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“One Thing You Wish People Better Understood About Venture Capital” — Part III, featuring Maya Bakhai, Paris Heymann, Nakul Mandan, Eric Tarczynski, and ANONYMOUS.
I asked some investor friends to share, as the title suggests, one thing they wished people better understood about venture capital. There were no ground rules other than to specify that ‘people’ could be founders, politicians, LPs, etc and that it would be default attributed but anonymous if they desired. Reporting out in batches of five. Here’s Part III:
The term “VC” is a convenient, encompassing term, but it is an ambiguous categorization. For better or worse, “VC” is a disorganized, unruly, messy set of people and firms whose emergent behavior about important things does not converge. When folks want to vent/disparage VC they should feel free to use the ambiguous category. When people want to better understand it to raise capital from folks who can help, they are best served accepting the annoying bespoke/boutique nature of it and handling it accordingly. [Anonymous/Large Multistage VC]
[Hunter: I don’t believe this was specifically what they were referring to but I’ve noticed VCs hate when the press says/implies “all VCs” and press hates it when VCs say/imply “all reporters” ¯\_(ツ)_/¯ ]
I wish more people understood that VC’s have investors too. Called “LPs” or Limited Partners. The VCs will invest on behalf of a group including individual investors, endowments (like universities), financial institutions (like Banks) or Non-Profits. With a few legendary exceptions (like Hunter and Satya) most VCs haven’t had the personal success to deploy millions into startups. They have to fundraise just like startup founders. In exchange for managing LP money, a VC firm will get up to 20% of the amount raised as a management fee (even if every startup they fund fails) and on top of that, will earn 20% of any profits. For example, if a VC fund has $100M dollars under management, the firm is getting paid 20M over the course of 10 years just for setting it up.
You must follow the money to understand incentives! VCs are investing other people’s money — employed by a firm, taking a salary…working a JOB. They usually don’t have the same risk tolerance as a founder. A VC firm’s fiduciary…
