« Stars Matter in Science Entrepreneurship | Main | Don't You Mean "Fully Valley-ed"? »
Latest Stories
- The Myth of the Angel Investor
- Pete Peterson on Subprime, Bailouts, etc.
- Yahoo's Jerry Yang Needs to Get on With Things
- The Mortgage Bankers Association Mortgage Problem
- Graphical Look at Real House Price Declines
May 8, 2006
Why You Want Your VC to Be a Prick
I was talking to an entrepreneur here in San Diego today about his travails with indecisive VCs, and it reminded me of something: Most VCs are egomaniacs -- and that's a good thing. Here's why.A no-ego VC is usually a VC without (recent) successful investments. And those people are dangerous. Not, however, because they're not smart, or because they don't have contacts, or because they don't have added value, etc.
Instead it is because those folks are nervous nellies. They have, in other words, had so many investments fail that they lack confidence. They don't know how to take prudent risks any more, so they freeze, they follow crowds, they over-pay, they over-analyze, they worry, they hector, they irritate, they prematurely fire CEOs, they over-tranche and under-fund -- and then another investment fails.
Granted, many unsuccessful VCs have big egos too, so the egomaniac/prick test admittedly isn't foolproof -- matter of fact, some would call it an absurdly low hurdle. Nevertheless, if your VC seems the nervous sort, I have one piece of advice: Run.
Sphere It
| 
Digg it
| 
Bookmark it
| 
Stumble it
The list of things which can or are even likely to go wrong/become problematic, as discussed here and in so many other places, is revealingly long. The underlying reality is that in most VC deals the interests of the VCs and the founders are not very closely aligned. Just add a standard dose of human failings, and all the problems precipitate out.
The real problem is in the deal structure. If most first-time founders knew at the outset how easily they could be tossed from the deal (and how likely that is to happen), especially in today's climate, they wouldn't do a VC deal. They would instead pursue less capital intensive practices (which in many cases would contribute to building their businesses).
On the VC side, if their deal structures gave them less ability to meddle, and thus forced them to focus harder on finding or even constructing teams which could succeed without meddling, then they might well achieve better returns.
This is not sour grapes, as we worked through our problems with our VCs to a successful exit (though the problems did slow us considerably).