VCs aren’t your friends

https://www.openvc.app/blog/vcs-arent-your-friends

by taubek • 2 years ago

553 374 2 years ago

openvc.app

hiddencost• 2 years ago

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

AnarchismIsCool• 2 years ago

What do you mean?

zaptrem• 2 years ago

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

joegibbs• 2 years ago

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.

dheera• 2 years ago

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%

baq• 2 years ago

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

dustingetz• 2 years ago

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

michaelt2• 2 years ago

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.

moralestapia2• 2 years ago

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.

drones• 2 years ago

I actually laughed when I read that

billybones• 2 years ago

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.

moralestapia2• 2 years ago

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.

llm_trw• 2 years ago

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.

bruce511• 2 years ago

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• 2 years ago

the VC becomes your boss

Only if you give them board control.

pavi2410• 2 years ago

If someone gives you money, they become your boss

pyrale• 2 years ago

… Or if you expect to ever raise money again.

EGreg• 2 years ago

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.

threeseed4• 2 years ago

Average for pre-seed/seed is about 80.

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

DeathArrow• 2 years ago

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

andrewstuart• 2 years ago

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

stanleydrew2• 2 years ago

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.

throwaway426682• 2 years ago

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.

earnesti5• 2 years ago

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• 2 years ago

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

gwbas1c2• 2 years ago

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• 2 years ago

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.

caseyy2• 2 years ago

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• 2 years ago

Profitability is optional.

caseyy2• 2 years ago

Profitable companies attract much more VC interest and even competition.

threeseed4• 2 years ago

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 years ago

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.

dangoodmanUT• 2 years ago

Yeah that's why all large startups are bootstrapped

saurik• 2 years ago

I think the argument would also be that you don't need a "large" startup to get something done.

jordanb3• 2 years ago

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.

renegade-otter3• 2 years ago

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• 2 years ago

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

AlienRobot• 2 years ago

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.

ipaddr2• 2 years ago

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.

llmblockchain2• 2 years ago

... 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.

I'll take that as a compliment.. as someone that took nights to build a SaaS product solo into a multi-million dollar business (and still do it solo).

keiferski7• 2 years ago

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.

smabie• 2 years ago

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_3• 2 years ago

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.

p_l• 2 years ago

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.

max_3• 2 years ago

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.

dpflan2• 2 years ago

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."

red-iron-pine2• 2 years ago

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?

aussiegreenie• 2 years ago

VCs or Record companies missing "Superstars" is as common as mud.

Here is a fun article showing everyone makes errors. https://medium.com/mba-chronicles/the-vc-antiportfolio-top-m...

dmurray• 2 years ago

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.

keiferski7• 2 years ago

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/

spullara• 2 years ago

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

shermozle• 2 years ago

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_.

Quimoniz• 2 years ago

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.

fuzzfactor3• 2 years ago

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.

YetAnotherNick3• 2 years ago

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

keiferski7• 2 years ago

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.

benrutter2• 2 years ago

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.

davedx5• 2 years ago

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!

raverbashing• 2 years ago

Yeah pretty much

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

keiferski7• 2 years ago

In case anyone doesn't know this reference:

https://www.businessinsider.com/ftx-sam-bankman-fried-league...

yard20102• 2 years ago

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.

fsloth2• 2 years ago

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.

michaelt2• 2 years ago

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?

davedx5• 2 years ago

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.

lumost• 2 years ago

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.

wslh3• 2 years ago

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.

alephnerd7• 2 years ago

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

jorvi• 2 years ago

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.

keiferski7• 2 years ago

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

RobotToaster• 2 years ago

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

alephnerd7• 2 years ago

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.

jakevoytko• 2 years ago

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)

rcbdev• 2 years ago

I used to live next to the Vienna duty station and have never heard of unpaid internships at the UN. They usually pay well above market rate (esp. IAEA and such) - can you please provide more info?

TrackerFF2• 2 years ago

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.

jollofricepeas• 2 years ago

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.

mepiethree2• 2 years ago

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

benreesman7• 2 years ago

I think “nepotism” might be more succinct?

keiferski7• 2 years ago

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.

benreesman7• 2 years ago

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.

athenot• 2 years ago

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.

conductr2• 2 years ago

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.

vidarh11• 2 years ago

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• 2 years ago

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.

jmyeet• 2 years ago

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.

zrn9003• 2 years ago

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.

JohnCClarke• 2 years ago

I can't imagine

Try imagining harder. (Or just google :-)

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

keiferski7• 2 years ago

First off, there is another comment in this thread talking about how that almost didn’t happen.

Secondly, I’m talking about VCs today. Do you think VCs today act the exact same way they did 50 years ago? The industry has grown dramatically since then.

kevinventullo• 2 years ago

You don’t think Jobs would have noticed the wrong date on the pitch deck? I was under the impression he was fairly obsessive with attention to detail.

jrflowers2• 2 years ago

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• 2 years ago

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.

jrflowers2• 2 years ago

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.

anonzzzies• 2 years ago

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.

LAC-Tech• 2 years ago

"The logos good, fine." LOL

morgunkorn• 2 years ago

VC stands for Vampire Capitalist, right?

braza• 2 years ago

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.

robertlagrant• 2 years ago

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.

earnesti5• 2 years ago

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.

indigochill• 2 years ago

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.

StackRanker30003• 2 years ago

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.

ipaddr2• 2 years ago

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.

factorialboy• 2 years ago

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

earnesti5• 2 years ago

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.

claudex• 2 years ago

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• 2 years ago

Spot on.

yard20102• 2 years ago

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

zandrew• 2 years ago

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.

earnesti5• 2 years ago

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.

csomar8• 2 years ago

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.

xyst• 2 years ago

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.

bjornsing• 2 years ago

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.

andy_ppp• 2 years ago

VC really is the A&R of our time.

selimthegrim• 2 years ago

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

RACEWAR2• 2 years ago

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”.

avereveard• 2 years ago

more genreally, two companies cannot be friends

leashless18• 2 years ago

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.

tomp• 2 years ago

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?

leashless18• 2 years ago

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

Efficient markets.

Negitivefrags• 2 years ago

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?

dsr_• 2 years ago

"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.

wbl• 2 years ago

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

saberience8• 2 years ago

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.

leashless18• 2 years ago

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

Think about why they don’t do that.

csomar8• 2 years ago

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.

chollida1• 2 years ago

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!!

leashless18• 2 years ago

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.

MacsHeadroom• 2 years ago

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

Yes.

pwillia72• 2 years ago

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.

mattmaroon3• 2 years ago

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.

raincole• 2 years ago

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.

davedx5• 2 years ago

Elegantly written presumption.

DEDLINE• 2 years ago

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.

leashless18• 2 years ago

Yes.

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

Good luck!

leashless18• 2 years ago

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• 2 years ago

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.

admissionsguy• 2 years ago

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.

data_maan4• 2 years ago

Cool description :)

edouard-harris• 2 years ago

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.

lemonwaterlime• 2 years ago

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).

techterrier• 2 years ago

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.

jojobas• 2 years ago

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• 2 years ago

Not your spouse*

kreck2• 2 years ago

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

saberience8• 2 years ago

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.

kreck2• 2 years ago

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.

cageface2• 2 years ago

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.

RileyJames• 2 years ago

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

lol.

csomar8• 2 years ago

The 0% interest era did wonders for this economy.

TrackerFF2• 2 years ago

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.

Kalanos• 2 years ago

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.

cajunboi342134• 2 years ago

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.

drdrek4• 2 years ago

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.

cajunboi342134• 2 years ago

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.

leashless18• 2 years ago

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.

petesergeant2• 2 years ago

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!

j7ake• 2 years ago

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

openrisk• 2 years ago

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.

benreesman7• 2 years ago

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

bombcar• 2 years ago

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.

gumby2• 2 years ago

Ha ha, this is both hilarious and so true!

wcarss• 2 years ago

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.

PaulStatezny• 2 years ago

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.

ilrwbwrkhv• 2 years ago

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.

imglorp• 2 years ago

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.

tlogan• 2 years ago

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!

mepiethree2• 2 years ago

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

uptownJimmy• 2 years ago

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".

airstrike• 2 years ago

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.

curious_cat_163• 2 years ago

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.

gwbas1c2• 2 years ago

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.

hackernoteng• 2 years ago

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

onhacker• 2 years ago

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

DrScientist• 2 years ago

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.

wslh3• 2 years ago

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.

j45• 2 years ago

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.

d_burfoot• 2 years ago

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• 2 years ago

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.

iamleppert• 2 years ago

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.

nextworddev2• 2 years ago

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

toss1• 2 years ago

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".

mandeepj• 2 years ago

VCs aren’t your friends

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

chewbacha• 2 years ago

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

tptacek• 2 years ago

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!)

enra• 2 years ago

As long as I been around startups, about 15 years, the advice always have been had more success getting warm intro. Even more back in the day than now. I think PGs essays lays out the fundraising process this way too.

The advice is never just send deck to a VC. Same as just applying to a company. Private organizations have no need for any kind controlled process, you're always better having or building of personal relationships and convincing people directly first. It's often even about the pitch or pitching skills. It's more like relationship or case you build, then the pitching is just formal step to close the deal.

I think the cold approach only works start the relationship if you have proven business, great potential and can tell that story well. But also by then VCs might already know about you and come to you.

Otherwise it's always about building some level of personal connection first. Essentially you're asking to someone personally believe and bet their internal and external reputation on. They are not going to hand you the money after one hasty email and deck.

The anti-VC crowd often try paint this as some kind of exclusive country club, but it's not true. So many new founders raise capital all the time. VCs are always looking for new founders and companies.

But it's also true that if you just crawl out of the woods one day and go meet a VC and ask them for $2M is likely not going to happen. If you don't get a single person in the world with some kind of VC connection to make a warm introduction to you, it often considered as a filter that you're not serious enough about your business.

mateus1• 2 years ago

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.

UniverseHacker2• 2 years ago

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.

zrn9003• 2 years ago

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

UniverseHacker2• 2 years ago

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.

dontupvoteme• 2 years ago

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 `:)`

light_triad• 2 years ago

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/

mrangle• 2 years ago

If this looks attractive to a founder:

""We want to be the first check in." "We add value" 'We are responsible investors". "We're in for the long run". "We back outliers" and the oh-so-famous "Let me know how I can be helpful".

then what they should look for is a skilled operational partner with a high-ish IQ and a stable personality, almost certainly with access to money that can be used for bootstrapping the business. You know, a virtually nonexistent unicorn in the circles that most people operate. Someone who is as rare as the right spouse. That combination is worth a hefty percentage.

VC money isn't optimal for the initial startup phase. Everyone will be happier, detail nitpicking will be nonexistent, and the VC involvement will be more natural at the point in which customer acquisition rate and the cost of that volume is outpacing revenue, which should be the exponential growth curve often in years 5-10. Sometimes an acquisition comes soon after.

If a founder cares about their business, then asking VC to essentially be their startup partner is asking for trouble in a lot of instances.

llmblockchain2• 2 years ago

As much as I dislike VCs, I didn't find the Twitter post to be that bad. I can see his point about the company being an almost, and on top of that getting warning "signs". It wasn't the fact that the date was a few months old, it was the fact they didn't care enough to update it before sending the deck. It was the fact they did the bare minimum (or less than minimum).

I never really put it in words before, but I pick up a lot of these signs. From the way someone writes, to the way they text message, to the content they consume, to how they handle social dynamics like grabbing coffee together or a lunch. It all paints a picture of a person and/or team. These things matter.

If they can't take their time to update the deck, they probably skimp out elsewhere.

fmajid• 2 years ago

Two-time founder here. I think this naivety reflects more unrealistic founder expectations raised by the bubbly fundraising environment of the ZIRP (zero interest rate phenomenon) than any fundamental change in VC.

Mikho• 2 years ago

Jason just wasn't into it and invented a random reason to say no... and brag about it—after all, his day-to-day job is constantly tweeting, bragging, and pretending about giving advice to become visible for startups and get the deal flow at the same time showing those SaaStr conference goers to keep participating and paying. If numbers in the deck were impressive for the economics work for him personally, he would be begging founder to take his money despite any date or any other imperfections in the deck. But the numbers weren't. And Jason used it as a reason to remind about himself one more time to the public.

VCs aren’t your friends

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