The New VC Handbook

“How the investors just don’t care about the developer. “. Speaking of which : http://www.techsunite.org/news/051018_msps.cfm

s/bubkiss/bupkiss/

I’ve often felt the same way. Having worked as a developer for several VC funded companies in the ’80s, I had an early glimpse of how much they distract the executive team from creating the company that, inevitably, serves their needs.

Unless you need a lot of money very fast to outspend strong competition, funding through customers and minor investors is definitely the way to go.

The economics of the VC world (20 investments; 17 total losses; 2 partial wins; 1 home run) don’t appear to allow VCs to show a lot of love to the players in the home run company; the money has to cover the rest of the bets.

Jared’s point is more important, though: VCs are focused on the exit strategy as they make their way *in* the door. The sooner they can create a “liquidity event”, the sooner they get their cash (and, they hope, profits) back out the door. That can definitely serve to distract an executive team.

It can also serve to *focus* that team on the business of running the business, which is a good thing.

I’ve done the startup thing; I have the long list of “things to do different the next time ’round”. I’m just not sure I’ll ever leap off that cliff again. VCs are often a necessary evil; the trick, as I see it, is to take only one round, never more than two. After two rounds of financing, you (the founder) have been diluted to insignificance, and there’s not enough left to spread around to the folks who build the bits.

In my view, folks, we are going to see a ton of great new ideas, services, and companies in the coming months.

Groan. Mashed-up feature-sets masking themselves as companies, and other Web 2.0 rot. Pluuueeze.

But Ventures as vultures? Wowwhowouldathot? Amazing when programmers finally learn something about finance, little light bulbs all over. It reminds me of the future superstar hit boy band, so worried about being famous (‘eyeballs’ or ‘attention’ in geek terms) that they gloss over the fine print and sign a contract that they will end up suing over if they do make it. Isn’t Economics 101 mandatory at colleges anymore?

VCs bet on 20 hoping for a hit on 1, they don’t pay much care, until you start looking like a hit, once you become hit, they forget to help the 19, and they look for the quickest way to pull out of the hit with the max liquidity take, before the hype or curve heads downwards. The growth and company blding type of partnership, from a VC, is actually quite rare. VCs are gamblers, and extreme short-sellers, while telling the world to go long. A stable company focused on really running on good long-term fuel with a large loyal custmer base, has many other financing avenues available.

Like most things in life, VCs serve a need for startups. The trick is knowing when to engage and when to avoid.

Christopher> Actually it is not uncommon for VCs to spend more time on troubled companies than successful ones. The latter generally figure things out on their own, and will know when to ask for help/advice/support.

And I disagree with the statement that VCs are short sellers: it takes years to build a company and reach tens of millions of dollars in revenue, and meaningful exit valuations. Making a quick buck does not help return a fund.

Skype was an anomalie from that standpoint.