VC Industry Posts

Bill Burnham, hedge fund manager and former VC:

“Angel investors are becoming the dominant force in Consumer Internet Venture capital. The vacuum created by the withdrawal of VCs from traditional Seed and Series A opportunities in the Consumer Internet space has been filled by a motley collection of angel investors. It is angel investors, not VCs, that are writing checks based on good ideas, business plans, and “alpha sites”; not VCs. The importance of angel investors is such that it is not unusual these days to see an internet startup publicly announce its round of angel funding, when in the past such events did merit a public mention. Yes, angel investors have always provided seed money, but today they typically provide 100% of what was once considered Series A money as well.”

(If only there was a list of angel investors…)

There’s also a good discussion in the comments. Bill says:

“My take on most seed/ super-angel funds is surprise, a fairly cynical one. I think if you offered $1BN to the managers at these seed stage funds they would go from Seed focused to multi-stage in a remorseless heartbeat.”

Dave McClure replies:

“no, i wouldn’t trade my model for that bowl of bullshit, even for the bigger paycheck in the short-term. it’s just not sustainable.”

Read Bill’s full post.

I would like to hear from VCs who are co-investing and competing with these angels. What seed stage companies are you investing in? What were the company’s metrics like when you invested? Are you seed stage (plus follow-on investments) or truly multi-stage?

There’s an outstanding interview with Vinod Khosla on PBS’s web site. Here are some of the highlights.

On the real big opportunities:

The real big opportunities are changing the infrastructure of society. We are talking about things like the $200 billion engines market for automobiles and trucks, things like lighting, billions of dollars spent on lighting. We can completely change that. Cement. Huge multi-hundred billion dollar market that needs to change. Glass. Then there’s replacing all of the oil in the world. Hundreds of billions if not trillions of dollars worth of fuel that needs to be replaced. And there’s gasoline, there’s diesel, there’s jet fuel.

“There’s no doubt in my mind over the next 25 years how we drive, how we build our houses, how we fly, how we build our buildings, will all change. And that’s essentially, like I said, the infrastructure of society…”

On stock prices:

“… we have too large a tendency to look at the symptom of stock prices which is almost irrelevant to the basic businesses we are trying to build.

On Khosla Ventures:

“We want to invest in the technologies that are high risk, so it’s okay to fail, but when we succeed it’d better be worth succeeding. We’d better have very large dislocations with these technologies.

“We like to say at Khosla Ventures, and this is one of the reasons to do what we do, we’ll take technical risks that nobody else will.

“We take the larger risks, real science experiments, and that’s been one of the founding pieces in our company.”

On venture capital:

95 percent of people in the venture business think it’s a financial business, it’s about investing. It’s not. It’s about building companies, which is a different thing than investing. It’s about taking large risks in science and technology. That’s what we do.

“We are an investor that tries to build companies. We make money by building entities over the long term. We’re not in the business of transacting or doing deals. We don’t even allow that word here. It’s not buying and selling, that’s a transaction. You don’t invest in something and say I can sell it tomorrow or next year. We take a five year, ten year view and say we can build a company that can significantly change the landscape. Now if you happen to do that, you build companies of lasting value, make a large impact and if you do, you’re going to have a valuable company that you can make money on. So it’s a long term versus short term perspective.”

Thanks: To sec314 for pointing me to this article.

More wisdom from Randy Komisar‘s The Monk and the Riddle (emphasis added):


“So why were they doing this? Why was it worth their time? I am always amazed that venture capitalists don’t ask that question. Perhaps at this point everyone assumes it’s obvious: to get rich.

“Passion and drive are not the same at all. Passion pulls you toward something you cannot resist. Drive pushes you toward something you feel compelled or obligated to do. If you know nothing about yourself, you can’t tell the difference. Once you gain a modicum of self-knowledge, you can express your passion…

[Passion] is the sense of connection you feel when the work you do expresses who you are. Only passion will get you through the tough times… It’s the romance, not the finance that makes business worth pursuing.

“I can’t get excited by a business whose biggest idea is making money.”

Venture Capital

“Most VCs (even if they insist otherwise) simply don’t have the time to give close management attention to the companies they’ve funded. In addition, in contrast to the original VCs, who often gathered years of operating experience prior to becoming venture capitalists, many partners in today’s firms have no executive management experience. They could be working on Wall Street as easily as on Sand Hill Road.”

“I have never seen a company fail for having too much money. Dilution is nominal, but running out of money is terminal.”


[Mediocrity is] the biggest risk of all in Silicon Valley… Instead of managing business risk to minimize or avoid failure, the focus here is on maximizing success. The Valley recognizes that failure is an unavoidable part of the search for success.

“[Excellence] should be your primary measure of success… not simply the spoils that come with good fortune. You don’t want to entrust your satisfaction and sense of fulfillment to circumstances outside your control. Instead, base them on the quality of what you do and who you are, not the success of your business per se.”


“Management is a methodical process; its purpose is to produce the desired results on time and on budget. It complements and supports but cannot do without leadership, in which character and vision combine to empower someone to venture into uncertainty. Leaders must suspend the disbelief of the constituents and move ahead even with very incomplete information.

Many ideas in this Valley happen against all common sense. It’s good when entrepreneurs are a little bit deaf and blind, but if they’re completely deaf and complete blind—and many are—they’re unlikely to learn enough from the market and their advisors to make their vision a reality.”

Tom Perkins from Kleiner Perkins slaps us with knowledge in this interview with Creative Capital. Here are some choice quotes from the beating:

On Timing

“It’s always a good time to be in venture capital.”

“You can’t look at the stock market and decide whether or not to invest in a startup.”

“The growth of technology has been just about the only constant in our economy for a very long time.”

“[Is green technology trendy?] Sure, it’s trendy but you can’t ignore trends.”

“I love bubbles. We made a lot of money in bubbles.”

Tom speaks from the perspective of an investor but everything he says also applies to entrepreneurship.

On Venture Capital

“I used to say venture capital was like a pilot light. But now it’s like a roaring glass furnace.”

“There’s always been too much money in venture capital. It doesn’t mean you can’t make… money in venture capital.”

“Money is the least differentiated of all commodities. And venture capitalists are in the business of selling money.”

“[Where would I be if I was just getting into the Valley today?] Always as an entrepreneur. Never as a venture capitalist.”

You can find these aphorisms and more in Venture Hacks’ Twitter updates.


Suzanne Dingwall Williams is publishing M&A hacks on her excellent blog, Venture Law Lines. She call the series: ‘Selling the Startup’,

Selling the Startup: Can you sell your subscriber base?

“Recently, a new client received a very favourable takeover offer for her business, including its subscriber base. Problem: the privacy policy did not permit her to provide the account information for her subscriber base to the acquirer. Same thing with the user license: it was non-transferable. We had to go back and rectify the matter in a ponderous way before closing.”

Selling the Startup: Providing Price Protection in the Term Sheet

“As a general rule, [M&A] term sheets provide for price adjustment based on revenues and a closing balance sheet, and based on the results of the buyer’s due diligence (this is really a price reduction clause, as no one ever finishes due diligence and concludes “By God, they’re really onto something here. Raise the price!”). Here are three other areas where you, as seller, need to consider providing for some price protection…”

A couple more gems from her excellent blog:

On Being An “Off the Grid” Startup

“The reality is that 95% or more of North American startups are created outside of Silicon Valley. Many are created in fairly robust business generation centres such as Boston, and emerging centres such as Chicago and Raleigh-Durham. Just as many are created in regions where the startup infrastructure is small or non-existent. Do the practices, deal terms, and operational decisions typically made by startups in the overheated Valley, with its cadre of serial entrepreneurs and super-angels, have any application for the rest of us, who are off the Silicon Valley grid?”

If Venture Capital is Dead [in Canada], What’s Next?

“Venture capital in Canada is no longer an industry, but a financial product offered by only a handful of players…

“When someone finally says this, I’ll agree. But I’ll also say that, as someone who advises entrepreneurs, I don’t particularly care. All this tells me is that companies will now use different financial tools to feed growth, using business plans that are not shoehorned into the somewhat artificial venture capital model for growth—i.e., in and out in 3-7 years.”

Suzanne’s resume includes roles as Founder of Venture Law Associates (a Canadian law firm with flat rate service for inventors and early stage companies), Principal at BCE Capital, and Senior Counsel at Nortel.

Image Source: Despair.

Q: Should I sell my company or raise capital and go for it?

Sell if it dramatically changes the lives of the founders and the early team. Every dollar after your “fuck you money” is icing—get your financial independence first and make the icing at your next company. You can also use an earn-out at the acquirer to capture some of the potential upside of raising money.

If you raise capital, you risk your current value for a chance to capture your future value. Is there a difference between capturing future value at your current company and your next company? You can create future value at your next company after you’ve captured your current value and done your time at the acquirer.

Also consider selling if you are at a local maximum, e.g. your company or market is going sideways and the company will be worth less before it is worth more. Of course, smart buyers will wonder if they should be buying when insiders are selling.

One alternative to an acquisition is to cash-out some of the founder’s shares so they’re wealthy enough to feel comfortable with the risk of building a bigger business. I’m guessing the Facebook founders have been cashed-out to some degree.

Q: What does it take to be a successful entrepreneur?

Successful entrepreneurs delight their customers, execute relentlessly, and enjoy lots of luck. You recognize great entrepreneurs when you see them (like porn) and you get better at recognizing them every day.

Q: What does it take to be a successful investor?

To be an investor, you need access to capital. There is no IQ test.

To be a successful investor, you also need great dealflow, good judgement in picking companies, and, in competitive markets, the competitive advantage to win deals.

Note: These excellent questions are adapted from Ashkan Karbasfrooshans’s Venture Hacks interview.

Image Source: Richard Seaman.


Q: Is the venture capital industry doomed?

No. Venture capital invested in the U.S. is increasing and VCs are a critical part of the startup ecosystem—I’m grateful they exist.

The rate of innovation is increasing and that innovation needs capital to get in customer’s hands. Capital invested in startups is going to increase, not decrease.

It’s wonderful that you can start a web-based software company with little capital. But after that early stage, even these companies need significant capital to reach their customers and beat their competition.

VC is not doomed but it is changing: see Y Combinator, Idealab, Hit Forge, Squid Labs, and others.

Q: Do investors hate Venture Hacks?

No. Smart investors like educated entrepreneurs. But that doesn’t mean they agree with our advice.

Q: Who’s the best VC in the world?

A limited partner can tell you who was the best VC in the world with fund performance data from institutions like Cambridge Associates. He can also tell you that past performance may not predict future performance in venture capital; see Don’t Bet the Farm on Serial Persistence.

But entrepreneurs shouldn’t select their investors based on how much money they have made for their limited partners.

The best VC for an entrepreneur is a partner who doesn’t care what other investors think, doesn’t take up the entrepreneur’s time with a lot of diligence, doesn’t pull out his Blackberry in meetings, and doesn’t ask dumb questions.

The right partner makes investment decisions quickly, shows up to meetings on time, pays attention, lets management run companies, treats the entrepreneur like a peer, and conducts himself with humility and trust.

We avoid criticizing or applauding specific firms on Venture Hacks but I will give a shout out to Atlas Venture and their General Partner Jeff Fagnan who supports me while we write Venture Hacks. And a shout out to Naval, my Venture Hacks partner, and his Hit Forge fund. I’m lucky to be working with both of these guys and I recommend them both.

Q: Who works harder: investors or entrepreneurs?

Entrepreneurs and VCs both work hard before and after an investment.

Investors are typically personally wealthy and draw a very comfortable salary from their management fees, in addition to their potential carry in a portfolio of startups. Entrepreneurs are often strapped for cash and fully invested in a single startup.

In theory, investors prefer investments that require no work, have no risk, and have a tremendous return. In practice, investors are part of the team that makes a company succeed or fail.

Early stage companies should expect a venture capital investor to spend about one day per month on their company. Most VCs spend the rest of their time working with other companies, looking at potential investments, marketing their firm, and working with limited partners.

Note: These excellent questions are adapted from Ashkan Karbasfrooshans’s Venture Hacks interview.

Image Source: The Filter.

Q: What’s the biggest mistake entrepreneurs make when they’re raising money?

Entrepreneurs focus on valuation when they should be focusing on controlling the company through board control and limited protective provisions.

Valuation is temporary, control is forever. For example, the valuation of your company is irrelevant if the board terminates you and you lose your unvested stock.

The easiest way to maintain control of a startup is to create good alternatives while you’re raising money. If you’re not willing to walk away from a deal, you won’t get a good deal. Great alternatives make it easy to walk away.

Create alternatives by focusing on fund-raising: pitch and negotiate with all of your prospective investors at once. This may seem obvious but entrepreneurs often meet investors one-after-another, instead of all-at-once.

Focusing on fund-raising creates the scarcity and social proof that close deals. Focus also yields a quick yes or no from investors so entrepreneurs can avoid perpetually raising capital.

Q: What’s the biggest mistake VCs make?

The biggest opportunity for venture firms is differentiation. VCs compete for deals, and differentiation is the only way to compete.

Most firms offer the same product: a bundle of money plus the promise of value-add. And the few firms that are differentiated don’t communicate their differentiation to entrepreneurs. Y Combinator is an example of differentiated capital with excellent marketing communications.

Venture firms that thrive by investing in game-changing businesses have barely begun to differentiate themselves, let alone changed the rules of their own game.

Note: These excellent questions are adapted from Ashkan Karbasfrooshans’s Venture Hacks interview.

Image Source: Despair.

bill-burnham.jpgIn Understanding Why Your VC Is Acting Crazy, Bill Burnham, a former Partner at Mobius Venture Capital and Softbank Capital Partners, describes why investors don’t always do the right thing for your business:

“One thing that many entrepreneurs don’t fully appreciate is just how much the financial and organizational dynamics within a VC fund can affect how a VC behaves on their board. Over the years I have heard many stories from entrepreneurs expressing various degrees of frustration and mystification over a position taken by their VCs, usually with regards to an upcoming financing or an M&A transaction. For example, in some cases a VC that has been very supportive about patiently growing a business all of a sudden becomes obsessed with selling the company or in others a VC that has been aggressively pushing the company to grow quickly all of sudden becomes extremely cost focused and lobbies hard to cut the burn rate despite the fact that this will kill growth. After witnessing such abrupt changes in attitude and direction, many entrepreneurs are left scratching their heads wondering “What the hell is going on with my VC and why are they acting so crazy?”

“The answer to this question can often be found by simply getting a better understanding of the current financial and organizational dynamics within a VC’s fund, as these issues can have a profound impact on how a VC and/or their fund approaches a specific investment. With that in mind, here is some specific advice for entrepreneurs in terms of what questions they should be asking VCs and what information they should be monitoring.”

Your investors are your partners and they will help you build your business—to a point. Some of their interests may be deleterious to your business.

Frankly, some of your interests may be deleterious to the business. But I’ll give you the benefit of the doubt since you’re the guy who probably lived in your parent’s basement and ate rice cakes for 3 months to start the business. I assume you’re committed to the business—to a point.

Read the rest of Bill Burnham’s article.