Subject: Re: VCs (was RE: The term "intellectual property" considered useful)
From: "Ben Tilly" <btilly@gmail.com>
Date: Tue, 16 May 2006 13:59:44 -0700

 Tue, 16 May 2006 13:59:44 -0700
Your statement assumes that most companies pitched to VCs are
worthwhile business opportunities.  I would not make that assumption.

As for the rest, the essay that I drew it from is
http://www.paulgraham.com/venturecapital.html, and what Paul Graham
says matches pretty well with my impression from many other sources.

Incidentally I know of 2 different companies that friends of mine got
hired at in the last few months which, before doing anything, got $5
million in VC capital.  (In one case they got the money before they
hired their first programmer!)  The details of what they're building
is secret, but is it going to really be worth a lot more than $5
million?  I have no idea, but if it is not, someone's going to be
rather unhappy...

No, it isn't a return to the dot com era, but it certainly feels like
there is a lot of money chasing rather speculative deals.

Cheers,
Ben

On 5/16/06, Anderson, Kelly <KAnderson@dentrix.com> wrote:
> Are you saying that VCs don't have enough companies coming to their door
> begging for their money? Because that's the opposite of my experience.
> Most VCs I've known can only invest in maybe one in twenty opportunities
> pitched to them... Due to a lack of funds. Maybe I misunderstood what
> you were saying here.
>
> -Kelly
>
> >>>
> Actually I've seen the point made that VCs know their business very
> well.  It just isn't the business people think that they're in. :-)
>
> VCs are in the business of investing other people's money in emerging
> business opportunities.  However VCs typically get paid a cut of the
> money invested.  That means that VCs are under pressure to try to manage
> more money than the size of the investments that they can locate.  Which
> means that they are under pressure to throw more money at the companies
> that they invest in than most will support, and then they are under
> pressure to push those companies to grow fast enough to justify the
> investment.
>
> Furthermore VCs don't control how much money there is to invest, people
> who choose to have VCs invest their money do.
>
> This theory neatly explains many otherwise puzzling aspects of VC
> behaviour.  And, armed with this theory about their incentives, even
> their boomtime excesses make a fair amount of sense.
> <<<
>
>
>
>
>
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