VCs Still Worried About Competition For Their Money

from the haven't-we-heard-this-before? dept

Back in 2004, there was suddenly a glut of public statements from venture capitalists complaining that there was too much money trying to invest in startups. Of course, what they really meant was that there was too much competition in their own space, and they no longer had the pick of the litter when it came to which startups to invest in. It looks like they’re still worried about the competition, but now it’s expanded to the hedge fund space. At a venture capital conference, a well known VC was heard complaining that too many American students go to work at hedge funds, since they pay so much. Of course, it’s worth noting that many hedge funds these days are starting to fund startups — moving into the space that used to be exclusively held by venture capital funds. Also, it’s a bit amusing to see a VC complain about the pay at a hedge fund, as we don’t hear about too many poor venture capitalists. He also complains that startups are getting too much money and spending it poorly — the same arguments we’ve heard before. It certainly is true that companies can get distracted and make bad decisions with too much money. We’ve seen plenty of companies find value in staying lean to keep them focused. However, to hear that argument coming from a venture capitalist, it rings hollow. After all, these are the same venture capitalists who talk about how much “value” they offer above and beyond the money. If that’s true, they shouldn’t worry about there being too much money sloshing around startups, because they should be able to prove their worth in other ways. Also, if they feel that startups are getting too much money, and it’s going to ruin them, there’s a simple answer: don’t invest in them, and let others waste their money.

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Comments on “VCs Still Worried About Competition For Their Money”

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Tyshaun says:

you're right but...

The purpose of venture captial funds is to invest in new and potentially profitable ventures. I can see why they’d (VCs) be worried about too much money out there. It basically creates a market where there is no compelling incentive for a startup to perform because of the easy availablity of more money to fuel the fire. Sure, eventually the money dries up, and you think startups would be smart enough to use their money wisely, but bubble 1.0 showed us that common sense is hardly ever common.

I came out of college in the middle of bubble 1.0. I remember salaries being offered by startups that were astronomical, perks of all kind were thrown around, and it just seemed like the companies believed money grew on trees and the tree would just keep on bearing fruit.

So what do you do if you’re a VC with money that needs to be invested? Take an active interest in how the company spends your money and give it out in doses just large enough to keep the company going, but not so much at once so the “kid in a candy story” effect doesn’t kick in.

g says:

Re: you're right but...

The purpose of VCs? Who says they have a purpose. There is no natural institution for VCs. They just started doing what theyre doing, and now they have a name, end of story.

There is no right to be a VC according to the laws of VCs, and only by those laws. Whatever they might be.

Too much money giving no incentive to compete as a company? Perhaps you think the VCs dont own the company after investing, or that they write the checks to the founders who put them in their own bank accounts?

The VCs agree on how much money the founders will be able to be paid. Theres no point dwelling on the fate of the VCs, like this site points out every day, they dont have a right to do what they do unfettered by competition. If they cant make it on their own, they need a new business model.

Doug says:


You used the word complain four times, yet the article never used that word, nor does anything in the article really qualify as a complaint.

Worse, you really missed the point of the article you linked to. David Strom was commenting about how US students are choosing jobs rather than starting businesses on their own. In other words, society would be better off with more people trying to start businesses, trying to innovate, trying to change the world, rather than just going to work “for the man”. It’s a valid point, and makes perfect sense that a VC, who is in the business of providing capital to startups, would encourage more startups. But funding startups has never been a space “exclusively held by venture capital funds”. There have always been many ways for a new company to get funding, and venture capital is not even the most common. There are surely more startups funded by credit card debt than by venture capital. And then there are bank loans, SBA loans, life savings, money from family and friends, angel investors, etc.

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