-
Website
http://www.fourhourworkweek.com/blog -
Original page
http://www.fourhourworkweek.com/blog/2009/04/20/is-venture-capitalism-dead-not-yet-advice-from-kleiner-perkins-hummer-winblad-shasta-ventures-and-clearstone-venture-partners/ -
Subscribe
All Comments -
Community
-
-
Top Commenters
-
Popular Threads
The best advice one could give to any entreprenuer who needs it-- eg: one who is not experienced enough to skip this posting just by seeing the title is this: Don't fall for the hype. You'll never see an honest take on venture capitalists online, all you'll see are puff pieces and self aggrandizement like this article.
Venture Capitalists don't know what they are doing. Seriously, they are used car salesman, only they are selling you cash at the cost of equity.
They will come in and ruin your company-- I've seen them force bad technological decisions on companies, I've seen them force a company to spend most of their investment on the products of another company they had also invested in.
And, quite frankly, they don't know what they are doing. (Otherwise they would be doing it.)
There''s this culture of wealth that assumes that these people are some how "the best and the brightest".... largely this is a result of the free PR they get from firms that want them to hook them up with their portfolio companies.
Have you ever seen a term sheet? These people are not smart, they are not the "Best" they are ruthless and they are scamming people. IF you don't believe me, you will if you ever read a term sheet in detail.
You'd be better off going to a bank. Because, really, you don't need that level of capital anyway, these days.
Everything a business needs it can rent and pay for out of current revenues. All you need to put up is the first server and produce the product.
But unfortunately people have got it in their head that its cool to be "funded" and that you need funding to succeed.... when the reality is they will force you to bet your business on achieving a $1B valuation in 5 years.
The smart money is on getting a $100M valuation in 5 years and a very profitable business.
The reason is the chances of you hitting $1B are astronomical (and when you don't they pull the plug).... but the chances of hitting $100M are not that bad. Certainly by comparison.
Its just amazing that for the thousands of article written, nobody ever tells the truth about VC firms, talks about how they were screwed over, etc.
This is because people are addicted to the funding and they are afraid they might not get it if they tell the truth.
It is absurd to argue these guys aren't smart, or impressive. Thats exactly why they can do what they do. VC's I have met are almost uniformly: male, handsome, fit, polished, affable, extremely bright, and graduates of the top two or three top MBA programs -- these highly coveted jobs are exceedingly difficult to get and select exclusively for alpha males. They are the guy Ray Davies described in the song "David Watts" -- the quarterback and class president rolled into one. At some primal level, we really want them to like us.
But it is also true that VC's are practiced liars -- they make their money on selling you on their passion and enthusiasm, but then they take a very dispassionate and ruthless view of the business realities.
That is where the resentment comes from -- We want them to like us, they select for entrepreneurs that will trust them, and then they push us into situations that will maximize their return, but not necessarily ours.
It is a very different relationship from, say, a dispassionate bank loan.
Your advice, however, is good. If you have a very big idea and don't mind losing control, consider a VC.
But if you want control, seek smaller ideas and other avenues for finance. Your odds are about the same, and you can get rich either way, but the latter path is far more personally satisfying.
Agree 100%, VC stands for "Vulture Capital".
Not to say one shouldn't look for outside investment, but the VC route is one of the worst.
If VC really worked, why are so many firms among the "walking dead"?
Check this out: http://venturebeat.com/2009/04/13/venture-capit...
It's such a weird idea that creation can be juiced with money. Companies are requesting cash well before they really need the capital.
Great stuff as always Tim!
Great post on V.C.'s my friend Donnie Deutsch had a TV show on CNBC (which just got canceled) called the Big Idea (oh yeah- you were on it:) where they would actually put people in an elevator and film the pitch to the V.C. The person would have about 60 seconds to take their best shot at getting the V.C.s attention. Once the elevator doors opened it was over. They could have definitely used this post for guidance :)
Be Well,
Rob
Are you planning on heading out to BRC this year? I just got my ticket. I know you tend to go a bit incognito there, but I would like to buy you a PBR if you make it.
If you are passionate about something, you'll be persistent, and as Dan Pink writes in the book Johnny Bunko (in the rules of your career), persistence trumps talent.
Great post, excellent questions/comments/panelists. Lots of great knowledge shared.
There are a few base rules that reoccur through the answers which are great, thanks for this tim!
Ryan
It also might be worth noting that TiE has regional groups as well. . .there is a pretty active one here in Chicago.
http://midwest.tie.org/
Cheers, Doc
These were looking at $100M plus revenue, and either major entertainment or tech.
Great info. Smaller scale VC companies will fit more of your readers, however.
I think it is also important to point out that most start ups, shouldn't or can't get venture capital. So much can be accomplished with a good idea, a talented team and a lot of hard work. Don't waste your valuable time chasing financing if you don't really need it.
That time spent looking for money can be better invested in getting customers for your new business.
Still, thanks for the post! It was very interesting and informative.
This is often forgotten when discussing tech companies because there are cases when it is possible to opt out funding almost completely.
This is an awesome reference, I love trying to see things the way an investor would. I can see myself making a few of the common mistakes they mention (downplay risks, say projections are "conservative", etc.)
That being said, it seems your posts have been leaning away from bootstrapped muse-building to capital-intensive startups (more mentions of angels/VCs). Have your interests/techniques changed? Or is oriented towards those with a muse already built?
Thanks, and great stuff as always.
It sounds unanimous that with a good lawyer you shouldn't miss terms. I'd like to hear/learn more about selecting a good lawyer and at what stage of the process this is most appropriate.
Also, how to get good legal representation on the cheap? Never easy.
Cheers,
Ryan
Venture Backed Business vs. Lifestyle Business
On the Venture side, you've got a possible $20 million+ payday after 3 or 4 years or mind numbing, 100 hour per week work. On the "Lifestyle Business" side, you've got the potential for a steady 40k+ per month, but with the downside of having to bootstrap everything.
Decisions, Decisions...
I myself am looking for funding and would like to pose a question to one and all. My small real estate business (I know, I know), with a technology advantage, is looking for $70,000 in start up capital. Currently, I am self-funded with about $30,000 already in the pot. I have exceptional credit, a few investments, and would be willing to personally guarantee the debt.
What financing ideas would you suggest to reach my desire $70,000 outcome?
Thanks in advance for any suggestions and happy Patriots' Day from Boston, MA.
I've found it even more important than anything you do or say during the pitch meeting.
As they mentioned, TiEcon (www.tiecon.org) is a great way to get yourself into that network. People there are looking to find the next amazing startup and can help you hone your story and find you connections. I've also found some of the Bschool alumni networks to be helpful.
One way or another, get yourself some well-connected folks who believe in your story.
But I like your business posts. They help fund dreamlines. =)
Thanks Tim
P.D. I am reading Seneca.
When trying to create a muse, i used all your steps and had a really time creating something for the groups and markets I am familiar with, however I noticed when I thought about other markets I had more ideas. After doing some analyzing, I decided that this was caused by the anxiety you feel when thinking of groups you belong to, because you want to be accepted by them. When thinking of groups you are not on a personal level with you have less fear and thus don't shoot down your own ideas so quickly. If this makes any sense to anyone feel free to message me.
PS...read the book, love it and am testing, using adwords, a new Greek guide thats very specific to one group of people. Getting about 50+ clicks a day, now just tweaking it then will roll out real site and produce some audio CD's. Thanks for the advice.
Email me if you want to hear more about it.
That krumping was hot, it’s cool that you dig that and I wouldn’t be surprised if you could pull that off. Plus, that video on outsourcing was a hoot, thanks! I definitely applaud the guy who went overseas for a year (Twitter- Naked in Dangerous Places)… I actually thought he was naked in dangerous places and lived to tell his story before I saw the video.
http://www.bbc.co.uk/dragonsden/
Kindly explain all the enhancements to the blog? Are there more changes to come? I ask because the changes are pretty radical and interesting.