The Greenspun article on his experience with VCs back in 2001 is interesting if you're in to that stuff and have not read it http://waxy.org/random/arsdigita/
VCs have some sort of superstar economics going. The highest potentials hit the superstars VCs first, and get picked up. Second tier goes to second tier VCs and so on. The market sorts itself out.
So when a first tier VC disses lower tiers for 'not adding value', he is probably stating the truth, but sadly there is no alternative. The superstars can't scale up without lowering the bars somewhere, so they don't. The companies looking for VC can't be too picky since no capital is no chance of traction. So in the end, you'll settle for the capital you can get and take the reduced value as a given. Remember that the outside option (no VC) gives no value, and the negative value is relative.
His criticism isn't that 2nd tier VCs have lower returns. It seems to me your point would make sense if his criticism was of 2nd tier VCs for lower returns. Since that isn't a fair comparison if they don't get a shot at the best deals.
I think his criticism is pretty obviously that VC often don't add value (no matter what tier they are at). The things mentioned in the article seem be criticisms of business as usually (not of some performers getting lower rates of return).
It strikes me he realizes some VCs provide great help. And sure the cash is often helpful in growing though the growing quickly may well not really be good for the business when it distorts the companies focus to making huge financial bets to get huge returns.
@dhh provides lots of good criticism of VC funding, in my opinion. Watching his activity or going through his history would provide more details on the problems created by accepting VC funding. Of course, lots of people with lots of money don't see things the same way he does.
This dynamic will tend to make "superstar" VCs look as if they're better (relative to other VCs) than they actually are. (Because every startup will want to be funded by them, so they get to pick the most promising ones, and if VCs have any ability to distinguish good prospects from bad then the superstars will tend to get better results than their rivals who funded the startups rejected by the superstars.)
It depends on your business model. For companies that require capital to build product before being able to sell, and thus don't have near term positive cash flow to pay off loans, debt is usually impossible to find. Only equity capital (i.e. VC or angel money) is willing to take that risk.
I run an exponentially growing fully automated business that is limited by my available operating capital. If VCs are useless (or finding a good one is a lottery), what are the other reasonable ways to raise capital (that don't eat all the profits nor want to control everything)?
I would prefer Vinod's brutal honesty to fake politeness any time.
Talk to a non-VC person with money to invest and who has shown that they are willing to take a risk. If what you have is real I am happy to talk to you about your business and if things stack up put my money where my mouth is.
Assuming that your question is not rhetorical, there are multiple ways to address this cash flow problem. You can focus on collecting revenue faster, offering new customers less generous payment terms, demanding payment up front or in advance, taking out loans against your receivables, asking vendors to finance your spending, converting a portion of employee compensation to a profit share that is payed out on a later date, finding strategic partners to provide financing or resources, etc. I hope this is helpful. There are many possibilities, but none are necessarily better than selling equity.
> You can focus on collecting revenue faster, offering new customers less generous payment terms, demanding payment up front or in advance,
It's worth adding that these in particular are good business practices with or without VCs, because:
1. It demonstrates that people will pay for your product. Nothing is worse than spending money making something only to discover nobody will pay for it.
2. It's aware of the 80/20 rule. Up-front payment does a good job of limiting you to the 20% of your client base who will make you 80% of your money. The clients who want things most on their terms, who will nickel-and-dime you, make unreasonable demands, and review you poorly to other clients, are going to balk at an up-front payment and go elsewhere, and that's a good thing. You don't need them. They'll weigh down your competitors and leave you more efficient.
Wealthy entrepreneurs or entrepreneurial/investor families (think family offices) can be good, if you want to raise third party capital. They usually take a longer term vision than a VC would, since they're basically one of the groups of people VCs raise from.
I'd prefer working with those over a VC any day of the week if possible. They're usually bring a lot more value to the table.
Well, maybe. I guess it depends on how you look at it. There are angels who spread their risk significantly and invest in a ton of startups (think, Ron Conway).
Then there are wealthy individuals/families (e.g. Bill Gates, or the Walton family) who have less formal investing guidelines but occasionally back good entrepreneurs. This could be through seed capital, growth capital, or capital for a private equity style leveraged buyout. Raising capital this way is much more about relationships than the VC game is. It's a lot less formal. These people usually want to (help you) build sustainable companies, nit you're not really competing against a ton of other people/deals (like you are with VC firms). Even if someone came to them with a decent idea, they probably wouldn't back them.
What amazes me about VCs is how passive they are about the whole process. Why sit and wait for talent to come to you? Why not go out and hire the best people and then put them to work with adequate funding and see what they come up with? If every start-up ends up pivoting as soon as they get funding why not bypass the whole process and just put a great group of people together and let them come up with something fantastic.
If the founders are wealthy is the company really bootstrapped, or just privately financed?
If VCs think the idea is worthless and execution is everything why waste time listening to pitches? Just hire the best people able to execute, give them the money and get out of the way.
It is true that it would take more work, but surely the rewards would make it worth trying. I can understand following the current modelled you are one of the tier 1 VC firms, but if you are tier 2 or 3 you need to do something different to succeed.
Sort of, but ef is acting like a pre-accelerator. The money (1100 pounds a month) for three months is not really serious either.
My idea was more go out and hire all the great people (they are not that hard to find, just hire), pay them well (none of this 50% of the market wage in return for 0.0002% of the company), and put them to work with the minimium of outside friction. If you went to hire talent with an offer of good pay, total freedom in business direction, minimal VC politics, and solid financial support you would be able to put together some amazing teams. On top of this you could give up listening to crazy pitches from spotty 22 year olds.
It is not that hard to identify the great people to hire if you are hiring people with a proven track record. I agree it is hard to identify which people with potential will be a success (ie the new graduates), but if you widen your search you should be able to identify those people who have actually built something great.
There are plenty of great Stanford students but they're going to come to you. The purpose of an elite education (these days) is to give people the confidence to go out into the world. This means that the overlooked talent is probably not going to fit the "Stanford Wallflower" bill, but be somewhere that most VCs wouldn't deign to look.
Driving across the street to Stanford "to identify and build new teams after seeing interactions" to scout talent isn't being proactive. It's what the rest of Sand Hill Road is already doing. If you're really serious about finding the best talent, broaden your search. Don't count the white Stanford males out, of course, but look in the "flyover" states, or for older programmers, or for women, or for parents who might be interested in programming because of the remote-work possibilities. Look outside of the US, even.
VCs are good at telling the 7s Who Look Like Them apart from the 5s Who Look Like Them, and that's about where it ends. That makes them better at assessing talent than a great many in the business world, but they're missing out on an incredible amount of information.
>VCs are good at telling the 7s Who Look Like Them apart from the 5s Who Look Like Them...
I don't understand this quip. Assuming you're talking about ability rather than attractiveness, it's odd that you leave out <5 or >7. Does that mean you think VCs have a blind spot for both superstars and low performers?
I thought that it was obvious that I was talking about ability. Why should it matter if the founders are attractive?
VCs can probably tell a 5 apart from a 3, but it doesn't matter because neither a 3 nor a 5 is someone you want to fund. They can't tell a 7 from a 9, is what I'm saying. If they're not dealing with people of similar pedigree and experience, they may not be able to tell a 9 from a 5, even.
Well, I suppose I'm curious then to know how you use this rating system, and what it means. I assume it's linear [1].
I think that "ranking people" is a fascinating topic in itself - unlike some, I do think there is validity to doing this although you have to be really careful to avoid bias, and to measure against the proper scale. I'd be interested to understand yours!
He has written a ton of stuff about VCs, programmers, etc. His riffs on the Gervais Principle are really good. He followed that up with some other gold.
The scale-of-10 stuff is his concept of how there is a mismatch of skill and power in the tech business world -- particularly between the programmer and the business folks. For example, highly-rated business people don't even work in tech -- they do other finance like private equity or hedge funds. That means that most of the top VCs are maybe 7s, and they're bitter about their relatively low status among their B-school peers. That also means that the top tech people (the 10s) struggle to find business people who are their equivalent of awesomeness. This is a short summary.. read the original stuff on the blog.
Some folks on HN do not like MO, so they seem to downvote him out of principle rather than based on the content. While I think that his tone can be terse at times (it seems to have gotten better in the past year or so), the content is often frighteningly spot on. I think that this makes some people uncomfortable.
I disagree -- undergrads at Stanford are smart -- smarter than my coevals when I was an undergrad -- and indeed more world-smart. But they are not really brilliant at identifying markets, and are not brilliant at knowing their own weaknesses. These blind spots cohere across the elite undergrad landscape. These are two things that intelligent investors can do very well.
Why look just at Stanford students? At best they have a lot of potential, but no track record. If you going to pay well and provide a great environment than you should be able to hire almost anyone you want who has any interest in working in a start-up. Bring the talent together and let them build.
The problem is in identifying the best people, especially when there might not be a strong correlation between things like academic performance or and entrepreneurial success.
It seems like screening for people who can build an MVP and a compelling pitch deck could be one of the best ways to do this.
i was not suggesting just recruiting the young with potential, but those people with a proven track record of getting things done. Engineers and designers that have years of proven success of building great products.
So, he thinks it's best for entrepreneurs to ramp up the volatility, because a 90% chance of failure with a 10% chance of $100M is the way to go. Advice from a guy with his own risk spread over a portfolio of such companies to a guy whose whole net worth is invested in one company that has a 90% chance of wipeout.
Hmm. Maybe there's something to that estimate he makes about how harmful VC advice tends to be.
Ironically, VCs prioritising "10% chance of $100M" as the way to go was exactly what I thought of when I saw the headline suggesting they actually tend to reduce the potential of the company
There's no shortage of perfectly viable $xx million businesses pushed into chasing an [ultimately optimistic] hypothesis there was a 10% chance of breakout success which, when the mass market turns out not to exist, leaves them with the potential to achieve nothing other than failure.
If life were only so simple, now it seems VCs are pushing founders to make the following bet: .1% chance of $5B+ and 99.9% chance of failure.
In short, lots of potential $100MM companies are being done in by VC greed.
This is only one data point, but I know an entrepreneur who was turned down by a blue chip VC because the VC said he saw a clear path for the biz to $100MM, but the path above that level was much murkier.
Sometimes you learn about a person implicitly more than his explicit intentional declarations. This is the same Vinod Koshla who seized a public beach, and a beautiful and rare one, to his own utility against the law. This says a lot about attitude to others, maybe in business too.
and sometimes you learn about a person by working with them. Long ago, Vinod was an investor and director of two of my early companies. He was helpful, supportive, polite and wonderful.
Low quality comments are consistently downvoted without remorse. Your response added nothing substantive or interesting for people to read on the comment page. You didn't even bother to use proper syntax. By contrast, you will note that your original comment, disagreeable as it may be to the other commentator and to the other friends of Mr. Khosa, has not been downvoted.
You need to think about it this way: historically, the comment pages of HN have made for very good, diverse, and interesting reading. One learns odd and varied details about historical technological decisions, rocket engine design, et cetera... anything may come up. The commentators on Hacker News include a wide variety of domain experts, mildly historical figures, legions upon legions of extremely experienced programmers, managers, entrepreneurs, and so on. This is what has drawn most of us here. The comments, ideas, and speculations produced by persons such as myself are fine, perhaps, but frankly, they're not nearly as interesting to read.
This leads us to one of the most frustrating oddities of the Hacker News website: you can't collapse the comments. If there's a tree structure of comments, every comment will take up at least a good thumb's width of screen space.
The consequence of this is that every comment is an imposition on the reader. Every comment needs to be able to account for itself. Posting on Hacker News is a performance, rather than a conversation. We're on stage, whether anyone wants us there or not, and unless we're trying to write words that other people might find valuable, unless we're at least trying, then yes, we will be swiftly downvoted to oblivion by everyone, including people exactly like ourselves. There may be annoyance behind it, but there's scarcely enough thought wasted for malice.
One-liners must be very informative or situationally relevant messages. And properly capitalized and punctuated. Or else they should go unwritten.
Non-billionaires take actions regularly based on the notion that they are right in their course, morally and or legally.
Now size that up to billionaire status. They too are likely to take actions based on thinking that they are in fact right in their decision making. The issue in that case: billionaires often tend to impact a lot of other people with their actions, because so much of what they do is outsized.
My issue might be with my neighbors on a single property line marker. Or maybe they think my trashcans are encroaching on their curb area, pick the issue.
The article also indicates he was paying a very large amount in liability taxes and maintaince for a road he possibly owned (it says $500k), and was only offered the ability to charge $2 for parking to offset that. Given, I'm not sure where the $500k comes from.
It also seems he was trying to restrict access to the road, not the beach.
Maybe he didn't own the road, but it seems you should be able to restrict access to a road you own, but that no one owns a beach, and it didn't actually say he restricted the beach.
Maybe that was the intent, but maybe it was due to problems with the cars parking along the road after leaving it open for two years.
I do believe most VCs can reduce the potential of the company when the founders have a cohesive vision for it already and know how to run it, and they do have an interest in saying they are better than the others :) So it is a lot about finding those that give good advice, but don't force it, and that's incredibly hard to judge in initial conversations with any of them.
I'd recommend talking to companies they are invested in and their fellow board members (i.e. the founders who created the tech) that work for companies they have invested in.
Basically, he entered into a contract as part of buying property and now he does not want to abide by it. Which suggests doing business with him is a terrible idea.
I have some relevant experience. My father owns a property with an easement, purchased from an attorney who worked in easement law, in a different jurisdiction: this man himself mistook some points of law, and last minute paperwork was required. At several levels of government, various departments use maps that clearly indicate (incorrectly) that my father does not own the easement, and the city at one time attempted to suggest that it was frontage. And this is regarding an easement whereupon there is a well-established thicket, not a road.
This brings me to the consideration that real estate agents are not lawyers, and that legal status of the easement might have been unclear or incorrectly represented when the purchase was made. Also, I think that if the road was being treated simultaneously as a liability and an obligation by whatever mix of regional law pertained, a legal confrontation would be completely understandable.
I do not know or assert that any of these things are the case, but I know that easements are complicated beasts, and that a simple violation of contract may not be the only explanation here.
What I gather from that is that this guy does not know how to monetize a road and/or run a public beach.
Build something along side the road. Build a strip mall and rent bays to surf shops and restaurants. For the amount of money the article claimed he spent he could have afforded to build a hotel or resort.
> Build a strip mall and rent bays to surf shops and restaurants
The government would not allow this to happen. The California Coastal Commission prohibits any such development. I've talked to a local architect who had his plans to remodel an existing single-family home in that area scuttled by the commission. That's why, when driving south after Half Moon Bay, you encounter essentially no coastal development until you hit Santa Cruz.
There are one or two shops scattered along the way but those are grandfathered in; as far as I can tell if it didn't exist 30-40 years ago, it never will. If Vinod Khosla proposed building a strip mall, anti-development activists from all of California would converge on Martin's Beach and chain themselves to the bulldozers while conducting a hunger strike while environmental groups would file at least three parallel lawsuits.
Put another way, SF bay area politics are non-intuitive.
(Note I'm not expressing a normative opinion about whether development should be allowed; I'm merely saying what is currently allowed.)
> Khosla bought the 53-acre property for $32.5 million in 2008 and kept the beach open to the public for two years despite the fact that he was paying $500,000 to $600,000 a year in maintenance costs and liability insurance.
> In 2010, after receiving county court orders -- which he believed were unfair -- to keep the beach access open 24/7 and charge visitors $2 for parking, Khosla ordered his property manager to close the gate permanently.
Seems like it's not so clear cut. I mean, he was eating 500-600k a year without complaint maintaining the property for the public. That's pretty generous. Seems it was a dispute over parking and fees...and considering how trivial $2 is compared to the 500k+ he was already paying it just feels like there's a bit more to this story than "Koshla is an evil 1%'r".
edit
So, it was exceptionally hard finding anything from Khosla himself on the issue. But I did find a few more details on why the beach was closed.
So, when he got the property he allowed the same access as the previous owners. Which was generally accessible during the day, but typically closed at night, during bad whether (often during winter), and when "inconvenient" which I assume is when property managers were on vacation or whatever. This level of access has been confirmed by the previous owners, the Deeney's, in their court testimony.
So, for some unknown reason, the county issued an order to the property manager for them to a) reduce parking fees to $2 (which is what they were in the 1970's) and b) to keep the gate open 24/7.
Khosla's managers/attorney's/whatever thought this was a significant historical change in access policy and so fought it, closing the property until the dispute was resolved.
Well, I guess putting armed guards to block access [http://en.wikipedia.org/wiki/Vinod_Khosla#Martin.27s_Beach_d...] paying to layers and financing black PR campaigns is expensive. No surprise it could be $500-600k. Or did he actually spend it on cleaning the beach? edit: Or had this $500-600k number been pulled out of thin air, just like 70% number?
According to the article, he spent the 500-600k in the years prior to the dispute when it was open for maintenance and liability insurance.
The dispute was over a court order to also provide parking at a required rate of $2. (just repeating the article that was linked, I'm no expert on the legal details of this case)
Yes but any of that 500-600k cost which was actually required of him could have easily been known by him at time of purchasing the property. Saying you don't want to pay the required upkeep on something because it only benefits others and not you personally after you get it is pretty assholish.
I updated my original post, but the case was never about that expense or about the level of access historically provided. It was about a court order that required a change to the level of access and support in comparison to what had been provided by him and all previous owners.
In that it told him he could ONLY charge $2 for parking vs the presumably free (EDIT: incorrect assumption on my part, as previous owners also charged a fee, but I can't find any indication that he was being limited to a lower fee than they charged) parking on the road people had been getting with previous owners....
Effectively the court was allowing him to recoup some of his cost with parking, just not at the rate he wanted.
Edit: Oh your original post referred to one up several more levels, when I wrote this response I thought it referred to the post I replied to, but noticed no significant modifications.
Yeah, it also required 24/7 access 365 days a year. Which was above and beyond what everyone else had provided in the past.
It also noted that, at the time, the area's use had declined significantly due to smelt fishing decline which is why the previous owner sold it.
So, when the dispute occurred, he'd been providing the same access as ever when a mandate came out of the blue saying he had to provide a significantly higher level of access than was historically required and whatever extra costs that might incur on a beach that was largely unused at the time overall and during the periods of closer in particular.
So he was like "wtf, why?" in a very legal sense (the only sense that would work in legal disputes). And _only_ after the case went viral as some kind of down with the 1%'rs! rally cry did people actually start bothering to go visit the site...to make a point.
I'm sure the novelty will wear off and then they'll be some property manager that has to sit up there through the night and winter for....nobody.
The 24/7 access 365 days a year wasn't mentioned in the article you linked that you said you got 'all this' from. So would you please provide that source. I see them saying it needed to be open during the winter, and in previous reports I read in one of the other links in this thread that he had tried to close it all winter but has more recently had it open some days during the winter.
Also I fail to see how the decline of the areas use would have anything to do with its availability, this isn't a use it or lose it situation. Can you explain how reduced usage of the beach should effect its availability at all?
There are a lot of unsupported statements going on for both sides if I take the ones that they seem to agree on I get something of a narrative like this.
He bought the property.
He kept the beach open similar to the previous owners.
Tried to charge $X amount for parking.
People complained, and the court told him he could only charge $2.
He said well fuck you guys I'll just close the beach.
He won a case to close the beach.
He lost a 2nd case forcing him to open the beach.
He lost a 3rd beach forcing him to open the beach.
He started opening the beach sometimes. Is it more or less than the previous owners? Well this seems to be where the core disagreement is with no real support or evidence provided to the public for either side.
I think he comes off sounding like a dick, especially at the end of that article that quotes him repeatedly which you linked, where he tries to re-frame the issue as one of conservation. You apparently see him as an entitled land owner, we clearly disagree. However if you would like to continue this, which there is no need to as I believe we have reached an impasse I would ask that any numbers you use are ones I can verify. Thank you.
Vinod had bought services of a "public-relation management company" to address the issue of this negative PR that he had in regards with the Martin's Beach. That's where 500k number might have came from. Taken out of the air, just like 70% number?
And I wouldn't be surprised that this PR company would try to make a "hero" out of Vinod. And present him as a "hero, who is spending his own private money to support local surfers".
If you want to check facts, don't read blogs/potentially paid articles. Just go to the facts that a non-profit public foundation, created to protect our beaches provides. This foundation is generally spends its efforts on organizing beach cleanups. These are unambiguously good guys. In that case they've had to spend efforts on a lawsuit :(. Anyway, as a public non-profit they just don't have the ability to misrepresent facts or tell fat lies (unlike privately hired PR companies, layers or bloggers). So I'd just trust the facts as they put them:
Regardless of your attitudes towards VCs, purely from a statistical perspective this makes sense. If you consider only a small percentage of individuals are capable of running or leading a high-growth company to millions or billions of dollars of revenue, then for every VC you add to your board, you have a greater chance of adding someone who isn't capable of adding value. Say only 1 out of every 10 individuals are rockstars in the startup/investing world. Assuming you and your co-founder are those rock-stars, the other 3 people on your 5 person board are only going to drag you down ;-)
one of my best devs was an english major. So ....I don't discount ANYONE for being an english major.
edit, another point: I wish there was more advice on how to separate good from bad advice based on more than what is described in the article text - english major, not having been a CEO etc.
I've noticed that some of the best devs come from the humanities, too. I think a lot of it has to do with a certain calm, centered approach to learning. If you watch a young CS major "learn" something, they approach it with a manic, wild-eyed approach where they try to do things as fast as possible because their time is so valuable, they don't read docs because they don't need them, and so on.
Confession: I approached Docker like a maniac before humbly working my way through the official Docker user guide slowly and methodically, without distractions, doing all the exercises (and taking notes with questions). When I look back, I've done this with Maven and git, too. In every case my frantic scramble up the learning curve left me with broken, incomplete and unreliable knowledge that had to be repaired later. Lesson learned!
> In the first sentence, the writer told me he was majoring in English literature, but felt he needed to teach me science. (I sighed a bit, for I knew very few English Lit majors who are equipped to teach me science, but I am very aware of the vast state of my ignorance and I am prepared to learn as much as I can from anyone, so I read on.)
Wow, was surprised to find the beach comment on the top :-) Amongst people who know Vinod I have heard a common theme but he is included in the list of inhibiting potential for second guessing everything, and creating an unhealthy tension in the founding teams. But isn't that the way of things? VC's want their investment to thrive, and because they have money and you don't they will always assume they know how to make it thrive and you don't. The only difference is how much leeway they give you.
Why are you surprised? This issue is still outstanding, Vinod layers are still trying to block access to this public beach. Also it looks like he is violating the judge decision by "only opening the road sporadically".
Because I felt it didn't really add anything to the more important question which is "Do VC's add value or subtract value to your company?" For me, I think about that question from time to time and try to find empirical evidence to back up one side of the argument or the other. I will admit however that "Good Character" does not seem to correlate at all with "Effectiveness" in VC circles, there are bastards and there are saints and it doesn't seem to really effect the success or lack thereof of the companies they fund.
Say what you want about Vinod Khosla, but that doesn't make him wrong. Disproving what he said would make him wrong.
I'm not a fan of the man personally, but I think he's right--and it's not surprising. When you bring in a VC, you get a team which is personally, emotionally, and temporally invested in the project, and you bring in an outside person for whom this is only a small part of his larger financial investments and give him a significant amount of control. Of course taking away control of a project from the people who are most invested in its success is going to decrease its chances of success. I'm not sure why this would be a topic of debate.
Because it doesn't matter how personally, emotionally vested you are in a company if you don't understand how to run one, how to monetize, to find new customers, hire good managers and leaders, or a whole slew of other things which your team at a startup hasn't done before but a good investor knows how to advise on, or has connections with advisors who do. Success of a company is determined by a lot more than how invested your team is in the project.
It is, but the point was more that bringing in an outside person who may be less invested but has some skill that falls outside of the team's existing range isn't necessarily going to decrease your chance of success. We have advisors and incubators for a reason.
Most VCs could be safely ignored as toxic (if not useless) if they were restricted to investing their own money. The fact that they're allowed to gamble with retirement pension funds (which are sometimes insured by the state) is troublesome.
I sense a strong dislike for Vinod Khosla the person himself in almost all the responses irrespective of his actions. Are a few incidents like the martin's beach and some statistics which he pulls without references the only reason for it. The responses to beach discussion and statistics themselves are very hostile like "If he dosen't like shelling out $500k for maintainence of a public property he should not have bought it" which I think is unfair and "my best dev is an english major" when he clearly meant that for Business consultants and Journalists etc. And can't one pull a number based on a lifetime of personal experience without backing it up with statistical data? Don't we all do that in everyday lives? Even when someone mentions having a good personal experience with him, it gets discounted.
I have never been to the valley. Genuinely interested in knowing what makes a person so universally hated on this fourm. Unless he is the Donald Trump of the Valley. In which case I understand.
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[ 4.8 ms ] story [ 164 ms ] threadSo when a first tier VC disses lower tiers for 'not adding value', he is probably stating the truth, but sadly there is no alternative. The superstars can't scale up without lowering the bars somewhere, so they don't. The companies looking for VC can't be too picky since no capital is no chance of traction. So in the end, you'll settle for the capital you can get and take the reduced value as a given. Remember that the outside option (no VC) gives no value, and the negative value is relative.
I think his criticism is pretty obviously that VC often don't add value (no matter what tier they are at). The things mentioned in the article seem be criticisms of business as usually (not of some performers getting lower rates of return).
It strikes me he realizes some VCs provide great help. And sure the cash is often helpful in growing though the growing quickly may well not really be good for the business when it distorts the companies focus to making huge financial bets to get huge returns.
@dhh provides lots of good criticism of VC funding, in my opinion. Watching his activity or going through his history would provide more details on the problems created by accepting VC funding. Of course, lots of people with lots of money don't see things the same way he does.
I would prefer Vinod's brutal honesty to fake politeness any time.
It's worth adding that these in particular are good business practices with or without VCs, because:
1. It demonstrates that people will pay for your product. Nothing is worse than spending money making something only to discover nobody will pay for it.
2. It's aware of the 80/20 rule. Up-front payment does a good job of limiting you to the 20% of your client base who will make you 80% of your money. The clients who want things most on their terms, who will nickel-and-dime you, make unreasonable demands, and review you poorly to other clients, are going to balk at an up-front payment and go elsewhere, and that's a good thing. You don't need them. They'll weigh down your competitors and leave you more efficient.
I'd prefer working with those over a VC any day of the week if possible. They're usually bring a lot more value to the table.
Then there are wealthy individuals/families (e.g. Bill Gates, or the Walton family) who have less formal investing guidelines but occasionally back good entrepreneurs. This could be through seed capital, growth capital, or capital for a private equity style leveraged buyout. Raising capital this way is much more about relationships than the VC game is. It's a lot less formal. These people usually want to (help you) build sustainable companies, nit you're not really competing against a ton of other people/deals (like you are with VC firms). Even if someone came to them with a decent idea, they probably wouldn't back them.
I worked in several companies bootstrapped by very wealthy founders.
If VCs think the idea is worthless and execution is everything why waste time listening to pitches? Just hire the best people able to execute, give them the money and get out of the way.
My idea was more go out and hire all the great people (they are not that hard to find, just hire), pay them well (none of this 50% of the market wage in return for 0.0002% of the company), and put them to work with the minimium of outside friction. If you went to hire talent with an offer of good pay, total freedom in business direction, minimal VC politics, and solid financial support you would be able to put together some amazing teams. On top of this you could give up listening to crazy pitches from spotty 22 year olds.
Note also that the definition of great is a function of (atleast) timing and domain knowledge as well as raw ability.
I know one who hosts his/her own 'career sessions' for selected Stanford students -- mostly to identify and build new teams after seeing interactions.
Driving across the street to Stanford "to identify and build new teams after seeing interactions" to scout talent isn't being proactive. It's what the rest of Sand Hill Road is already doing. If you're really serious about finding the best talent, broaden your search. Don't count the white Stanford males out, of course, but look in the "flyover" states, or for older programmers, or for women, or for parents who might be interested in programming because of the remote-work possibilities. Look outside of the US, even.
VCs are good at telling the 7s Who Look Like Them apart from the 5s Who Look Like Them, and that's about where it ends. That makes them better at assessing talent than a great many in the business world, but they're missing out on an incredible amount of information.
I don't understand this quip. Assuming you're talking about ability rather than attractiveness, it's odd that you leave out <5 or >7. Does that mean you think VCs have a blind spot for both superstars and low performers?
VCs can probably tell a 5 apart from a 3, but it doesn't matter because neither a 3 nor a 5 is someone you want to fund. They can't tell a 7 from a 9, is what I'm saying. If they're not dealing with people of similar pedigree and experience, they may not be able to tell a 9 from a 5, even.
I think that "ranking people" is a fascinating topic in itself - unlike some, I do think there is validity to doing this although you have to be really careful to avoid bias, and to measure against the proper scale. I'd be interested to understand yours!
[1] They aren't always: https://en.wikipedia.org/wiki/Lev_Landau#Landau.27s_List
He has written a ton of stuff about VCs, programmers, etc. His riffs on the Gervais Principle are really good. He followed that up with some other gold.
The scale-of-10 stuff is his concept of how there is a mismatch of skill and power in the tech business world -- particularly between the programmer and the business folks. For example, highly-rated business people don't even work in tech -- they do other finance like private equity or hedge funds. That means that most of the top VCs are maybe 7s, and they're bitter about their relatively low status among their B-school peers. That also means that the top tech people (the 10s) struggle to find business people who are their equivalent of awesomeness. This is a short summary.. read the original stuff on the blog.
Some folks on HN do not like MO, so they seem to downvote him out of principle rather than based on the content. While I think that his tone can be terse at times (it seems to have gotten better in the past year or so), the content is often frighteningly spot on. I think that this makes some people uncomfortable.
It seems like screening for people who can build an MVP and a compelling pitch deck could be one of the best ways to do this.
Hmm. Maybe there's something to that estimate he makes about how harmful VC advice tends to be.
There's no shortage of perfectly viable $xx million businesses pushed into chasing an [ultimately optimistic] hypothesis there was a 10% chance of breakout success which, when the mass market turns out not to exist, leaves them with the potential to achieve nothing other than failure.
In short, lots of potential $100MM companies are being done in by VC greed.
This is only one data point, but I know an entrepreneur who was turned down by a blue chip VC because the VC said he saw a clear path for the biz to $100MM, but the path above that level was much murkier.
http://rickyreports.com/archives/kinoshitayoshihiko/
http://www.huffingtonpost.com/2014/09/27/martins-beach-vinod...
This leads us to one of the most frustrating oddities of the Hacker News website: you can't collapse the comments. If there's a tree structure of comments, every comment will take up at least a good thumb's width of screen space.
The consequence of this is that every comment is an imposition on the reader. Every comment needs to be able to account for itself. Posting on Hacker News is a performance, rather than a conversation. We're on stage, whether anyone wants us there or not, and unless we're trying to write words that other people might find valuable, unless we're at least trying, then yes, we will be swiftly downvoted to oblivion by everyone, including people exactly like ourselves. There may be annoyance behind it, but there's scarcely enough thought wasted for malice.
One-liners must be very informative or situationally relevant messages. And properly capitalized and punctuated. Or else they should go unwritten.
Now size that up to billionaire status. They too are likely to take actions based on thinking that they are in fact right in their decision making. The issue in that case: billionaires often tend to impact a lot of other people with their actions, because so much of what they do is outsized.
My issue might be with my neighbors on a single property line marker. Or maybe they think my trashcans are encroaching on their curb area, pick the issue.
Billionaires generate billionaire-size problems.
"If you want to know what a man’s like, take a good look at how he treats his inferiors, not his equals."
It also seems he was trying to restrict access to the road, not the beach.
Maybe he didn't own the road, but it seems you should be able to restrict access to a road you own, but that no one owns a beach, and it didn't actually say he restricted the beach.
Maybe that was the intent, but maybe it was due to problems with the cars parking along the road after leaving it open for two years.
I do believe most VCs can reduce the potential of the company when the founders have a cohesive vision for it already and know how to run it, and they do have an interest in saying they are better than the others :) So it is a lot about finding those that give good advice, but don't force it, and that's incredibly hard to judge in initial conversations with any of them.
I'd recommend talking to companies they are invested in and their fellow board members (i.e. the founders who created the tech) that work for companies they have invested in.
http://en.wikipedia.org/wiki/Easement
Basically, he entered into a contract as part of buying property and now he does not want to abide by it. Which suggests doing business with him is a terrible idea.
This brings me to the consideration that real estate agents are not lawyers, and that legal status of the easement might have been unclear or incorrectly represented when the purchase was made. Also, I think that if the road was being treated simultaneously as a liability and an obligation by whatever mix of regional law pertained, a legal confrontation would be completely understandable.
I do not know or assert that any of these things are the case, but I know that easements are complicated beasts, and that a simple violation of contract may not be the only explanation here.
Build something along side the road. Build a strip mall and rent bays to surf shops and restaurants. For the amount of money the article claimed he spent he could have afforded to build a hotel or resort.
This is quite possibly the worst idea there is.
The government would not allow this to happen. The California Coastal Commission prohibits any such development. I've talked to a local architect who had his plans to remodel an existing single-family home in that area scuttled by the commission. That's why, when driving south after Half Moon Bay, you encounter essentially no coastal development until you hit Santa Cruz.
There are one or two shops scattered along the way but those are grandfathered in; as far as I can tell if it didn't exist 30-40 years ago, it never will. If Vinod Khosla proposed building a strip mall, anti-development activists from all of California would converge on Martin's Beach and chain themselves to the bulldozers while conducting a hunger strike while environmental groups would file at least three parallel lawsuits.
Put another way, SF bay area politics are non-intuitive.
(Note I'm not expressing a normative opinion about whether development should be allowed; I'm merely saying what is currently allowed.)
Land is usually easy monetize, even after licenses and regulations, why does this billionaire have such trouble?
> Khosla bought the 53-acre property for $32.5 million in 2008 and kept the beach open to the public for two years despite the fact that he was paying $500,000 to $600,000 a year in maintenance costs and liability insurance.
> In 2010, after receiving county court orders -- which he believed were unfair -- to keep the beach access open 24/7 and charge visitors $2 for parking, Khosla ordered his property manager to close the gate permanently.
Seems like it's not so clear cut. I mean, he was eating 500-600k a year without complaint maintaining the property for the public. That's pretty generous. Seems it was a dispute over parking and fees...and considering how trivial $2 is compared to the 500k+ he was already paying it just feels like there's a bit more to this story than "Koshla is an evil 1%'r".
edit
So, it was exceptionally hard finding anything from Khosla himself on the issue. But I did find a few more details on why the beach was closed.
So, when he got the property he allowed the same access as the previous owners. Which was generally accessible during the day, but typically closed at night, during bad whether (often during winter), and when "inconvenient" which I assume is when property managers were on vacation or whatever. This level of access has been confirmed by the previous owners, the Deeney's, in their court testimony.
So, for some unknown reason, the county issued an order to the property manager for them to a) reduce parking fees to $2 (which is what they were in the 1970's) and b) to keep the gate open 24/7.
Khosla's managers/attorney's/whatever thought this was a significant historical change in access policy and so fought it, closing the property until the dispute was resolved.
I got all this from the following article: http://www.mercurynews.com/san-mateo-county-times/ci_2616631...
The dispute was over a court order to also provide parking at a required rate of $2. (just repeating the article that was linked, I'm no expert on the legal details of this case)
Effectively the court was allowing him to recoup some of his cost with parking, just not at the rate he wanted.
Edit: Oh your original post referred to one up several more levels, when I wrote this response I thought it referred to the post I replied to, but noticed no significant modifications.
It also noted that, at the time, the area's use had declined significantly due to smelt fishing decline which is why the previous owner sold it.
So, when the dispute occurred, he'd been providing the same access as ever when a mandate came out of the blue saying he had to provide a significantly higher level of access than was historically required and whatever extra costs that might incur on a beach that was largely unused at the time overall and during the periods of closer in particular.
So he was like "wtf, why?" in a very legal sense (the only sense that would work in legal disputes). And _only_ after the case went viral as some kind of down with the 1%'rs! rally cry did people actually start bothering to go visit the site...to make a point.
I'm sure the novelty will wear off and then they'll be some property manager that has to sit up there through the night and winter for....nobody.
Also I fail to see how the decline of the areas use would have anything to do with its availability, this isn't a use it or lose it situation. Can you explain how reduced usage of the beach should effect its availability at all?
There are a lot of unsupported statements going on for both sides if I take the ones that they seem to agree on I get something of a narrative like this.
He bought the property.
He kept the beach open similar to the previous owners.
Tried to charge $X amount for parking.
People complained, and the court told him he could only charge $2.
He said well fuck you guys I'll just close the beach.
He won a case to close the beach.
He lost a 2nd case forcing him to open the beach.
He lost a 3rd beach forcing him to open the beach.
He started opening the beach sometimes. Is it more or less than the previous owners? Well this seems to be where the core disagreement is with no real support or evidence provided to the public for either side.
I think he comes off sounding like a dick, especially at the end of that article that quotes him repeatedly which you linked, where he tries to re-frame the issue as one of conservation. You apparently see him as an entitled land owner, we clearly disagree. However if you would like to continue this, which there is no need to as I believe we have reached an impasse I would ask that any numbers you use are ones I can verify. Thank you.
And I wouldn't be surprised that this PR company would try to make a "hero" out of Vinod. And present him as a "hero, who is spending his own private money to support local surfers".
If you want to check facts, don't read blogs/potentially paid articles. Just go to the facts that a non-profit public foundation, created to protect our beaches provides. This foundation is generally spends its efforts on organizing beach cleanups. These are unambiguously good guys. In that case they've had to spend efforts on a lawsuit :(. Anyway, as a public non-profit they just don't have the ability to misrepresent facts or tell fat lies (unlike privately hired PR companies, layers or bloggers). So I'd just trust the facts as they put them:
http://www.surfrider.org/campaigns/entry/open-martins-beach#...
http://martinsbeach.blogspot.com/p/get-involved.html
http://martinsbeach.blogspot.com/
It's amazing really how much this guy subs the press. He acts as the entrepreneur's friend when the truth in the Valley is the exact opposite.
Beware.
Vinod Khosla: Be Wary of “Stupid Advice”
that's like saying:
Donald Trump: Be Wary of "Gold Diggers"
one of my best devs was an english major. So ....I don't discount ANYONE for being an english major.
edit, another point: I wish there was more advice on how to separate good from bad advice based on more than what is described in the article text - english major, not having been a CEO etc.
Confession: I approached Docker like a maniac before humbly working my way through the official Docker user guide slowly and methodically, without distractions, doing all the exercises (and taking notes with questions). When I look back, I've done this with Maven and git, too. In every case my frantic scramble up the learning curve left me with broken, incomplete and unreliable knowledge that had to be repaired later. Lesson learned!
> In the first sentence, the writer told me he was majoring in English literature, but felt he needed to teach me science. (I sighed a bit, for I knew very few English Lit majors who are equipped to teach me science, but I am very aware of the vast state of my ignorance and I am prepared to learn as much as I can from anyone, so I read on.)
Tell that to Jack Ma.
http://martinsbeach.blogspot.com/search?updated-min=2015-01-...
If you feel that this is not how it should be: http://martinsbeach.blogspot.com/p/get-involved.html
I'm not a fan of the man personally, but I think he's right--and it's not surprising. When you bring in a VC, you get a team which is personally, emotionally, and temporally invested in the project, and you bring in an outside person for whom this is only a small part of his larger financial investments and give him a significant amount of control. Of course taking away control of a project from the people who are most invested in its success is going to decrease its chances of success. I'm not sure why this would be a topic of debate.
I have never been to the valley. Genuinely interested in knowing what makes a person so universally hated on this fourm. Unless he is the Donald Trump of the Valley. In which case I understand.