What entrepreneurs don’t like is VC’s with limited operating experience who are rude, arrogant, and disrespectful. I found most VC’s have a brand name MBA and a few years experience operating experience, much of which is usually in a big company, and they are often extremely arrogant. More often than not, they add negative value to the companies they fund.

I think VC’s would be far more successful if you had more VC’s that were successful entrepreneurs or had 20 years operating experience with substantial experience in startup environments.

http://angelsoft.net/blog/2008/07/05/the-entrepreneurinvestor-disconnect-on-returns/

Read the full post, but the key takeaway:

“Let’s look, therefore, at what it takes a VC fund to get that elusive 20% IRR. Well, it turns out (in case we didn’t already know) that investing in entrepreneurs is indeed a Risky Business. VC’s fund fewer than one in 400 deals they look at, but even with that discriminating judgment they are resigned to the fact that between 30% and 50% of their prized investments will crash and burn. Completely. And another 30% or so will end up being “walking dead”, that is, making just enough money to keep themselves alive, but not enough to provide any return on the investment. Indeed, statistics over many years have shown than virtually ALL of a VC fund’s returns will come from fewer than 10% of their investments. It’s the one home run with Google that makes up for all the WebVans, Pets.com and eToys.

Thus, continuing with our math lesson, and taking into account the facts that: one in ten companies in a VC portfolio need to come up with all the return for the portfolio; the average holding time for a VC investment is 5-7 years; and the return for the whole VC portfolio needs to be 20% or so, we can calculate at the end of the equation that ONE company needs to deliver an ROI after six years of something north of 20X! And therefore, since the VC doesn’t know WHICH of his investments is going to be The One (otherwise, of course, he wouldn’t invest in the other nine!), EVERY one of his investments must have the potential to hit a 20X return.

It’s because of all the forgoing realties, concepts and math that there is typically an enormous disconnect between entrepreneurs and investors. The former figure that ‘risk adjusted return’ means that an investor should be delighted if his/her/its investment brings back a 20 PERCENT profit (which is five to ten times the return from less risky asset clases), while the latter realize that if they don’t aim on each deal for a 20 TIMES profit (which is required on a deal basis to deliver the 20% return on a portfolio basis), they will be out of business.

The result? A two-order of magnitude misunderstanding.”

I think frustration is there from an entrepreneur point of view since there are not many options for funding for start-ups. Angel is the best way to go, but it’s not as streamlined as other ways to raise funds.

It’s a great piece, and this sentence stuck out for me. The issue is that many entrepreneurs look to VC’s for advice on how to approach them, and probably get too many “Careerist VC’s”. You can see the quality and substance of start-up advice coming from Careerist VC’s is dramatically different than Entrepreneurial VC’s, so much so that you feel Careerists disseminate false information on purpose to perpetuate the cycle of clueless first timers to take advantage of them.

Kudos to the more entrepreneurial VC’s like Mark Suster, Jason Calacanis (was an EIR once ), Harsh Patel, Fred Wilson, and many more, for giving quality advice that if followed by more first-timers, would result in far less mistakes and resentment.