VC Posts That Say What The VC Thinks About How It All Works

Some of my favorite VC posts are ones that say what the VC posts that say what the VC thinks about how it all works. And – importantly – how it impacts the entrepreneur, his choices, and the dynamics between the entrepreneur and the VC.

Fred Wilson does this regularly. For example, see his post today on Valuation vs. Ownership.

My partner Jason Mendelson does the same. See his recent post The “VC Bargain”. Of course, Jason and I aspired to do the ultimate version of this in our book Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist.

You don’t have to agree with them. That’s what the comments are for. But they each say what is on their mind, why, how they think about it, and what the implications are for them.

If you want another example, take a look at my partner Seth’s post from last year titled I’m getting sick of the bullshit. And then reflect on the post from the anonymous entrepreneur that I highlighted yesterday titled My Startup has 30 Days to Live.

This shit is really hard and really complicated. It’s easy to have a surface view of it, to romanticize it, or to fall in love with the idea of it. Don’t. Do it because you love it. And find partners who want to go on the journey with you.

I’m going to hang out in the comments on Fred’s Valuation vs. Ownership post and Jason’s The “VC Bargain” post today. Come join me and tell me, Fred, and Jason what you think.

  • That level of transparency is very important in establishing the match between VC and entrepreneur. One can just read all that stuff, and start to know you a bit. And that makes things easier and self-qualifies the fit both ways.

    Plus, there is so much knowledge that you are spreading.

    • Big hug.

      • Really, if you think about it, when you write, you touch people. That was Peter Drucker’s answer when he was asked what his proudest achievement was.

  • Startup New Zealand

    My two cents is that you can read the Google story but at the end of the day its Googles story and Startup founders have to create their own story with the right moves and awesome execution & the same applies to aligning your self to the way VC’s think it works 20 VC’s & 20 different ways it works and I call it Startup death by alignment to the thought process of others and seen plenty of this at Accelerators. It might get you funded but not help you create a business

    My (startup founders view) is that at the end of the day its your business and what works is honesty & realism. Nevertheless if a VC’s version of how it works makes sense & you can execute on it without compromise go with it

    I read yesterdays blog, my startup has 30 days to live & love the GAN initiative but have to agree that somewhere down the line the focus on building a business is lost and everything around raising money is adopted and it works if funding is the end goal. 3 Months at an accelerator = 1 Month mentor meetings + 15 days events / seminars + 1 month pitch practice and very little time to build your business and there is a deficit of skilled startup coaches who can get startups doing awesome stuff like user acquisition, guerrilla marketing etc

    Can go on but at the end of the day its your startup & the founders have to figure out how it works

    • “At the end of the day its your startup & the founders have to figure out how it works” – absolutely true. If an accelerator is effective it helps the founders learn / figure out how to do it. If it’s not, it won’t.

      • John Fein

        Funny – Mark Suster just posted some changes to GRP that perfectly aligns with that spirit of openness and collaboration. Very cool.

        • Yup – neat to see them rebrand on the launch of their new fund.

  • John Fein

    I think the insider viewpoints and access are great. When my co-founder and I were seeking VC in 1999, most firms projected an “old boys club” feeling to entrepreneurs. The process seemed extremely one-sided and opaque to us. Now with some VCs who are much more open and collaborative (such as yourself), not to mention all the accelerators and real startup communities outside of SV, there’s a much bigger support system there. Startup challenges and stresses are the same, but it’s a wonderful trend that entrepreneurs don’t have to feel so alone in their journey.

    • Thx! We are having a blast and being open and collaborative is way more fun than being stiff and standoffish!

  • Overall, I think most investors are afraid of the repercussions of being public and open, whether to LPs or the press, etc. If they can’t articulate a complex topic clearly, there’s a risk that may not be worth the reward, in their minds. But, we need more of it because most of the investor-content lately is about cheerleading, coddling, etc.

    • For all the talk of “transparency”, which seems to be the VC word of the year for 2012 and 2013, you’d think VCs would be largely past “cheerleeding”, or “canned PR”, or nonsense prognosticating. Some are – I love reading what they write. But many others are definitely in the bucket you define.

  • Woohoo!! A post about the mechanics of VCdom. Doesn’t seem like there’s been too many of these lately. Anyway, a few observations.

    First, my hypercynical view of VCs leads me to the immediate assumption that Fred’s firm is getting ready to raise another round since the tone of this post is clearly geared to the LLPs with a little mention of “We are also very much focused on what is in the best interest of the entrepreneur” tossed in at the end.

    Second, this must be one hell of a company to be taking $2/$5mm with only a 20% stake. That amount of money is clearly early (probably first) round. That probably means the company is pre product and very likely pre revenue. In my experience companies in that position are looking at giving up more like 60% for that much money.

    Third, I was kinda sorta with him, assuming this was an LLP targeted post, until he started talking about how it could be better to take the other $3mm later on at a higher valuation. That math just doesn’t add up. The entrepreneur is giving up 20% in both cases. There is absolutely no downside from the entrepreneur’s point of view to taking the $5mm at that point and many advantages, the biggest one being the ticking clock has a much longer duration, which is everything.

    Posting here cuz I really haven’t participated in Fred’s blog ever

    • Jeffrey Hartmann

      That is assuming the deal structures are the same. He didn’t say that. The 5mm could have nastier terms, and could end up not being in your best interest. You also have to look at what this will do to your likelihood of raising at a higher valuation later. I know if I were investing I would be more likely to put a large value on a team that was scrappy and made a HUGE amount of progress on a smaller amount of money, then one who just did so/so when you consider they had more resources to play with. Its a lot harder to raise another huge up round when your first round was not priced correctly. Over time the 2mm could very well be a much better deal. You just have to think about more then price.

    • 1. Fred raised a fund in 2012. He’s not fundraising for several years. So – that’s not the goal of the post.

      2. We routinely do early rounds at $2m for 20% of the company – that’s a $10m post money valuation is while not a seed valuation, is not atypical for an early stage company. Now, $5m for 20% is high for the theoretical similar company – it’s very unusual for us to see > $20m post in the “pre-breakout stages.” Sure – it happens – and it’s exacerbated by the dynamic Fred points out where some firms are happy to get their 20% regardless of the post money valuation. We aren’t one of those firms, nor is USV.

      3. His point is subtler than this. Lots of companies raise too much too early and don’t have the discipline not to spend it. Or the VCs push them to spend it (“hey – we gave you the money – spend it!”) And then there is a later round, at a lower price than it might have otherwise been, which is MORE dilutive than if the entrepreneurs had raised less, done more with it, and then raised the second round at a much higher price.

      Re: #3 – I’ve seen this so many times it’s not an edge case, but very normal. Everyone goes in thinking they will do things differently this time and not overspend, but then enthusiasm takes over, just one more senior (and – at this point – unnecessary hire), and before you know it your burn rate is too high and you need to raise more money. And suddenly the terms aren’t so attractive.

    • Very useful responde by @bfeld:disqus! I would also suggest you participate in Fred’s blog community as it is very engaged, open and full of insightful information. The two blogs that I constantly read are Brad’s and Fred’s and I think they are both great examples of VC blogs done right

      • I jump into the comments on Fred’s post every now and then (I try at least once a month) when there is a post that I’m particularly interested in. I had fun with the last one – will probably do it more now.

  • nipulpatel

    Brad – This comment is about all of your writing, not just this post. I’m new(ish) to your blog and wanted to share with you how much I appreciate you candor on VC issues as well as the personal impact being an entrepreneur has on individuals.

    I (and others, I’m sure), find so much strength and support in your honest thoughts. We all face it, but too few talk about it. Thanks for doing the hard part of starting the conversation.

    • Thx for the kind words and for commenting!

  • Murali Apparaju

    I though am still looking….

    ..for those elusive VC illunimati that can cross-apply their success theories of IT on biotech ventures. Just yesterday i commented on a blog article by Bruce Booth that can be accessed at