This helped my understanding of VC/founder relation much better. Thanks for putting a broader perspective to the situation described in the original post.
Yeah, good point... That is a big (biggest?) part of a typical VC's way of thinking. Similarly on the founder's side is the "emotional control" factor in determining exits and decisions in spite of the terms and VC's objectives. Have you seen any posts about that aspect?
That's a nice overview but IMO it fails to take into account how the founders (oftentimes inadvertently) influence how helpful/harmful a VC is.
The most common (negative) example of this I've seen is when founders sell the VC on the solution, not the problem they're solving.
Everything starts out fine (you have a VC who is really excited to help you build and sell product X, even if they don't really care about problem Y). But then you realise that actually, the market wants you to pivot slightly to product Z to solve the same problem Y.
And that's when the VC pivots from being helpful to harmful.
There are probably multiple other examples of how founders can influence the value-add of their VCs, but that's the big one that springs to my mind. And I bet it accounts for 90% of the 'harmful' instances.
These are great points. Someone else addressed much of it but one thing to add is founders can actually sniff out each others' BS, sometimes better than career VCs. Seems to be common knowledge in SV that builders make the best investors: https://www.fastcompany.com/90266921/alexis-ohanian-on-why-f...
Hmm, was the feud has anything to do with whom their investors backed to be the CEO? I am not so sure because it's common to see that some VCs would prefer to have a co-founder as the CEO instead of bringing an outsider, who might not understand the business model.
The OP's advice wasn't meant for VCs, it was for the founders. Their role is very different and the advice looks sound to me. Or do you disagree with it from founders' perspective?
I think the point here is, a Founder-VC is better than a traditional VC because the Founder-VC understands ”the life and art of being in the trenches”.
When a founder becomes a VC, his interests in the company he invests in are different than the founders interests. That difference in interest should be obvious but since they portray themselves as founders first, which they were before, instead as VC, which they are now, it confuses that distinction. Agree that it was written a bit too strongly as an attack since I don’t think VCs are malicious when they do that (most at least).
If you don’t believe that, then see other comments that describe how founders in almost all other places other than Bay Area (Boston, NYC) prefer bootstrapping you VC.
Though one way I’m not convinced by the article, in my view what keeps the tension low and manageable in the Bay Area is the amount of money and small number of major firms, which makes treating founders well a key long term strategy, otherwise they’d get less deals (supply vs demand) rather than the power law distributions of this “phase” of tech firms. This long term strategy hasn’t evolved in Boston, NYC, Atlanta, etc, so VCs don’t play up their former founder roles, and the tension between VC and startup is easier to see.
Anyway, it’s not a bad thing, I would question the deal making abilities of founders who don’t see it, and just recognizing these tensions and finding win-win ways to resolve them is a woefully unrecognized part of growing a business.
1. I founded a company called Evernet in the 1980s, funded by Kleiner Perkins and others. Vinod negotiated against at least one founder, me, hard. Then KP made sad but traditional VC errors along the lines of changing the company's strategy from a good idea to a bad one, bringing in the wrong operating management and all that.
2. So I tracked news and anecdotes. Vinod prided himself on being a tough negotiator on behalf of his portfolio companies. But various other stories of negotiating hard against entrepreneurs were out there.
I should clarify that in the 1980s, even more than recently, there was a general screw-the-founder philosophy among VCs. I once asked a popular and likeable VC what some rules of thumb were for equity splits. After some back and forth, the VC said "You don't get it, Curt -- it's whatever we can get away with." But Vinod seemed like a particularly tough exemplar of the trend.
3. I advise 20-30+ tech companies at a time. Most are VC-backed startups. Khosla is the 2nd-worst target of negative VC anecdotes I hear, details of which must however remain confidential.
Disagree. I think some of these VCs are just trigger-happy when it comes to dealing with founders. I don't know why this is the case; may be they think it's easy and they know better.
How often do you hear VCs talk about how much they're on the founder's side like Vinod Khosla. At almost every turn, you'll hear Vinod go on about his reverence for founders. He does however add that this is not always the case. Sometimes, he says, founders must be asked to leave. When Vinod tells you to step aside, I think he'd most likely be right because you know his intentions aren't malicious. Do I think it had gotten to that point with Travis? My answer would be no.
I think one of the most interesting paragraphs in this essay is the one discussing where VC money comes from. This seems to be something that is not very clear on HN, and without understanding who's money it is and who is spending it, it is hard to understand the incentives behind VCs, which seems like an important thing to understand for anyone contemplating a startup.
It's very interesting hearing a story from the VC's side. One always reads about the trials and tribulations of startups trying to raise capital, but I've never considered that there might be similar issues and competition on the investors' side.
Thanks! It does explain it. It's an interesting concept for sure; I guess VCs want to make sure the money they are investing is as safe as possible, and taking a hard look at the engineering behind the company is a part of the due dilligence. (If I understood the business model correctly). And startups are probably not too keen on sharing their code and IP like that but the VCs will pressure them to do it. I kinda like it :)
I think your view while mostly valid, is too simplistic in regards to the role of VCs.
The relationship between a VC and an entrepreneur is symbiotic, not parasitic. The VC has collected extra cash he wants to risk to produce good returns on. The entrepreneur wants to build a business but does not have the funds to see it through the growth phase on his/her own. The two of you can get together to produce something that neither of you could have done individually. Each getting a slice of a pie that would not have existed if you had not worked together.
It sounds like you're defending a particular scenario that I'm not understanding.
Do you agree that there exist hypothetical situations in which a company and a VC firm investing in said company might have differing interests? Doesn't it follow that someone with responsibilities to both parties has a conflict of interest situation?
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