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Venture Capital

by Mike Masnick

Mon, May 23rd 2005 2:12am





Big Names Realize That Being A VC Ain't So Easy After All

from the think-you-can-do-this-job? dept

It's pretty easy to sit back and make fun of the clubby world of venture capital. We've certainly done it plenty of times here ourselves. However, no matter how much we joke about VCs and traits such as their lemming-like need to all rush into the same overhyped space at once, it is worth noting that the job is not that easy. Any job where you know you're going to fail more than you succeed is going to be a difficult one. Gary Rivlin has started a new column for the NY Times on venture capital, which caught some attention because of Rivlin's reputation for taking no prisoners in his columns and upsetting plenty of people in the process. His first column, then, doesn't disappoint, as he tears apart some "celebrity VCs," who made their name in other areas of business, and went into the VC world with great fanfare, only to be tossed out a few years later without much success to their name (and, perhaps a few failures). The main targets include Stewart Alsop and Mitch Kapor -- though, Kapor is more willing to discuss his lack of success in the VC world. The difficulty in being a VC is that a lot of things all have to line up right -- and not all of them are under the VC's control. The VC needs to be able to spot a good team, a good product and an emerging market, all at once. On top of that, there needs to be a lot of good luck. It's getting that luck part to line up that's the most difficult. A bad VC will screw up the first part, but will still luck out every once in a while (it's the "broken clock tells the right time twice a day" argument). A good VC can usually do a good job on the first items, but bad luck can still get in the way. Over time, it should even out somewhat, as getting the team, the product and the market right makes it a lot easier for luck to help you out. However, getting everything to line up perfectly always comes down, to some extent, to the luck.

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  1.  
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    Anonymous, May 23rd, 2005 @ 9:36am

    missing something here

    This article assumes that in order to be successful a VC must invest money in a company that eventually becomes successful. It is possible for a VC to make money investing in a company that goes bottom up. It is possible for a VC to make more by money investing in a company he KNOWS will go bottom up than by investing in a company that might make it big. It is possible for a VC to arrange things so that the company it invests in will for certain go bottom up, and this eliminates the need for prediction, reducing risk and firming up a clear investment strategy. People on the outside looking in only see the problem from one angle. They only see the VC investing in their company. They assume the VC's other investments have no bearing or relationship to their company. They fail to appreciate just how many venues exist for money to destabilize or otherwise spin a corporate investment. To those who would bluster "But but there are laws against this sort of thing!" I say this: there are laws against underage drinking, and people still do it because they feel the benefit is worth the risk. Want more? People really believe the mad cash of the dot-com era simply evaporated during the dot-bomb bust. But money doesn't evaporate. Therefore someone has it, it just isn't you. The sharpest VCs weren't screwed, they were merely profit-taking.

     

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  2.  
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    JK, May 23rd, 2005 @ 11:19am

    Or rather -- it's a Random Walk

    The more likely explanation is that being a VC is rather like being a mutual fund manager or any stock picker. "Good" VCs are just like "Good" fund managers -- all they've done is won an egg toss. (See Burton Malkiel's Random Walk Down Wall Street.). Above some baseline skill-set, there is no skill that allows you to be a better VC than the next guy, other than good luck, that is.

     

    [ reply to this | link to this | view in thread ]


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