Comments on: VCs: What’s Your Failure Rate? http://www.techcrunch.com/2007/11/30/vcs-whats-your-failure-rate/ Startup and Technology News Thu, 24 Jul 2008 19:59:36 +0000 http://wordpress.org/?v=2.5.1 By: Week - 12/2/07 - knowledge gain « Using IT http://www.techcrunch.com/2007/11/30/vcs-whats-your-failure-rate/#comment-1880567 Week - 12/2/07 - knowledge gain « Using IT Fri, 28 Dec 2007 03:15:11 +0000 http://www.techcrunch.com/2007/11/30/vcs-whats-your-failure-rate/#comment-1880567 [...] Good info from VC: Most venture backed investments fail because the venture capital is used to scale the business befor... [...] [...] Good info from VC: Most venture backed investments fail because the venture capital is used to scale the business befor… [...]

]]> By: Venture Capitalists http://www.techcrunch.com/2007/11/30/vcs-whats-your-failure-rate/#comment-1817366 Venture Capitalists Fri, 07 Dec 2007 11:20:26 +0000 http://www.techcrunch.com/2007/11/30/vcs-whats-your-failure-rate/#comment-1817366 Hi Wilson, Your experience is honorable. I do agree with your thoughts on Entrepreneurs and VC's Good Luck. Hi Wilson,

Your experience is honorable. I do agree with your thoughts on Entrepreneurs and VC’s

Good Luck.

]]> By: gaic http://www.techcrunch.com/2007/11/30/vcs-whats-your-failure-rate/#comment-1806228 gaic Mon, 03 Dec 2007 12:56:02 +0000 http://www.techcrunch.com/2007/11/30/vcs-whats-your-failure-rate/#comment-1806228 Hello, Interesting article. Failure is the key of success, I heard a lot. I guess it is true. The most important is to learn from mistakes. But most of all dont repeat the same ones. I am building an Entrepreneurs Investors community. We would like to hear such experiences. Our idea is to bring to entrepreneurs advice that will help t hem in the growth process (without crawling and begging for help). They can post their needs. Most entrepreneurs are too isolated and just don’t know what to do. They also do not have all the financial resources to ask for advice. We will be honored if you can participate to our community. Thanks and good work! Hello,

Interesting article. Failure is the key of success, I heard a lot. I guess it is true. The most important is to learn from mistakes. But most of all dont repeat the same ones.

I am building an Entrepreneurs Investors community. We would like to hear such experiences. Our idea is to bring to entrepreneurs advice that will help t hem in the growth process (without crawling and begging for help). They can post their needs. Most entrepreneurs are too isolated and just don’t know what to do. They also do not have all the financial resources to ask for advice. We will be honored if you can participate to our community.

Thanks and good work!

]]> By: Peter Griffyn http://www.techcrunch.com/2007/11/30/vcs-whats-your-failure-rate/#comment-1803855 Peter Griffyn Sat, 01 Dec 2007 19:54:46 +0000 http://www.techcrunch.com/2007/11/30/vcs-whats-your-failure-rate/#comment-1803855 @ #25 Chris R. TheFunded.com is a ratings & review site for VC's. @ #25 Chris R.

TheFunded.com is a ratings & review site for VC’s.

]]> By: fred wilson http://www.techcrunch.com/2007/11/30/vcs-whats-your-failure-rate/#comment-1803501 fred wilson Sat, 01 Dec 2007 14:06:55 +0000 http://www.techcrunch.com/2007/11/30/vcs-whats-your-failure-rate/#comment-1803501 I enjoyed reading all of these comments. It's clear from some of them that they did not read the two posts that Erick is citing data from. If you are interested in this topic, I suggest reading both of these http://www.unionsquareventures.com/2007/11/failure_rates_i.html and http://www.unionsquareventures.com/2007/11/why_early_stage.html and Erick, thanks for using my twivitar! very nice Fred I enjoyed reading all of these comments. It’s clear from some of them that they did not read the two posts that Erick is citing data from. If you are interested in this topic, I suggest reading both of these

http://www.unionsquareventures.....tes_i.html

and

http://www.unionsquareventures.....stage.html

and Erick, thanks for using my twivitar! very nice

Fred

]]> By: RYK http://www.techcrunch.com/2007/11/30/vcs-whats-your-failure-rate/#comment-1803385 RYK Sat, 01 Dec 2007 12:47:47 +0000 http://www.techcrunch.com/2007/11/30/vcs-whats-your-failure-rate/#comment-1803385 2/3 fail becuase instead of backing innovation most VCs are busy backing me too models, which are doomed because the only growth they have for themselves is money and not intelligence. The failure rate can be reduced if VC start specializing and are able to better recognize passion and innovation. 2/3 fail becuase instead of backing innovation most VCs are busy backing me too models, which are doomed because the only growth they have for themselves is money and not intelligence. The failure rate can be reduced if VC start specializing and are able to better recognize passion and innovation.

]]> By: Jurado http://www.techcrunch.com/2007/11/30/vcs-whats-your-failure-rate/#comment-1802616 Jurado Sat, 01 Dec 2007 01:14:25 +0000 http://www.techcrunch.com/2007/11/30/vcs-whats-your-failure-rate/#comment-1802616 I woud recommend adding a lil curry to the dogfood! I woud recommend adding a lil curry to the dogfood!

]]> By: JoeInsider http://www.techcrunch.com/2007/11/30/vcs-whats-your-failure-rate/#comment-1802574 JoeInsider Sat, 01 Dec 2007 00:59:42 +0000 http://www.techcrunch.com/2007/11/30/vcs-whats-your-failure-rate/#comment-1802574 I forgot to add the 2/3rds re-start probability. The net new adjusted return is $430K--and probably after 6 years. I forgot to add the 2/3rds re-start probability. The net new adjusted return is $430K–and probably after 6 years.

]]> By: JoeInsider http://www.techcrunch.com/2007/11/30/vcs-whats-your-failure-rate/#comment-1802517 JoeInsider Sat, 01 Dec 2007 00:39:51 +0000 http://www.techcrunch.com/2007/11/30/vcs-whats-your-failure-rate/#comment-1802517 If only entrepreneurs/founders knew these numbers going into the game. Here's a rough swag-of-a-scenario on the potential return to founders: Average Software Deal Size $90,000,000 Revenue Sale Multiple 5 Revenue required for value 18,000,000 Capital required to capture revenue 16,200,000 Plus Accrued Dividends @8% 6,480,000 Est Equity Stake at time of sale 2.00% Investor Ownership 70% Net Value to Common $67,320,000 Value of equity at sale 1,346,400 Success Rate 80% Probability of common making money 60% Idiot CEO Index Probability Adjusted Return $646,272 If only entrepreneurs/founders knew these numbers going into the game. Here’s a rough swag-of-a-scenario on the potential return to founders:

Average Software Deal Size $90,000,000
Revenue Sale Multiple 5
Revenue required for value 18,000,000
Capital required to capture revenue 16,200,000
Plus Accrued Dividends @8% 6,480,000
Est Equity Stake at time of sale 2.00%
Investor Ownership 70%

Net Value to Common $67,320,000
Value of equity at sale 1,346,400
Success Rate 80%
Probability of common making money 60%
Idiot CEO Index
Probability Adjusted Return $646,272

]]> By: Steve Ballmer http://www.techcrunch.com/2007/11/30/vcs-whats-your-failure-rate/#comment-1802416 Steve Ballmer Fri, 30 Nov 2007 23:38:31 +0000 http://www.techcrunch.com/2007/11/30/vcs-whats-your-failure-rate/#comment-1802416 VC failure rate? 92.875%! VC failure rate? 92.875%!

]]> By: no thanks mr. vc http://www.techcrunch.com/2007/11/30/vcs-whats-your-failure-rate/#comment-1802380 no thanks mr. vc Fri, 30 Nov 2007 23:08:05 +0000 http://www.techcrunch.com/2007/11/30/vcs-whats-your-failure-rate/#comment-1802380 Majority of the investments fail because of VCs. If you want to succeed avoid raising money from mediocre VCs (majority of them), or just say NO to VC money. VCs don't build companies, entrepreneurs do. VCs should blame themselves before pointing fingers. Majority of the investments fail because of VCs. If you want to succeed avoid raising money from mediocre VCs (majority of them), or just say NO to VC money.

VCs don’t build companies, entrepreneurs do.

VCs should blame themselves before pointing fingers.

]]> By: Jonny C http://www.techcrunch.com/2007/11/30/vcs-whats-your-failure-rate/#comment-1802333 Jonny C Fri, 30 Nov 2007 22:51:15 +0000 http://www.techcrunch.com/2007/11/30/vcs-whats-your-failure-rate/#comment-1802333 Ha, does that mean that VC's with higher failure rates are more likely to invest in any cockamamy business plan you put together? I'm in! - Jc Ha, does that mean that VC’s with higher failure rates are more likely to invest in any cockamamy business plan you put together? I’m in!

- Jc

]]> By: Rahul Pandhe http://www.techcrunch.com/2007/11/30/vcs-whats-your-failure-rate/#comment-1802302 Rahul Pandhe Fri, 30 Nov 2007 22:38:01 +0000 http://www.techcrunch.com/2007/11/30/vcs-whats-your-failure-rate/#comment-1802302 Wonder how many business failed due to bad VC interference? I have heard of situations gotten worse due to VCs. Is it allways the business plan? Wonder how many business failed due to bad VC interference?
I have heard of situations gotten worse due to VCs. Is it allways the business plan?

]]> By: Geek And Poke http://www.techcrunch.com/2007/11/30/vcs-whats-your-failure-rate/#comment-1802298 Geek And Poke Fri, 30 Nov 2007 22:34:51 +0000 http://www.techcrunch.com/2007/11/30/vcs-whats-your-failure-rate/#comment-1802298 <strong>Failure Rate...</strong> TechCrunch requires VCs to publish their failure rate.... Failure Rate…

TechCrunch requires VCs to publish their failure rate….

]]> By: JM http://www.techcrunch.com/2007/11/30/vcs-whats-your-failure-rate/#comment-1802282 JM Fri, 30 Nov 2007 22:24:43 +0000 http://www.techcrunch.com/2007/11/30/vcs-whats-your-failure-rate/#comment-1802282 this is the not the right metric to look at. Only success and the size of these sucess matter. Failure is part of VC business and do not really count. They can only lose their money once. The idea is only to go for big wins that make up th emany loses. this is the not the right metric to look at.
Only success and the size of these sucess matter.

Failure is part of VC business and do not really count. They can only lose their money once.
The idea is only to go for big wins that make up th emany loses.

]]> By: Pachinko http://www.techcrunch.com/2007/11/30/vcs-whats-your-failure-rate/#comment-1802269 Pachinko Fri, 30 Nov 2007 22:17:40 +0000 http://www.techcrunch.com/2007/11/30/vcs-whats-your-failure-rate/#comment-1802269 Given that VCs have so much influence on the companies they invest in, their failure rate is also an indication if they have a golden touch or not. So yes, for all involved, VCs should give out their failure rates and lists of all the companies that failed and did not fail. But that is not going to happen. This was a good article, TC has the potential to become no. 1 insight of what happens in the VC side of internet startups if you guys would want to. Given that VCs have so much influence on the companies they invest in, their failure rate is also an indication if they have a golden touch or not.

So yes, for all involved, VCs should give out their failure rates and lists of all the companies that failed and did not fail.

But that is not going to happen.

This was a good article, TC has the potential to become no. 1 insight of what happens in the VC side of internet startups if you guys would want to.

]]> By: MMT http://www.techcrunch.com/2007/11/30/vcs-whats-your-failure-rate/#comment-1802163 MMT Fri, 30 Nov 2007 21:09:15 +0000 http://www.techcrunch.com/2007/11/30/vcs-whats-your-failure-rate/#comment-1802163 Good article. Thanks for posting. Good article. Thanks for posting.

]]> By: Alex http://www.techcrunch.com/2007/11/30/vcs-whats-your-failure-rate/#comment-1802098 Alex Fri, 30 Nov 2007 20:45:38 +0000 http://www.techcrunch.com/2007/11/30/vcs-whats-your-failure-rate/#comment-1802098 Dear Fred, I take back the couple of rough comments I've given you on your blog directly before. Though your posts were a bit in left field and you portrayed yourself as a "victim" (i.e. remember when you said you received to many emails and would not respond...). Hello, that's your job, guy!!!! That said, I believe this is spot on. Your transparency is really appreciated and also brings additional credibility in a time when many entrepreneurs are looking to shy away from traditional VC investments. My company that is VC backed is failing for this exact reason. The VC's continue to throw money at a model that needed a new direction. The technology was/is really good but the lack of vision and market knowledge by the Board of Directors is just gross. The founders handed the direction that the company should head three years ago to the CEO. In turn the CEO I think was working on a better compensation package for himself and his lieutenants as well as probably could not articulate the story to the "moronic" board. Lesson #1 for entreprenuers - NEVER give up some type of operating control and NEVER EVER give up your right to sit on the Board of Directors of your company. Most of these guys that sit on the Board are just polished "politicians" who could not use Google maps - if there personal assistants didn't print out the direction for them. I think there needs to be a yearly awards in the valley. 1) Dumbest VC investment of the year. 2) Most idiotic VC advice received all year. 3) Worst outside CEO hire for a VC backed company. 4) Best VC investment of the year. 5) Best VC advice received (this will be one of three firms year in and year out) 6) Best outside CEO hire for a VC backed company Just like fund managers are measured every year so should VC's. Dear Fred,

I take back the couple of rough comments I’ve given you on your blog directly before. Though your posts were a bit in left field and you portrayed yourself as a “victim” (i.e. remember when you said you received to many emails and would not respond…). Hello, that’s your job, guy!!!!

That said, I believe this is spot on. Your transparency is really appreciated and also brings additional credibility in a time when many entrepreneurs are looking to shy away from traditional VC investments. My company that is VC backed is failing for this exact reason. The VC’s continue to throw money at a model that needed a new direction. The technology was/is really good but the lack of vision and market knowledge by the Board of Directors is just gross. The founders handed the direction that the company should head three years ago to the CEO. In turn the CEO I think was working on a better compensation package for himself and his lieutenants as well as probably could not articulate the story to the “moronic” board.

Lesson #1 for entreprenuers - NEVER give up some type of operating control and NEVER EVER give up your right to sit on the Board of Directors of your company. Most of these guys that sit on the Board are just polished “politicians” who could not use Google maps - if there personal assistants didn’t print out the direction for them.

I think there needs to be a yearly awards in the valley.

1) Dumbest VC investment of the year.
2) Most idiotic VC advice received all year.
3) Worst outside CEO hire for a VC backed company.
4) Best VC investment of the year.
5) Best VC advice received (this will be one of three firms year in and year out)
6) Best outside CEO hire for a VC backed company

Just like fund managers are measured every year so should VC’s.

]]> By: vc for nothing http://www.techcrunch.com/2007/11/30/vcs-whats-your-failure-rate/#comment-1802026 vc for nothing Fri, 30 Nov 2007 20:05:22 +0000 http://www.techcrunch.com/2007/11/30/vcs-whats-your-failure-rate/#comment-1802026 First, Isaac newton created calculus. He predict the world is going to end at 2060. As I was reading holy bible. I can foresee white sunlight or asteroid coming near earth. It's about to hit southern Mexico or California. I tried to get money from VC to built first space defense spider clawer. They won't invest it. So I give up just like that. I will be 80 years staring sunlight ball at sky. You guys will. First, Isaac newton created calculus. He predict the world is going to end at 2060. As I was reading holy bible. I can foresee white sunlight or asteroid coming near earth. It’s about to hit southern Mexico or California.

I tried to get money from VC to built first space defense spider clawer. They won’t invest it. So I give up just like that.

I will be 80 years staring sunlight ball at sky. You guys will.

]]> By: Ilya http://www.techcrunch.com/2007/11/30/vcs-whats-your-failure-rate/#comment-1802005 Ilya Fri, 30 Nov 2007 19:57:43 +0000 http://www.techcrunch.com/2007/11/30/vcs-whats-your-failure-rate/#comment-1802005 interestings success/failure list from Lauder Partners: http://www.lauderpartners.com/investments/index.html interestings success/failure list from Lauder Partners:
http://www.lauderpartners.com/.....index.html

]]> By: paradise5000 http://www.techcrunch.com/2007/11/30/vcs-whats-your-failure-rate/#comment-1801982 paradise5000 Fri, 30 Nov 2007 19:50:10 +0000 http://www.techcrunch.com/2007/11/30/vcs-whats-your-failure-rate/#comment-1801982 Fred Wilson, honesty should be commended. One thing that remains to be true is that a wise man learn from his failures, which in turns helps build character and makes us a little more cautious when choosing the right business venture, Affiliation or partnership. Fred Wilson, honesty should be commended. One thing that remains to be true is that a wise man learn from his failures, which in turns helps build character and makes us a little more cautious when choosing the right business venture, Affiliation or partnership.

]]> By: Alan Wilensky http://www.techcrunch.com/2007/11/30/vcs-whats-your-failure-rate/#comment-1801899 Alan Wilensky Fri, 30 Nov 2007 19:10:20 +0000 http://www.techcrunch.com/2007/11/30/vcs-whats-your-failure-rate/#comment-1801899 I'm sure that Fred only meant to draw attention to the win / loss ratio as secondary to the total rate of return for the portfolio. I’m sure that Fred only meant to draw attention to the win / loss ratio as secondary to the total rate of return for the portfolio.

]]> By: Shahar Nechmad http://www.techcrunch.com/2007/11/30/vcs-whats-your-failure-rate/#comment-1801878 Shahar Nechmad Fri, 30 Nov 2007 19:02:34 +0000 http://www.techcrunch.com/2007/11/30/vcs-whats-your-failure-rate/#comment-1801878 From my personal experience I think there is also one thing that VC should get better in. As you say, 2/3 of the businesses will completely change their business plan during their life. That's mean that you actually need to invest in the people that can do this transformation and not just on the idea. Now, All VC like to say in interviews that it's all about the people and people first marketing talk. We met with several VC before taking our A round. I got to say that probably just one actually asked us "Why do you do it?" "What drives you, personally, to do it?". Everyone else were so into just the idea and the business plan. I think that VC should first understand the people they invest in. Try to see if the founders are the kind of people that can adopt to changes. If what drives them is something that will stil be when the times will get difficult (and they will). Shahar Nechmad CEO, NuConomy blog: www.nechmads.com From my personal experience I think there is also one thing that VC should get better in.
As you say, 2/3 of the businesses will completely change their business plan during their life. That’s mean that you actually need to invest in the people that can do this transformation and not just on the idea.
Now, All VC like to say in interviews that it’s all about the people and people first marketing talk.
We met with several VC before taking our A round. I got to say that probably just one actually asked us “Why do you do it?” “What drives you, personally, to do it?”.
Everyone else were so into just the idea and the business plan.

I think that VC should first understand the people they invest in. Try to see if the founders are the kind of people that can adopt to changes. If what drives them is something that will stil be when the times will get difficult (and they will).

Shahar Nechmad
CEO, NuConomy
blog: http://www.nechmads.com

]]> By: Dave Toledo http://www.techcrunch.com/2007/11/30/vcs-whats-your-failure-rate/#comment-1801844 Dave Toledo Fri, 30 Nov 2007 18:51:34 +0000 http://www.techcrunch.com/2007/11/30/vcs-whats-your-failure-rate/#comment-1801844 I know it's exciting to get a VC on board but if you can build your model and even begin to generate business (revenue) you'll be much further a head of the VC game. And if you at that time need to bring a VC in, you'll be in a much better position both in retaining ownership and in getting the VCs to take a serious look at you. I know it’s exciting to get a VC on board but if you can build your model and even begin to generate business (revenue) you’ll be much further a head of the VC game. And if you at that time need to bring a VC in, you’ll be in a much better position both in retaining ownership and in getting the VCs to take a serious look at you.

]]> By: Chris R. http://www.techcrunch.com/2007/11/30/vcs-whats-your-failure-rate/#comment-1801843 Chris R. Fri, 30 Nov 2007 18:51:23 +0000 http://www.techcrunch.com/2007/11/30/vcs-whats-your-failure-rate/#comment-1801843 Why not create a website that keeps stats on VCs? I bet it would get bought out by TC. Why not create a website that keeps stats on VCs?
I bet it would get bought out by TC.

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