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10 Honest Thoughts on VCs

28 points by thisathrowaway ↗ HN
1. Think of investors on the bell curve. Most of them are in the middle, 25% at the bottom, and 25% at the top. You only want the top 5%. Hint: look at returns.

2. Investors look at the same decks and do the same number crunching. The ones that consistently choose the right companies have something that the other VCs do not.

3. The VCs that are good understand companies in a way that is beyond metrics. They are intuitive. You don’t want a VC that is obsessing over numbers. You want a VC that sees beyond and trusts themselves enough to take risk.

4. There are great partners at VC firms, but, ultimately, they have to serve that VC firm. Make sure the culture of that VC firm is a good one. That culture will impact that partner and that partner will impact you.

5. VCs don’t like to admit that they are primarily money people. The fancy offices, coffee, etc. is all about putting in small money and later getting out big money. Don’t kid yourself into thinking it is more than that.

6. VCs will say anything to get into your company if it is hot. They can be like a high school kid trying to get laid. If they think they can get you, then they’ll say whatever they need to say. They just want to get laid...sorry paid.

7. Being a VC is not glamorous. Most of them are unfortunately not happy. It is competitive. They compare themselves a lot. Look at the life they live. Do you want that kind of life?

8. Most VCs are not terribly insightful (see #1) and all VCs will make poor judgement calls. The best ones own up to it. The lousy ones deny their mistakes.

9. VC's control the company. Even the very smart people that have “hacked” the SV system still serve investors. You have to keep them happy. If you have to keep them happy, then you are not in control.

10. The best VCs are conflicted about VC. They know how it can crush a founder or company. This bothers them, but they deny it and keep rolling forward.

9 comments

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muzani
Very honest thoughts. Did not see it this way. I aspired to become a VC once but after a long hard look at it, I'm not sure if I wanted to anymore. They destroy a lot of companies that would otherwise do well. It's no secret though, the good ones admit it.
csa
I think the argument is more nuanced than this.

First, certainly many companies get wrecked due to crappy VCs. The crappy part is usually their poor selection of who to invest in.

Second, the companies that VCs find must hit home runs for the VC model to be successful. A lot of companies could definitely be good or great companies that hit singles and/or doubles, but that won't work for the long-term success of the VC. As such, they take the single- and double-hitting companies and they'll them to swing for the fences.

These two points are related. Many (Most? All?) companies funded by mediocre VCs from the start don't have home run potential for one reason or another. The fact that VCs run these companies with base hit potential into the ground is simply a fait accompli.

askafriend
Did Michael O. Church take some writing classes and become more concise and less inflammatory?

Haha kidding.

I wonder how many will get my joke. I figured since it's HN, I'd give it a shot.

csa
I loved it. Definitely an OG reference at this point.

If you could only add in an Amy Hoy reference, then we could seriously start reminiscing about the good ol' days.

Is there a Discord, Slack channel, or something where the smart, vocal people with different opinions hang out? If so, please let me know.

oiuplk
Founders should treat VCs like the service providers they are and not like bosses. The only “trick” to doing this is having some amount of success before raising money.

Corporations are controlled by boards so it’s not true that VCs control the company unless you sell them that right. You can refuse to ever give up power it just requires fortitude and conviction.

VCs are a temporary solution to the problem of funding technology companies. Replacements are already in play.

csa
This is a great idea in principle, but I think it rarely works unless your company is ridiculously hot.

If you go the VC route as a company that is not the new hotness, then it will be trivially easy for the VCs to end up controlling the company (the good ones don't actually want to do this). Any veteran VC has experienced founders who want to retain control, and they know how to slowly increase the temperature until it is too late for the frog to realize that it is being boiled.

Other than being thee new hotness, the only other way to maintain autonomy is bootstrapping. Frankly, many business seeking VC would probably have a much higher EV bootstrapping since they are either not a business that can scale at VC levels and/or only have access to mediocre VCs.

kayhi
If the top 5% is based on returns, couldn't a major factor be that they founders are not getting a good deal?

Companies will benefit greatly from the help of a good VC, but perhaps it is more nuanced.

csa
Screwing the founders is pretty much not a good way to maximize present or future returns for a VC.

The top VCs get great returns because they work with great teams who (usually) have great ideas, and these VCs serve as highly effective force multipliers.