Comments on: A Scary Line Has Been Crossed For VCs http://www.techcrunch.com/2008/11/12/a-scary-line-has-been-crossed-for-vcs/ Startup and Technology News Tue, 10 Nov 2009 10:25:12 -0800 hourly 1 By: Randy http://www.techcrunch.com/2008/11/12/a-scary-line-has-been-crossed-for-vcs/comment-page-1/#comment-2650636 Randy Tue, 10 Mar 2009 19:43:24 +0000 http://www.techcrunch.com/?p=27928#comment-2650636 The reality is that I believe we are saying the same thing here. I agree with everything you state, however my only point is that if a VC has a vested interest in the success of the company, I am not sure that they should sit back and just watch the game play out. As an investor myself I will do what I can to help the company with introductions, advice, etc. It would be foolish not to as it is my money invested to see that company succeed. Unfortunately not all VC's are created equal, and those that help clear the way to success rather than being a hurdle to success are the ones that will survive. I agree 110% that the offering from the company needs to stand on its own and provide value to its clients. Again...I think we are saying the same thing here.... The reality is that I believe we are saying the same thing here. I agree with everything you state, however my only point is that if a VC has a vested interest in the success of the company, I am not sure that they should sit back and just watch the game play out. As an investor myself I will do what I can to help the company with introductions, advice, etc. It would be foolish not to as it is my money invested to see that company succeed. Unfortunately not all VC’s are created equal, and those that help clear the way to success rather than being a hurdle to success are the ones that will survive.
I agree 110% that the offering from the company needs to stand on its own and provide value to its clients. Again…I think we are saying the same thing here….

]]> By: BRR http://www.techcrunch.com/2008/11/12/a-scary-line-has-been-crossed-for-vcs/comment-page-1/#comment-2636735 BRR Wed, 25 Feb 2009 19:36:55 +0000 http://www.techcrunch.com/?p=27928#comment-2636735 Respectfully, I might disagree. I was a VC for 12+ years and eventually left because the mode, while not broken per se, doesn't scale very well at all. And like any market, a flood of capital brings down returns for everyone. Let me illustrate with your example. This is a bit of a generalization but will serve to make the point. High-end consumer electronics is an interesting and, probably, profitable market. But it's not particularly high-growth. Regardless of how good your technology is and ow many CES Best in Show awards you've won, unless you're in a high-growth sector - or better, a hyper-growth sector, VCs can't afford to pay attention to you. Why? B/C every deal they do has to have a 10X or better return opportunity - or, put another way, a 50% IRR hurdle - at a minimum. That's because 1/2 of their deals will fail. Even KP, Sequoia, Benchmark, VantagePoint, etc have 1/2 or more of their deals return $0. The winners need to be sufficiently large - not a 2X or a 5X return - but a 10X return or greater - to make up for it. It's very, very, very hard to get a 10X return - with a new entrant or start-up - in an industry that's $300M or $400M in total and growing 5%-8% a year or less. Trust me. The obvious question is "Why are they so bad at picking deals - you gotta be able to do better than a 50% hit rate, no?" No. It's really akin to a batting average in baseball. You might make contact more than 50% of the time, but a lot of those are ground outs, long fly balls caught at the fence, or, frequently, strike outs. Picking winners at a relatively early stage of a company's life is very hard - you just don't know - and a little bit like trying to identify the next Nobel Laureate or Tom Brady or Alex Rodriquez - but do so when they're still in Kindergarten. You might get it right on smarts or raw athletic talent - but so many other factors HAVE to go right to become a Super Bowl QB or a steroid-popping, over-paid 3rd basemen on the Yankees that it's impossible to know at the outset. You pick and invest deals that ALL have that kind of potential and then you work like hell to help the realize it. And even then 1/2 or more die an early death. I left VC to become an LP. In that position I saw the return data - over long periods of time - for almost every VC fund on the planet. For all but about 30 or 40, it's not pretty or predictable or really that compelling. It's FAR easier to make consistent returns as an LP in small, mid-market buyouts than VC - by a long margin. The analogy, if you'll excuse it, is that small buyouts are like investing in that same pool of kids but now at the end of their college career. You can see A LOT more. Raw ability but also drive, ambition, character, interpersonal skills, etc. So much easier to pick winners and guide them to greater success. my two cents. You can blame VCs all you want but the entire return model is challenged. A few really do justify the hype and the accolades and the fees/carry. But it's less than 1% - if there really are 4800 VC firms in operation - a number that seems very high to me. BRR Respectfully, I might disagree. I was a VC for 12+ years and eventually left because the mode, while not broken per se, doesn’t scale very well at all. And like any market, a flood of capital brings down returns for everyone. Let me illustrate with your example. This is a bit of a generalization but will serve to make the point. High-end consumer electronics is an interesting and, probably, profitable market. But it’s not particularly high-growth. Regardless of how good your technology is and ow many CES Best in Show awards you’ve won, unless you’re in a high-growth sector – or better, a hyper-growth sector, VCs can’t afford to pay attention to you. Why? B/C every deal they do has to have a 10X or better return opportunity – or, put another way, a 50% IRR hurdle – at a minimum. That’s because 1/2 of their deals will fail. Even KP, Sequoia, Benchmark, VantagePoint, etc have 1/2 or more of their deals return $0. The winners need to be sufficiently large – not a 2X or a 5X return – but a 10X return or greater – to make up for it. It’s very, very, very hard to get a 10X return – with a new entrant or start-up – in an industry that’s $300M or $400M in total and growing 5%-8% a year or less. Trust me. The obvious question is “Why are they so bad at picking deals – you gotta be able to do better than a 50% hit rate, no?” No. It’s really akin to a batting average in baseball. You might make contact more than 50% of the time, but a lot of those are ground outs, long fly balls caught at the fence, or, frequently, strike outs. Picking winners at a relatively early stage of a company’s life is very hard – you just don’t know – and a little bit like trying to identify the next Nobel Laureate or Tom Brady or Alex Rodriquez – but do so when they’re still in Kindergarten. You might get it right on smarts or raw athletic talent – but so many other factors HAVE to go right to become a Super Bowl QB or a steroid-popping, over-paid 3rd basemen on the Yankees that it’s impossible to know at the outset. You pick and invest deals that ALL have that kind of potential and then you work like hell to help the realize it. And even then 1/2 or more die an early death.

I left VC to become an LP. In that position I saw the return data – over long periods of time – for almost every VC fund on the planet. For all but about 30 or 40, it’s not pretty or predictable or really that compelling. It’s FAR easier to make consistent returns as an LP in small, mid-market buyouts than VC – by a long margin. The analogy, if you’ll excuse it, is that small buyouts are like investing in that same pool of kids but now at the end of their college career. You can see A LOT more. Raw ability but also drive, ambition, character, interpersonal skills, etc. So much easier to pick winners and guide them to greater success.

my two cents. You can blame VCs all you want but the entire return model is challenged. A few really do justify the hype and the accolades and the fees/carry. But it’s less than 1% – if there really are 4800 VC firms in operation – a number that seems very high to me.

BRR

]]> By: Technology news - Techvibes Blog http://www.techcrunch.com/2008/11/12/a-scary-line-has-been-crossed-for-vcs/comment-page-2/#comment-2621589 Technology news - Techvibes Blog Wed, 11 Feb 2009 00:11:34 +0000 http://www.techcrunch.com/?p=27928#comment-2621589 [...] Shonfeld's post "A Scary Line Has Been Crossed for VCs" on TechCrunch picked up on some provocative writing by Adeo Ressi, founder of The Funded.com, in [...] [...] Shonfeld’s post “A Scary Line Has Been Crossed for VCs” on TechCrunch picked up on some provocative writing by Adeo Ressi, founder of The Funded.com, in [...]

]]> By: Blog de Emprendedores » Blog Archive » Dudas sobre el modelo de los VC http://www.techcrunch.com/2008/11/12/a-scary-line-has-been-crossed-for-vcs/comment-page-1/#comment-2597829 Blog de Emprendedores » Blog Archive » Dudas sobre el modelo de los VC Sun, 18 Jan 2009 21:32:26 +0000 http://www.techcrunch.com/?p=27928#comment-2597829 [...] Techcrunch on a Scary Line has Been Crossed for VCs [...] [...] Techcrunch on a Scary Line has Been Crossed for VCs [...]

]]> By: Gavriil http://www.techcrunch.com/2008/11/12/a-scary-line-has-been-crossed-for-vcs/comment-page-1/#comment-2552637 Gavriil Tue, 02 Dec 2008 00:26:05 +0000 http://www.techcrunch.com/?p=27928#comment-2552637 Хорошая статья, узнал много нового!) Хорошая статья, узнал много нового!)

]]> By: arne http://www.techcrunch.com/2008/11/12/a-scary-line-has-been-crossed-for-vcs/comment-page-1/#comment-2548649 arne Fri, 28 Nov 2008 01:40:04 +0000 http://www.techcrunch.com/?p=27928#comment-2548649 Luckily for more sophisticated LPs, they don't have to settle for average industry returns. Luckily for more sophisticated LPs, they don’t have to settle for average industry returns.

]]> By: חוזרים למודלים - TheMarker Cafe http://www.techcrunch.com/2008/11/12/a-scary-line-has-been-crossed-for-vcs/comment-page-1/#comment-2537291 חוזרים למודלים - TheMarker Cafe Mon, 17 Nov 2008 21:56:16 +0000 http://www.techcrunch.com/?p=27928#comment-2537291 [...] להתייחסויות של אום מאליק, פרד ווילסון ואריק שונפלד לרעיון של [...] [...] להתייחסויות של אום מאליק, פרד ווילסון ואריק שונפלד לרעיון של [...]

]]> By: The Founding Member - Adeo http://www.techcrunch.com/2008/11/12/a-scary-line-has-been-crossed-for-vcs/comment-page-1/#comment-2535308 The Founding Member - Adeo Sat, 15 Nov 2008 16:57:30 +0000 http://www.techcrunch.com/?p=27928#comment-2535308 Here are some further thoughts on the presentation and the VC model in a written form: http://www.adeoressi.com/2008/11/15/the-vc-model-is-broken/ Here are some further thoughts on the presentation and the VC model in a written form:

http://www.adeo...odel-is-broken/

]]> By: The more things change, the more they stay the same… « Five Years Too late http://www.techcrunch.com/2008/11/12/a-scary-line-has-been-crossed-for-vcs/comment-page-1/#comment-2535173 The more things change, the more they stay the same… « Five Years Too late Sat, 15 Nov 2008 13:31:37 +0000 http://www.techcrunch.com/?p=27928#comment-2535173 [...] - here Jim Robinson IV shares a few thoughts and anecdotes about a lot of the discussion flying around the web about the VC model being broken. James D. Robinson [...] [...] – here Jim Robinson IV shares a few thoughts and anecdotes about a lot of the discussion flying around the web about the VC model being broken. James D. Robinson [...]

]]> By: Valto http://www.techcrunch.com/2008/11/12/a-scary-line-has-been-crossed-for-vcs/comment-page-1/#comment-2535064 Valto Sat, 15 Nov 2008 09:52:50 +0000 http://www.techcrunch.com/?p=27928#comment-2535064 At www.growvc.com we will be tackling this issue.... At http://www.growvc.com we will be tackling this issue….

]]> By: Respectfully Disagree, Randy http://www.techcrunch.com/2008/11/12/a-scary-line-has-been-crossed-for-vcs/comment-page-1/#comment-2534917 Respectfully Disagree, Randy Sat, 15 Nov 2008 04:31:54 +0000 http://www.techcrunch.com/?p=27928#comment-2534917 Hey Randy: If the fittest are to survive, why is it the VC's responsibility to help them succeed. The PRODUCT, not your banker, makes or breaks you in most cases. Which is entirely Dick's point--I think. If a VC can help a solid product, all the better. However, "true value" is always determined by the market, not by the guy lending you the money. Hey Randy:

If the fittest are to survive, why is it the VC’s responsibility to help them succeed. The PRODUCT, not your banker, makes or breaks you in most cases.

Which is entirely Dick’s point–I think. If a VC can help a solid product, all the better. However, “true value” is always determined by the market, not by the guy lending you the money.

]]> By: dax http://www.techcrunch.com/2008/11/12/a-scary-line-has-been-crossed-for-vcs/comment-page-1/#comment-2534620 dax Fri, 14 Nov 2008 21:07:26 +0000 http://www.techcrunch.com/?p=27928#comment-2534620 To Dick Hertz...(ouch) I have no vested interest in Amway, but perhaps you should look a little more closely at their financials before you call them illegal- as a ponzi scheme usually doesn't last 40 years before its shut down. Perhaps the real ponzi scheme is the stock market itself, and all the IPO's force fed into our pockets via mutual funds...thus priming the pump for such vast amounts of funding, going into such baseless business models. To Dick Hertz…(ouch)

I have no vested interest in Amway, but perhaps you should look a little more closely at their financials before you call them illegal- as a ponzi scheme usually doesn’t last 40 years before its shut down.

Perhaps the real ponzi scheme is the stock market itself, and all the IPO’s force fed into our pockets via mutual funds…thus priming the pump for such vast amounts of funding, going into such baseless business models.

]]> By: preetam mukherjee http://www.techcrunch.com/2008/11/12/a-scary-line-has-been-crossed-for-vcs/comment-page-1/#comment-2534384 preetam mukherjee Fri, 14 Nov 2008 16:59:19 +0000 http://www.techcrunch.com/?p=27928#comment-2534384 interesting presentation! interesting presentation!

]]> By: Is the VC Model Broken? Far From it - GigaOM http://www.techcrunch.com/2008/11/12/a-scary-line-has-been-crossed-for-vcs/comment-page-1/#comment-2534190 Is the VC Model Broken? Far From it - GigaOM Fri, 14 Nov 2008 14:00:20 +0000 http://www.techcrunch.com/?p=27928#comment-2534190 [...] with unrealistic expectations. The result, as he notes in one eye-grabbing slide, is that VC returns over the past five years have fallen below the total amount of money invested over that same time [...] [...] with unrealistic expectations. The result, as he notes in one eye-grabbing slide, is that VC returns over the past five years have fallen below the total amount of money invested over that same time [...]

]]> By: herve http://www.techcrunch.com/2008/11/12/a-scary-line-has-been-crossed-for-vcs/comment-page-1/#comment-2534160 herve Fri, 14 Nov 2008 13:43:00 +0000 http://www.techcrunch.com/?p=27928#comment-2534160 There has always been crisis, bubbles, with technology and VCs. Who knows about the "The Go-Go Years: The Drama and Crashing Finale of Wall Street's Bullish 60s"? Then there has been the PC, the disk drive bubbles. As a European, I am very impressed by the pioneer and obviously speculative culture that you have in the USA. It is why you have Intel, Apple, Cisco, Oracle, Google. What is next? I do not know. May be it is the end of the Roman (oops American empire). Honestly I doubt it. Yes there is too much money chasing too few ideas. But great ideas will come and come again. I have been a VC and I know their + and -. I quit but I still believe it is a very much needed activity that will contribute to great start-ups growth. There has always been crisis, bubbles, with technology and VCs. Who knows about the “The Go-Go Years: The Drama and Crashing Finale of Wall Street’s Bullish 60s”? Then there has been the PC, the disk drive bubbles. As a European, I am very impressed by the pioneer and obviously speculative culture that you have in the USA. It is why you have Intel, Apple, Cisco, Oracle, Google. What is next? I do not know. May be it is the end of the Roman (oops American empire). Honestly I doubt it. Yes there is too much money chasing too few ideas. But great ideas will come and come again. I have been a VC and I know their + and -. I quit but I still believe it is a very much needed activity that will contribute to great start-ups growth.

]]> By: TechCrunch40 Sponsor - Agoracom http://www.techcrunch.com/2008/11/12/a-scary-line-has-been-crossed-for-vcs/comment-page-1/#comment-2533767 TechCrunch40 Sponsor - Agoracom Fri, 14 Nov 2008 03:53:24 +0000 http://www.techcrunch.com/?p=27928#comment-2533767 @ Diego, my apologies as I should have been clear that "boring" was meant to be sarcastic. We are actually a pretty exciting company and have changed stock discussion forums forever...I just think we're "boring" by Silicon Valley standards for making money as opposed to building a useless deadpool app. George @ Diego, my apologies as I should have been clear that “boring” was meant to be sarcastic. We are actually a pretty exciting company and have changed stock discussion forums forever…I just think we’re “boring” by Silicon Valley standards for making money as opposed to building a useless deadpool app.

George

]]> By: Diego http://www.techcrunch.com/2008/11/12/a-scary-line-has-been-crossed-for-vcs/comment-page-/#comment-2533671 Diego Fri, 14 Nov 2008 01:09:45 +0000 http://www.techcrunch.com/?p=27928#comment-2533671 George, If I may, one last comment: is TC really, partially, at fall here? We can argue about who they mention and who they don't and why... but ultimately isn't it up to each of us to decide if the information presented is pertinent and correct or not? I don't think that TC is the first "media" institution to get reports wrong and/or misrepresent certain ideas/news. But again, aren't we all "grownups" here that can think on our own? TC presents a bunch of info every day... all we have to do if we find something interesting or may be a bit untrue, is do some research on our own and come to our own conclusions instead of running around solely based on what TC says! If I park my car in a bad neighborhood and leave my brand new MacBook Pro in the passenger seat, only to come back later on and find out that someone broke into my car and took my laptop, do I get to blame Honda or Ford for not installing bullet-proof glass and re-enforced doors? Or is it my fault for not using my OWN brain?! Best, Diego George,

If I may, one last comment: is TC really, partially, at fall here? We can argue about who they mention and who they don’t and why… but ultimately isn’t it up to each of us to decide if the information presented is pertinent and correct or not? I don’t think that TC is the first “media” institution to get reports wrong and/or misrepresent certain ideas/news. But again, aren’t we all “grownups” here that can think on our own? TC presents a bunch of info every day… all we have to do if we find something interesting or may be a bit untrue, is do some research on our own and come to our own conclusions instead of running around solely based on what TC says!

If I park my car in a bad neighborhood and leave my brand new MacBook Pro in the passenger seat, only to come back later on and find out that someone broke into my car and took my laptop, do I get to blame Honda or Ford for not installing bullet-proof glass and re-enforced doors? Or is it my fault for not using my OWN brain?!

Best,
Diego

]]> By: Diego http://www.techcrunch.com/2008/11/12/a-scary-line-has-been-crossed-for-vcs/comment-page-1/#comment-2533579 Diego Thu, 13 Nov 2008 23:39:55 +0000 http://www.techcrunch.com/?p=27928#comment-2533579 Richard, I've been gone from the high-tech industry for 8 years now, but, if my memory doesn't fail me: isn't this, in part, the reason (the definition of success has changed) why we had the web 1.0 bubble in the first place? Lot's of companies full of "hot air" but no substantial and tangible business proposition? Best, Diego Richard,

I’ve been gone from the high-tech industry for 8 years now, but, if my memory doesn’t fail me: isn’t this, in part, the reason (the definition of success has changed) why we had the web 1.0 bubble in the first place?

Lot’s of companies full of “hot air” but no substantial and tangible business proposition?

Best,
Diego

]]> By: Diego http://www.techcrunch.com/2008/11/12/a-scary-line-has-been-crossed-for-vcs/comment-page-/#comment-2533574 Diego Thu, 13 Nov 2008 23:37:06 +0000 http://www.techcrunch.com/?p=27928#comment-2533574 George, Question (and I admit it: I'm very new and green to the whole Web 2.0 industry): why can a company be both EXCITING and SUCCESSFUL at the same time?! Have you read Seth Godin's Purple Cow book? I love his concept about being "remarkable" and how successful doesn't necessarily need to be boring. May be you can think of way to make your company just as exciting as it is successful! Best, Diego George,

Question (and I admit it: I’m very new and green to the whole Web 2.0 industry): why can a company be both EXCITING and SUCCESSFUL at the same time?! Have you read Seth Godin’s Purple Cow book? I love his concept about being “remarkable” and how successful doesn’t necessarily need to be boring. May be you can think of way to make your company just as exciting as it is successful!

Best,
Diego

]]> By: Al Brown http://www.techcrunch.com/2008/11/12/a-scary-line-has-been-crossed-for-vcs/comment-page-1/#comment-2533509 Al Brown Thu, 13 Nov 2008 22:38:54 +0000 http://www.techcrunch.com/?p=27928#comment-2533509 Also, I think this chart would be more useful if the data points were quarterly rather than annual. I could be wrong, but last I checked, 2008 wasn't even over. Also, I think this chart would be more useful if the data points were quarterly rather than annual. I could be wrong, but last I checked, 2008 wasn’t even over.

]]> By: Al Brown http://www.techcrunch.com/2008/11/12/a-scary-line-has-been-crossed-for-vcs/comment-page-1/#comment-2533507 Al Brown Thu, 13 Nov 2008 22:36:39 +0000 http://www.techcrunch.com/?p=27928#comment-2533507 There are many viable businesses that are cratering in this year. They sell real products and have real margins. This is a very tough environment. So I don't think these results necessarily indict venture capital. It could just mean there have been fewer IPOs and acquisitions. That is what that top line represents, isn't it? There are many viable businesses that are cratering in this year. They sell real products and have real margins. This is a very tough environment.

So I don’t think these results necessarily indict venture capital. It could just mean there have been fewer IPOs and acquisitions. That is what that top line represents, isn’t it?

]]> By: Al Brown http://www.techcrunch.com/2008/11/12/a-scary-line-has-been-crossed-for-vcs/comment-page-/#comment-2533500 Al Brown Thu, 13 Nov 2008 22:28:57 +0000 http://www.techcrunch.com/?p=27928#comment-2533500 are u pounding the table with your fist or your forehead :-) are u pounding the table with your fist or your forehead :-)

]]> By: Dan http://www.techcrunch.com/2008/11/12/a-scary-line-has-been-crossed-for-vcs/comment-page-1/#comment-2533226 Dan Thu, 13 Nov 2008 17:44:14 +0000 http://www.techcrunch.com/?p=27928#comment-2533226 If there's no need for TechCrunch, why are you here? If there’s no need for TechCrunch, why are you here?

]]> By: Disruption Matters » Blog Archive » What Do Crashes and Bubbles Have in Common? http://www.techcrunch.com/2008/11/12/a-scary-line-has-been-crossed-for-vcs/comment-page-1/#comment-2533161 Disruption Matters » Blog Archive » What Do Crashes and Bubbles Have in Common? Thu, 13 Nov 2008 16:57:46 +0000 http://www.techcrunch.com/?p=27928#comment-2533161 [...] downturn will hit online ads, but also Om predicts they will find it hard to attract talent!!? 2) TechCrunch on their side echos a VC-rating site that explains that VCs will not make money soon. I wonder why [...] [...] downturn will hit online ads, but also Om predicts they will find it hard to attract talent!!? 2) TechCrunch on their side echos a VC-rating site that explains that VCs will not make money soon. I wonder why [...]

]]> By: Richard Hurtz http://www.techcrunch.com/2008/11/12/a-scary-line-has-been-crossed-for-vcs/comment-page-1/#comment-2533145 Richard Hurtz Thu, 13 Nov 2008 16:40:01 +0000 http://www.techcrunch.com/?p=27928#comment-2533145 Good question regarding whether TC will have a future. Mike: curious if you have considered an exit strategy for this publication given the dim outlook. Also curious whether TC ad revenue is declining along with everyone else in the market. Thanks. Good question regarding whether TC will have a future. Mike: curious if you have considered an exit strategy for this publication given the dim outlook.

Also curious whether TC ad revenue is declining along with everyone else in the market.

Thanks.

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