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VCs Whining About Too Much Money... Again
from the oh,-boo-hoo dept
Back in January we noted that the top tier VCs were out there complaining that their lower tiered competitors were raising too much money and harming the overall VC space. It seems those complaints are only getting louder. For the past year or so, many VCs I've spoken to have been pointing out the same thing. Despite the dot com bubble popping, institutional investors are still shoving each other aside to give VCs money. They have a certain amount of money they want to put into risky investments, and they have no other place to put it than VCs. So, every VC firm heading out to raise money is finding themselves deluged by plenty of investors who want to put in way more money than the fund can handle. Thus, these top tier VCs start whining that the lower tiered VCs will end up with that cash, flooding the market. Then, they're afraid that they'll no longer have easy pickings on ripping off the top startups while earning their cushy management and carry fees. What's most amusing, of course, is that for many, many years, these same top VCs tell story after story about how startups should sign on with only top tier VCs because of all the help they give them to make them a success. If that's the case, why should they care if the lower tier VCs have cash? If what they've been saying is true, it shouldn't matter, because the lower tier VCs won't be able to help turn startups into a success like the top tier guys. Having too much money is only a problem for a VC firm in a situation where the VC firm itself has little impact on the success of a firm. Basically, all this is doing is making the VC world a little more competitive, and that should force them to do a better job (though, not to stop whining). As we've pointed out in the past, while bubbles may be bad for investors, they can often be good for consumers, so don't buy the VC hype.
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Inefficient market
John Neshiem points out in "High Tech Startup" that the VC market is inefficient right now. It's been about a year since I read his book, but I seem to remember him pointing out that in a successful textbook company, it is not uncommon for the founder/CEO to make about 8 million dollars over 5 years. A successful VC will make about the same. But the founder's chance of ever making money is much lower than the VC's chance of making money. If the money people truly believe that a riskier venture merits a higher reward, then the fact that the VC industry is becoming more competitive is merely an apropriate market correction.
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if they have too much money...
then lets start our own VC fund and help relieve them of their burden.
My experience with VC's is that they are no better than loan sharks. They take more than they give and bleed the company dry. Standard procedure is to replace the founders with their own plants who will spend like the dotcom haydays and keep asking for more VC money, until there is no more to get and then close up shop. End result, the VC got a lot in fees, a lot of fat salaries and advisory fees and the startup is dead.
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