VCs are startups too
ludlowventures.comNo they're a small investment business. There's a lot of small businesses that aren't "startups" that do a lot of the same things that Startups do but opening a McDonald's franchise isn't a startup either. I run a small agency of about 10 folks, I'm sure I do a lot of the same things as a startup founder does, we work with startups all the time, but that doesn't make my business a startup.
Hey we're all entrepreneurs though.
A startup is any business which is starting up (as in starting its primary revenue-generating business activity). Technology has nothing to do with it. Your agency isn't a startup because it has already doing its primary revenue-generating business activity.
This is, and for many decades has been, the definition of "startup" in the tax code. (Some tax codes limit the "startup" period to the period before the startup becomes generating revenue from its primary business activity.)
This post just helps reinforce the opinion that most VCs don't really know what startups do. Yes, they both raise money and some even have a website. That's where the similarities end.
With some outliers, most VCs don't try to create new value, they just try to create new money. The risk they take is minimal compared to startups - it's not their money (it's their investors), and a nice cushy salary is all but assured for several years. Even when they fail (and they fail a lot - like most businesses do) - they barely feel each failure compared to how the startups feel it (I guess their reputation / pride takes a hit?).
If you want to self promote - as an entrepreneur, I would much rather read about how you are adding value instead of convincing me you don't know what I do either.
"most VCs don't try to create new value, they just try to create new money."
I'd argue that many startups try to create new money too.
"The risk they take is minimal compared to startups - it's not their money (it's their investors),"
Not true. General partners also invest in the VC firms. It's not completely OPM
"and a nice cushy salary is all but assured for several years."
Also not true. In NYC, for example, 100K isn't exactly "cushy".
"Even when they fail (and they fail a lot - like most businesses do) - they barely feel each failure compared to how the startups feel it (I guess their reputation / pride takes a hit?)."
Back to the previous point, they lose the money they personally invested and they feel the failure when they turn around and try again.
> I'd argue that many startups try to create new money too.
Obviously, startups are usually a business too. The difference is what they actually do to make money - by creating value or by putting in money.
> Not true. General partners also invest in the VC firms. It's not completely OPM
When you have enough money to invest in a VC fund, typically have enough to get by without the returns (at least if you're a smart investor). On the other hand, most entrepreneurs put it all on the line when they try to bootstrap a startup (remember most startups don't successfully raise).
> Also not true. In NYC, for example, 100K isn't exactly "cushy".
Most people would very comfortable with 100K, NYC or not... just the fact you have a decent, dependable salary for several years makes it cushy compared to a startup.
> Back to the previous point, they lose the money they personally invested and they feel the failure when they turn around and try again.
Entreprenuers put much more in a startup than money. In fact, I would say money is the smallest investment you can make in a startup, emotionally. Time, blood and tears build startups, money is just a facilitator.
"The difference is what they actually do to make money - by creating value or by putting in money."
Are you seriously telling me that the next XYZ social media startup is creating more value than the VC that's investing in new technology? the 2010-2013 landscape is much different than you seem to think.
" most entrepreneurs put it all on the line when they try to bootstrap a startup (remember most startups don't successfully raise)."
Many if not most entrepreneurs already made their FU money or already had a cash reserve. Do you think Dorsey was putting it all on the line with Square? Do you think Bill Gates was putting it all on the line with Microsoft (his grandfather already set up a million-dollar trust fund in his name before he started)? Do you think that Mark Zuckerberg would be on the street if Facebook flopped? Do you think Bill Nguyen was putting it all on the line with Color?
"Most people would very comfortable with 100K, NYC or not... just the fact you have a decent, dependable salary for several years makes it cushy compared to a startup."
If the business could blow up tomorrow or in six months, the salary is far from dependable. (unfortunately I'm also in a precarious position) And yes, in many startups the people are drawing living salaries.
"Entreprenuers put much more in a startup than money"
And VCs don't? It's an exaggeration perpetrated in particular by accelerators. Most VCs offer something on top of money -- be it connections, mentorship, opportunities to sell to friends. Speaking from the side of having invested in others' startups, it's not a worthwhile investment if I can't actively do something to help improve the odds of success. While it doesn't seem like hard work, making and keeping connections involves lots of time and energy.
It's pretty shocking to me the different worlds we live in. You honestly think that most startups are created by people with FU money?
And while your personal experience may differ, the vast majority of VCs are strictly "dumb money" and add very little value beyond investment. Those that do are the exception, not the rule.
"You honestly think that most startups are created by people with FU money?"
Let's put it to a poll: https://news.ycombinator.com/item?id=5404986
before you make assumptions i'd check facts and/or inquire. our first fund was all of our own capital. we took 100% of the risk. didn't take ANY salary let alone a "cushy one" as for our added value, feel free to reach out to ANY of the founders we've invested in.
You wrote a post about VCs in general. VCs in general raise money to create the fund and then manage it. When you invest your own money, you are typically considered an "angel" investor. It might be semantics, but I'm sure you're aware of those definitions.
And if you have enough money to start a real VC fund by yourself, chances are that you don't really need a salary... as opposed to bootstrapped startups that are just barely scraping by.
This is just flat-out untrue. VC firms put in a significant chunk of their own funds into this - we're not talking peanuts here, we're talking about millions from general partners in some cases. This obviously differs from firm to firm, but the semantic about angel investing vs VC is just wrong.
and i'd argue that the majority of vcs we syndicate deals with leverage themselves as much as possible to add value. good companies generally have their choice as to which money to accept. value add is key...
Everyone's life FEELS hard, especially compared to the lives of those a few rungs up the ladder.
That said, not everyone's life IS hard. If you can afford not to take a paycheck for a few months to work on a dream, perhaps you should recalibrate your "how hard life is"-o-meter.
Was simply explaining how we as a firm view our relationships with founders of other startups... I'm grateful for everything I have.
Sure, I'm not saying that you don't provide value and you don't go to work every day. But remember, your business is much more about idea/team/market/execution arbitrage in a fairly illiquid environment than it is about doing the actual dirty work. VC is much more a meta-business than a "regular" business.
VC fundraising is very similar to startup fundraising at least. Lots and lots of rejection, continuous pitching and substitute "traction" for "track record".
This would be somewhat easier to swallow without the picture of the boat.
i wouldn't recommend trying to swallow the post... causes indigestion.
Jonathon's had a lot of portfolio success, has a great sense of humor, and is awesome to work with. Whether or not he runs a startup, I don't know, it's mostly semantics IMO, but I do know I'd go back to him at every raise. I think the point he's trying to make is that he's "one of the guys" and therefore an entrepreneur-friendly VC. I'd agree wholeheartedly. He also has a ninja-like backhand in table tennis.
If Startup=Growth, as PG said, then VCs are not startups, apart from YC and possibly 500 Startups.
Cool portfolio of Companies though!
That's a beautiful boat. Perhaps not a first choice in heavy seas, but pretty nonetheless.