The entire point of a vc is to fund many and hope a success works out. Read on what Paul Graham said about ycomb, have shit tons of people dig holes to find treasure.
You missed the point. Using the analogy from the article, if you take YC money (or any VC money) you need to dig until you find a massive pile of treasure, if you dig and find a small pile of treasure you have to ignore it and start over because VCs are not looking for small piles of treasure, they only care about massive ones. Ignore the fact that the small pile of treasure could actually result in a very good life for a small group of people in a small company.
This post seems to assume that VCs are out for the greater good of the world. I don't think they are and they shouldn't be. They are out to maximize returns for their members through savvy investment.
I’m curious if that analogy actually makes sense. Why would you pay people to dig their entire lives in one spot? Why wouldn’t you just do the more efficient way and have founders mine their own 100 yard fields?
I agree the incentives of VC want are to swing for the fences and they get the benefit of diversification. I just don’t think the analogy works…
It is hard for me to read stuff like this. It really is.
While I really am happy for those who do well for themselves by seeking venture capital, the desert is littered with the bones of startup founders.
As well as the bones of investors - this because Angel Investors are commonly friends, family members and colleagues who are not the sophisticated investors as VCs have to be. If your uncle invested ten grand in your iOS App, then it totally tanked, I expect your uncle would still manage to get by somehow, but you would always regret having asked him to invest.
Of more concern to me, in my actual experience, is that it is quite common for VCs to demand control of the company's actual operations, and then to rocket it right into the ground, because their concern is the exit revenue, and not for the end-users of the product or service, or for the company's employees.
Not all VCs are this way, many VCs are quite good. I have scads of respect for people like Ann Winblad (http://www.humwin.com/).
However there are far more startups than their are wise, or even ethical VCs.
Thus I have been determined for many years to demonstrate that one can succeed without investment of any sort. I know one specific person who did this, the father of a close friend. Dr. Sims and another physician founded California Cryobank in the early 1970s, each by investing $2500.00 of their own money.
Now California Cryobank is "The Nation's Largest Sperm Bank". Their, uh, "product" sells like hotcakes because our little swimmers just don't like they used to swim, back in the day before chemical pesticides.
There are many times that I do contemplate seeking VC. That comes to mind for the most part when I visit the offices of VC-backed startups, or of established and successful firms.
It's not about the foosball table or all-you-can drink microbrew.
It's about having coworkers - real live human beings - and an actual desk, rather than paying for my table at a wifi spot by somehow coming up with the two bucks required to purchase a Grande Pike's Place Roast.
While I do believe in what I'm doing, what I hope to achieve and to demonstrate by my own example that there really is a better way, it's hard sometimes.
That is the idea more or less, VC's dont invest in ideas and businesses as much as they invest in the teams behind them, this is because they know the chances of a pivot are likely.
Before coming to CA, I worked for financial traders. It was a commonplace that investors are herd animals. VCs are no exception.
The cargo cult thing makes a lot of sense to me, honestly. Venture funding is a field where the feedback loops are long and noisy. It takes literal years to see results, and a lot more years to see if somebody is truly good, instead of glib and lucky. By that point, the technologies and trends have changed so much that there's not a lot of reason to think they're still good.
And I think the way stakes have gotten larger since Bubble 1.0 makes it so much worse. The amount of money really increases the incentive to do, say, think absolutely anything that might get you a slice of the expected returns.
But why on earth should VC's fund it in that case? Isn't that an entrepreneur's decision, not the VC's? Blaming the VC's for not funding this seems ridiculous to me.
I must say that I strongly disagree with you. There should be enough local VCs where are rich people having too much money or having problem how to get best result from them. E.g. they are not satisfied with what they get from bank.
The reason why (most, not all!) VCs are successful is not because they have some secret visionary insights into the future of technology but rather because they have the means of diversifying their investments in things that are more or less guaranteed to happen. Will work be more decentralized in 10 years than it is today? Yes. Will financial institutions move away from the archaic infrastructure it's on today over the next decade or two? Yes. Will education move online and become more personalized in the next 10 years? Yes. So, just invest in 20 remote work SaaS companies, 20 fintech products, and 20 online education startups and you'll have a fair shot at making some money. In other words, most VCs are really just private equity versions of index funds.
Because of this, most VCs lack the experience, understanding, and interest in investing in highly experimental projects (there are exceptions of course!)
As an example, I would be very surprised if any of the major VCs today would have invested in a small set of people who wanted to work on what would eventually become the transistor or TCP/IP. There's a reason why these things tend to start in huge corporate research labs (bell labs) or universities: they're not obvious and they're not obviously profitable.
So, the real reason why these companies are not being built is not that the people aren't there willing to build them, it's because nobody's willing to listen. They're just a bunch of crackpots with crazy sounding ideas... until they're not.
But the VC has an idea. Which is use the money to make more money by allowing others to build businesses. That's a business model itself. It requires the same amount of planning, marketing, PR, etc. They also have to turn a profit or face a bigger doom of losing lots of money on a bunch of bad businesses.
How about them being smart enough to recognize the good idea and find the talent as well? Am I naive? I understand that VCs are not the ones that need the money but also they want to make money.
"While some members of Grotech's team liked Wieler's idea, they said he didn't articulate his vision for the company very well."
I wonder if part of this tone is attributed to the culture of seeking permissions that VC's have in part smartly funded to create through their marketing and reach.
Want to innovate? Get VC blessing and money.
Want to create something? Get external validation first from a funder.
Even thought the vast majority of startups are self-funded, the mindshare of VC messaging in the space is dis-proportionate.
This leaves a real question, if getting funding is about leverage, getting some traction and revenue first is not a bad thought. It's really nice to see YC being a beacon of support in this regards too.
No one deserves money. The predominant VC culture doesn't deserve the right to shoot down people by stringing them out, or making them feel they aren't adequate, when no one is. Ideas are rarely good in the beginning and need time to form and develop like the entrepreneur... but the idea that you can't get anywhere without funding is a big fallacy. A word like deal flow on the wrong kind of VC's lips is cringeworthy.
Even learning to get good at freelancing, contracting and consulting teaches you enough business skills that are transferrable to most startups, not to mention being able to make some amount of seed money that would be available through funding.
I wouldn't say this about YC because they have a true founder support culture to go with the value add from leadership. I really hope this model of funding and investing in the person over the idea spreads widely.
The best funding and validation is from your clients. Scaling and growth funding is much easier to find.
There is a fundamental problem in everything that you say.
The VCs may be private equity guys, but they have learned to pay attention to what is said by angels and early seed investors. Who in turn frequently got that way by being in successful startups. Which really did compete on merit. And those people know plenty about programming.
As a case in point look no farther than ycombinator itself. I first heard of Paul Graham because he was a well-known Lisp hacker, and when I was starting in programming I was told to read a book of his to open my eyes to how much I did not understand. (I did read On Lisp and highly recommend it.) I first heard of Robert Morris because he famously accidentally took down the internet. They got the money with which they started ycombinator by running their own startup. And every year they identify dozens of unconnected but talented people as people who deserve a chance, and suddenly some kid whose main qualification is that they could impress some talented hackers is in one of the most prestigious inner circles in the Valley.
And yes, part of what they look for is the "social polish" that you deride. Because they've learned that you need some of that to make your business succeed. And yes, they will help you learn how to spin yourself successfully. Because that also helps in the real world.
But in the end they give a first step up to a lot of people who then go on to build everything from better online analytics to motorcycles that won't fall over.
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