Comments on the ones I found interesting (OP's already pretty brief)
#1 Lower management fees - Great idea from my outside perspective, but it'd worth knowing where those fees actually go in the first place. Some of it might even be useful (e.g spending time networking incurs costs - conference fees, travel, etc c.f #10)
#2 Keep a records of all employees in investee companies - Hmmm, nice idea but not too sure about the data-protection issues. As an employee, do I want my company's investors keeping tabs on me? Also, as a CEO, do I want my investors to keep tabs on my employees? What if we disagree about the impending death of the company and they try to pre-emptively poach someone for another portfolio company? (Perhaps this already happens).
#4 Have everyone tweet/blog authentically - Not convinced that all people in firm need to do this. One or two high profile folks should be enough. Public writing is not easy so leave it to those who want to do it.
#7 Have offices that look and cost like startup offices - If you're running a big VC firm, I'm not sure you can get away with 'startup' offices. Startup office are cheap because they have to be. Not necessarily because it's the best way for the company to operate. I see no reason why a VCs office needs to be anything like a startup's office.
#11 Have far fewer meetings with startups - i.e kiss fewer frogs. I don't think this works. You only get to do this if you're a very well known, successful VC because then good deals find you. Otherwise you need to be meeting lots of startups.
#14 Use brand to...recruit top talent (particularly engineers) from top schools [for portfolio companies]... - This is quite interesting, but I don't see it being particularly successful. People want to join companies, not necessarily join whatever portfolio company the VC thinks they might be useful for. It could also complicate the company dynamic e.g who does this engineer really report to? If there's a dispute, then what happens?
Edit: Removed the ones I didn't have many comments on
On #2 & #14 in correlation - its a terrific idea to help startups build their team. Hiring is hard in early stages, less known, no time to dedicate on choosing candidates, fear of recruiting the wrong person etc.
Employees define the culture and a few key employees do change the scene for the startup at least on execution which is critical. Many of them might not be inclined or equipped to be CEO's but they are great contributors in the system. A relation/connection with the investor can easily convince these excellent talent to bet on less known startups at early stage.
While I don't agree with the original point either, VC's most definitely hold a leadership position within a company. After all they always a board member and two or three VC's typically represent the majority shareholder block.
I've seen it go both ways. I've seen VC's lead companies to huge exits, as well as lead companies straight into the ground.
i did not consider the fact that they hold a board position and represent the majority shareholder block and because of that they have an influence on the company culture. i was wrong and retract my statement accordingly.
The financial anatomy of VC firms came as a surprise. It wasn't till I read "mastering the vc game"# that I understood how fucked things are.
The strucure breeds mediocrity and the culture that founders hate.
Unfortunately, the people that need convincing are investors in VC firms. Bad returns are the only thing that will convince them. Many regard the category of VC as doomed to significantly shrink; this small chunk of finance in general can't support itself. There are more VC firms than successful exits.
Well, more VC firms than > $100 million exits over the last 10 or whatever years.
I agree there's plenty wrong (as you'll find with any industry or its institutions), but I'm not entirely sure you can blame VCs as a whole for their terrible recent results. Not only does it include two nasty recessions (the one early in the last decade was particularity focused in the areas VCs invest(ed) in), but the important of the IPO exit slamming shut cannot be overemphasized.
Venture capital had a great run from the end of the '50s to the beginning of the last decade, but rules of the game have changed and so will the industry. And as you note, most everyone is betting on a significant shrink as one of the changes.
There's a limit to the number of boards a partner can stand to be on simultaneously, which means if investment = board seat, the number of investments per fund is limited. And if fund sizes are big, that means the average investment has to be big. Which means you have to get a large percentage of each company to generate the returns you need.
FRC is one of our company's VCs. I have no insight into their accounting methods (#9), but they seem to hit all of the others except "have far fewer meetings with startups" (#11).
I find the tips relating to "VC as Staffing Agency" the most interesting. I wonder if this stems more from the NYC startup issue of competing with wall street for talent. If the focus is working for a portfolio company of [X], rather than startup [Y], it gives some brand cover for recruiting. It also allows startups to pool resources for recruiting by sending one recruiter to schools for the portfolio rather than each startup having to spare an employee for a few days to give a canned talk.
27 comments
[ 3.0 ms ] story [ 83.7 ms ] thread#1 Lower management fees - Great idea from my outside perspective, but it'd worth knowing where those fees actually go in the first place. Some of it might even be useful (e.g spending time networking incurs costs - conference fees, travel, etc c.f #10)
#2 Keep a records of all employees in investee companies - Hmmm, nice idea but not too sure about the data-protection issues. As an employee, do I want my company's investors keeping tabs on me? Also, as a CEO, do I want my investors to keep tabs on my employees? What if we disagree about the impending death of the company and they try to pre-emptively poach someone for another portfolio company? (Perhaps this already happens).
#4 Have everyone tweet/blog authentically - Not convinced that all people in firm need to do this. One or two high profile folks should be enough. Public writing is not easy so leave it to those who want to do it.
#7 Have offices that look and cost like startup offices - If you're running a big VC firm, I'm not sure you can get away with 'startup' offices. Startup office are cheap because they have to be. Not necessarily because it's the best way for the company to operate. I see no reason why a VCs office needs to be anything like a startup's office.
#11 Have far fewer meetings with startups - i.e kiss fewer frogs. I don't think this works. You only get to do this if you're a very well known, successful VC because then good deals find you. Otherwise you need to be meeting lots of startups.
#14 Use brand to...recruit top talent (particularly engineers) from top schools [for portfolio companies]... - This is quite interesting, but I don't see it being particularly successful. People want to join companies, not necessarily join whatever portfolio company the VC thinks they might be useful for. It could also complicate the company dynamic e.g who does this engineer really report to? If there's a dispute, then what happens?
Edit: Removed the ones I didn't have many comments on
edit: nevermind
Some of the questions raised are interesting, and add to the discussion considerably.
Employees define the culture and a few key employees do change the scene for the startup at least on execution which is critical. Many of them might not be inclined or equipped to be CEO's but they are great contributors in the system. A relation/connection with the investor can easily convince these excellent talent to bet on less known startups at early stage.
Edit: rephrased
I don't really get this one. It seems like great advice for the CEO of a company, but not for a venture capitalist?
my second point is that the VC is not really leadership so the example the VC sets is irrelevant.
I've seen it go both ways. I've seen VC's lead companies to huge exits, as well as lead companies straight into the ground.
The strucure breeds mediocrity and the culture that founders hate.
Unfortunately, the people that need convincing are investors in VC firms. Bad returns are the only thing that will convince them. Many regard the category of VC as doomed to significantly shrink; this small chunk of finance in general can't support itself. There are more VC firms than successful exits.
# horrible name, good book
I agree there's plenty wrong (as you'll find with any industry or its institutions), but I'm not entirely sure you can blame VCs as a whole for their terrible recent results. Not only does it include two nasty recessions (the one early in the last decade was particularity focused in the areas VCs invest(ed) in), but the important of the IPO exit slamming shut cannot be overemphasized.
Venture capital had a great run from the end of the '50s to the beginning of the last decade, but rules of the game have changed and so will the industry. And as you note, most everyone is betting on a significant shrink as one of the changes.
The "own x%" thing has to do with LPs and is probably unavoidable.
FRC is one of our company's VCs. I have no insight into their accounting methods (#9), but they seem to hit all of the others except "have far fewer meetings with startups" (#11).