulp
0 replies
7h27m

Want to test that? I will volunteer to be the recipient.

zandrew
2 replies
9h50m

One of the things I'm surprised isn't covered more is the liquidation preference that VCs take... an investment is basically an extremely expensive loan.

If shit hits the fan, they are entitled to the payout of up to their original investment, so all of the company's assets, when liquidated, fund those proceeds.

If your company succeeds, the VC owns a percentage of your success.

earnesti
0 replies
9h39m

The reason for that is that there is very high likelihood that the "loan" will never be paid back. It is just a market. As far as I understand from the statistics, VC's are not making great money, on average. Average startup gets the funding, uses it for salaries and everything else, and never pays the investor any substantial amount back.

csomar
0 replies
6h28m

The interest rate on the loan, is your ROI. This is reasonable because it's a very risky loan.

If shit hits the fan, they are entitled to the payout of up to their original investment, so all of the company's assets, when liquidated, fund those proceeds.

I thought all loans are structured that way? I am not sure why this should not be the case here.

jrflowers
2 replies
11h31m

I love this blog post about why Jason Lemkin’s post about passing on a pitch because the pitch deck said March instead of May is a good and normal post. Without this informative content we would not know that Jason Lemkin‘s post was not at all off putting or ridiculous, and we are rightfully brought up to speed on how cool it was, in fact.

input_sh
1 replies
10h57m

Also, "caused an outrage" apparently means "barely got any traction". <200 likes, barely any retweets, even the 30 or so replies weren't as confrontational as I was lead to believe by that intro.

I guess "VC was wrong and nobody really gave a shit" doesn't have the same ring to it.

jrflowers
0 replies
10h20m

I guess "VC was wrong and nobody really gave a shit" doesn't have the same ring to it.

This is a good point. When something looks like Jason Lemkin posting something ridiculous on social media, it is actually an opportunity for us to learn of both his fame and the normalcy of his opinions, as well as to be reminded of the high portion of VCs that are good human beings.

UniverseHacker
2 replies
3h0m

I learned that VCs aren't my friends the hard way... they stole my company from me and left me with nothing.

I discovered a promising new medical treatment- a small molecule drug with impressive experimental results. My name is on the patent and my co-inventors decided to form a startup and gave me co-ownership/stock, although I did some work to help get the company started I didn't want to leave my current job to be involved in full time running the startup at the level they were.

They got big VC funding and the VCs reformed the startup as a new company. During the pandemic lockdown, trying to work at home while parenting a toddler with no childcare, I was sent a form to sign by a new VC firm funding the company, and I was so stressed with the pandemic situation that I just trusted them and signed it without reading it.

The VCs cut me out entirely... just deleted my shares and ownership of a company based on tech I invented and patented. I can't revoke the patent rights either, because they already had a contract licensing it from my employer.

zrn900
1 replies
2h52m

Can you expose the names and/or the company name of those s**stains?

UniverseHacker
0 replies
2h48m

I've spread the story around the biotech startup community in person, but can't share it here without de-anonymizing my HN account, which I would rather not do.

tlogan
1 replies
5h51m

VCs primarily provide capital, and that's their essential role. They aren't there to be your friends or mentors.

Remember, if you mix friendships with financial asks, you risk losing those friends.

So, VCs are a great resource for funding, perfectly suited for what they're designed to do!

mepiethree
0 replies
5h49m

Some of them do like to pretend to be your friend after they’ve invested, though. Don’t fall for it :)

leashless
1 replies
6h40m

Let me throw in one other tip for founders looking to get funded: do not ignore regional VCs.

Most of the stories about "how VC works" are 10, 15 years out of date. The cultural "sense of things" lags behind the reality. We found this out the hard way.

In fact, contrary to all expectations and myths, VCs (outside perhaps of the top 50 or 100 firms?) read their emails and take cold meetings.

They have to.

Every region in the world has some clone of Silicon Valley - technical universities and accelerators and incubators and funds - and most of them have very little deal flow or exposure to outside opportunities and ideas. The guy from a second tier French city part-funded by an Economic Development Agency has as much luck getting into a deal with Union Square as you do. But he still has money to invest.

So most of the VCs outside of a small, narrow set do answer emails, are glad to be approached, and are basically glad to see you if you've got anything at all which is interesting to say. It doesn't cost much to try, either. It's the price of an email.

Yes, warm intros to top tier VCs are really handy.

But that's also why the top tier VCs are so massively subject to group think and wind up collectively dropping five billion dollars on electric scooters and stuff like that.

Everybody is human.

Everybody is here to do the deal.

At the top of the chrome towers are men and women in shoes and socks trying to look good to their management. Nothing behind the curtain, no wizard of oz. Do what you can. Don't break yourself for the myths. Do intelligently bet the odds!

Tech is going to be the dominant story in human history for the rest of our lives in almost all scenarios. It's not a bad industry to be in. It's just the financial side of that industry is really heavy on the mythology and maybe that's holding us back now.

petesergeant
0 replies
4h31m

I feel like my entire takeaway from a business-y degree at a rather good university kinda boiled down to “don’t go to European VCs, they’re mean and valuations are bad, while providing no upside”.

Will be raising on an idea that makes me look at least a little bit like a lunatic in four weeks’ time, so keen to see how this is born out!

jojobas
1 replies
8h51m

Nobody is your friend by default. Not bosses, not employees, not colleagues, not vendors, not customers.

It's dumbfounding that adults need to be reminded that.

barrenko
0 replies
7h46m

Not your spouse*

iamleppert
1 replies
4h12m

What is more striking is that this VC felt it necessary to take to LinkedIn to "educate" others on his reasoning. For what purpose? So that people will remove dates from their slide decks now? Because that is the likely outcome.

The only investors who have enough time for such things generally aren't the ones closing the best deals. What does it say about him that he is desperate enough for a deal that he has to open cold emails and then take to LinkedIn to criticize a date that is two months old? If you notice he didn't say anything about the content of the actual information being outdated. Just the date.

His biggest gift to this company was not investing in them.

nextworddev
0 replies
4h9m

He felt "triggered" that he wasn't the first call, which comes off as petty and entitled, which most VCs are.

hackernoteng
1 replies
4h36m

They might not be my friends, but they did pay 90% of my salary for the past 22 years...

onhacker
0 replies
4h35m

When a VC wants to bankrupt it's competitor it's bad and most of them do the same

factorialboy
1 replies
10h26m

Do VCs need regulation? Should we ensure equity for diverse founders?

earnesti
0 replies
10h3m

Yeah, why just VC's, force everyone to invest. There is a lot of rich ppl in the world who don't invest to startups at all. That is wrong. We should have a law that requires at least certain % of net worth to be invested in startups.

d_burfoot
1 replies
4h20m

This is probably a good reminder. But you could write an article like this about every institution:

- The police aren't your friends

- Your employer isn't your friend

- Your colleagues aren't your friends

- The government isn't your friend

- Small businesses aren't your friends

- Big corporations aren't your friends

- Elon Musk isn't your friend

- Your landlord isn't your friend

- Your professors aren't your friends

There's no such thing as a relationship where the interests of both parties are perfectly aligned. And the pain caused by any misalignment will be more intense when the stakes are higher, such as startups/VC.

jkaplowitz
0 replies
3h57m

The article is useful because, while most of your other examples don’t pretend to be your friends, VCs often do, at least at a superficial level. Understanding that this seeming friendship isn’t real is important.

VCs do have a helpful role to play in funding many types of startups, but the role of investor is very different from the role of friend.

claudex
1 replies
10h13m

VCs aren't your teachers nor your managers. They don't have an obligation to provide feedback or even to reply to your emails. They won't give you a second chance. They won't coach you so you can do better next time.

Seems like the typical teacher or manager to me.

siva7
0 replies
9h31m

Spot on.

andy_ppp
1 replies
9h19m

VC really is the A&R of our time.

selimthegrim
0 replies
7h34m

I guess that’s what they meant by “tech is the new music”

andrewstuart
1 replies
11h35m

The is all "investing theater", in which stuff other than the business and product is what the VC uses to make a decision.

stanleydrew
0 replies
7h23m

It's not. VCs are investment professionals and are trying to avoid adverse selection just like everyone else. Here's a relevant quote from a recent Matt Levine newsletter:

I think that, if you had only five minutes with a world-class trader, and you asked her “teach me the essentials of trading,” probably she would spend the five minutes on adverse selection. The essential lesson is that, if you are being offered a trade, that probably means it’s a bad trade; your job is to understand that thoroughly so you can figure out the exceptions.
RileyJames
1 replies
7h48m

A VC receives 10 to 50 decks per week. Out of those, 10% are hot: think OpenAI.

lol.

csomar
0 replies
6h48m

The 0% interest era did wonders for this economy.

EGreg
1 replies
11h42m

I heard from Reid Hoffman himself that he approached 99 VCs before he got funded.

He had two meetings in one day. The first he was asked whether it’s B2B or B2C. He said B2C and was told they only fund B2B. Then next one he said B2B but they said they only fund B2C.

Meanwhile, some startups are funded by VCs piling on, and then go bankrupt quickly.

threeseed
0 replies
9h1m

Average for pre-seed/seed is about 80.

And there was recently a guy who did 400 investor meeting to get a single yes.

yard2010
0 replies
9h58m

I don't know if this person realizes that he basically asks people to lie in the future and make a custom deck with custom dates and custom jokes to each angel.

It's just a part of a bigger short sighted system tho, hate the game not the player

xyst
0 replies
9h49m

If there’s one thing ChatGPT could replace: developing “pitch decks” and “cold emails” for vulture capitalists.

Train LLMs using this site and reap that (dangerous) VC money.

wslh
0 replies
4h34m

think of a VC as a sales prospect

I think the problem with VCs is that, most generally, they are not good sales prospects, they are pedantic. A good sales prospect is someone who give you feedback, even automated, so you know where you are. Even if they receive a zillion of pitch decks every day (as it is noted in the article), they should have a better process in 2024 to handle that.

I will give you an example as a customer which can be translated: I sent a simple problem to HubSpot and after many chats and email tickets they couldn't solve it! They are advertised as a top CRM, we are happy as customers but I feel there is nobody in the line. On the other hand we are customers of Bizneo for HR/PX and they are happy to make a call and help us. I would expect more feedback from VCs, they are more terrible than banks giving feedback, knowing that they are in a power position but that will not work for long time.

uptownJimmy
0 replies
5h39m

I remain confused as to why anyone would take VCs seriously at all, much less want to be friends with them. They mostly give strong vibes of "sociopath" and "malignant narcissist".

tptacek
0 replies
3h10m

This is weird, because my understanding and experience of fundraising is that serious prospective investors never get deals from cold inbound slides; they've been introduced, and, most likely, have been talking to the company for months prior to a "formal" start to fundraising, in "no, no, we're not raising money yet, just looking for advice" mode, waiting along with 5-10 other investors for someone to preempt.

This is like a whole mythology constructed around the idea that instead of networking and preparing, you apply to VCs as you would to a college. Does that ever work? I'm seriously asking. (YC doesn't count!)

toss1
0 replies
4h7m

As the VC pointed out, the key here is the two-months-old date.

But not exactly for the reason he stated. It is not that he isn't the first, so he's got thin skin or wants only founders who thought he was the best/first VC to approach (and smart founders might not take their first shot with their most favored VC as they'd want to hone their pitch with less-critical candidate VCs).

The reasoning here is more likely that "other smart money has looked at this deal and passed", so he can leverage the efforts of these other unseen VCs who passed. This could be written off as lazy/cowardly 'herd mentality', but it is a real signal.

It's also true that by definition, if there's a unique opportunity here, he's also missing it by grouping himself with the other VCs. But that is a negative-space signal, and the question is whether it's more likely determinative than the signal that "yeah, they also passed".

techterrier
0 replies
9h0m

If startups are a casino, VC's are Tony Soprano, offering you another 100k after you've already lost everything you have. Smiling away, tell you it'll all be fine.

morgunkorn
0 replies
10h55m

VC stands for Vampire Capitalist, right?

mateus1
0 replies
3h6m

This is the George Costanza approach to VC: you go looking for some minor flaw, make a big deal out of it and then boast/complain to your friends.

I know humans aren’t rational creatures but boasting how you make big investment decisions on a glorified pseudoscience call like you’re Sherlock Holmes is icky.

mandeepj
0 replies
3h37m

VCs aren’t your friends

Congrats, good for you! You learned something new or probably forget something that you taught yourself.

light_triad
0 replies
31m

As one commenter mentioned it comes down to having suitable information exchange between the parties. Some VC said no to most big successes in SV at some point.

I recommend watching a pitch competition with lesser known VCs and companies like Pitchforce. You realize how difficult it is to understand what people are building and why it could be big. Most VCs will not be users of the product or experts in the vertical and will use other signals, however imperfect or limited as is the case here.

https://pitch-force.com/

j7ake
0 replies
6h23m

Don’t do business with people who think putting the wrong date matters.

j45
0 replies
4h30m

Not all VCs have the same investment thesis.

Alignment and mutual fit is important.

Being undiscovered and being found by a process is partially a positioning piece too.

VCs want a transaction in a short number of years depending how far they are into their current fund.

It’s not always about any one idea, but rather what idea can be the winner to make up for the others that didn’t win big.

Also, knowing the difference between investors and VCs is important - investors tend to often give more personalized support than VCs.

If you’re ready to go big and be supported to do so, VCs can be just what’s needed.

Increasingly, VCs are a feeder system to private equity and you may be able to position yourself for that long term.

imglorp
0 replies
5h56m

the OpenVC pitch deck tutorial explicitly says to never include the date on your cover.

Careful, there's often metadata in a deck, if you know how to look.

gwbas1c
0 replies
5h7m

The tone of the post just reminds me of how frustrating interviewing for a (software engineering) job is: Many rejections are arbitrary and the best advice is to just keep applying.

In this case, I suspect Jason assumes that every business should be 110% focused on fundraising. Well, businesses are trying to run their business! The goal is to run the business, the pitch is a tool, not the goal.

The same thing applies to finding a (software engineering) job: Candidates have life obligations and can't dedicate 110% of their time to pleasing a single interviewer. The goal is to demonstrate that you can do a job, the interview isn't the job itself.

dontupvoteme
0 replies
2h6m

Jason (star emoji) (uk flag emoji) SaaStr LDN June 4-5 (star emoji) Lemkin

This person is famous?

sounds like he's mad about being sloppy seconds `:)`

curious_cat_163
0 replies
5h18m

I wonder if any generalization as an attribute for all VCs is ever going to be a good enough. People call them “not friends” or “sheep” or whatever. But it has always felt like an unsatisfactory framing.

It is a marketplace. The equity of companies is for sale and VCs are buyers.

The buyers come with a variety of risk appetite, $ available to invest, personal histories and they all want very high ROI to justify staying in the business.

Companies also have their own variety in ambition (TAM), track record (growth rates) and level of conviction of people who work there.

chewbacha
0 replies
3h28m

Moral of the story: Don't date your slides.

bjornsing
0 replies
9h28m

If there’s anything to be irritated about here it’s that yet another VC revealed how absolutely moronic their job is. Any idiot can look at some slides and see if the numbers are good. The hard part is finding the gems in those bottom 90%. Sadly nobody seems to be doing that.

avereveard
0 replies
9h11m

more genreally, two companies cannot be friends

anonzzzies
0 replies
11h31m

We had a vc that was my friend; not anymore; we failed and he felt betrayed we ‘gave up so easily’ (we didn’t). I guess a better one is; VCs should not be your friends.

airstrike
0 replies
5h36m

Pro-tip: when I was in M&A, I would always write the season rather than the month on the cover of materials sent to prospective buyers. "Spring 2024" sidesteps the issue entirely and the deck even survives being forwarded around for a few months.

TrackerFF
0 replies
7h38m

Some people will give a shit, some won't. I've met VCs that would scoff at Jason for trivial stuff like that, while I've met others that would agree with him - and maybe be even rigid about "small stuff".

My experience is that if the VC is someone who has background from finance, consulting, or law, then they are more likely to lose their minds over superficial stuff like logo placement, font consistency, alignment of images / tables / etc., and of course consistency in dates etc. - probably because that's all they did during their formative years in their respective industries.

Second point: There's a bunch of VCs out there with the only qualification of

A) Having founded / led a successful startup

B) Having invested in startups during the ZIRP-era

So while you have some tremendously good VCs that have stood the test of time, and have "seen it all", there are also VCs that will be washed away the next few years. So don't take it personally if / when some VC will decline you and and be all preachy about it.

Last point: Some of these stories are just made-up BS to generate content and thoughts. Half of the stuff VCs write on LinkedIn or Twitter seems to be fiction, for the sake of getting a point through to their listeners. Also keep that in mind.

RACEWAR
0 replies
9h12m

I may be betraying a certain level of cultural literacy for the bulk HN demographic but the original tweet reminds me of when popular online vixens (e.g., Instagram models) talk about “who slid into their DMs”.

LAC-Tech
0 replies
10h58m

"The logos good, fine." LOL

Kalanos
0 replies
7h25m

VCs make steep graphs steeper. By the time you are in a position to raise money for acceleration, you don't really need it. All capital, no venture.

DrScientist
0 replies
4h36m

Carnivorous sheep - is my favourite unflattering description of VC's.

Ironically this I heard this from somebody who ultimately became one. Perhaps it's Zombie Carnivorous Sheep.

DeathArrow
0 replies
11h42m

Nobody in business is your friend. Friendship isn't about money and money isn't about friendship.