Getting a Divorce from a VC(justanentrepreneur.com)
justanentrepreneur.com
Getting a Divorce from a VC
http://justanentrepreneur.com/?p=32
10 comments
And the company would have died. The VCs needed a short term 10X or better return on their money due to the fund ending and were willing to bet everything for a chance to get it since "shares in an illiquid company are useless to the VC". Profitable enough to return 2X the VCs' money and growing at "double digit rates", just not enough.
The 5 to 10 year lifetime of current VC funds coupled with the slow (at best) economy and the much greater difficultly in cashing out post the doc.com crash suggests that taking VC money today is particularly risky and taking it near the end of the fund's life far worse.
The 5 to 10 year lifetime of current VC funds coupled with the slow (at best) economy and the much greater difficultly in cashing out post the doc.com crash suggests that taking VC money today is particularly risky and taking it near the end of the fund's life far worse.
Is the fund-lifecycle position of a potential VC something founders usually know about and take into account in funding rounds? I don't think I've ever seen it discussed in the checklists of what to watch out for when taking VC funding.
VCs will tell you how much they've invested and where they are in their fund. They also often have more than one fund going at a time.
It's perhaps not in the checklists since the current low returns for the last ten years bad results for the industry is a new thing (at least in recent memory).
Taken from a previous entry, this is just one of many reasons why the founders could be given the exit route: they keep majority of the company shares. At a company that is facing unexpected roadbumps, this has to eventually be executed in the hopes of redeeming the company. It's a hard truth, but you can only learn from it.
"The big company execs don’t realize nothing happens at a small company unless you personally take initiative. Nothing comes to you by itself."
This part hits very close to home. Every single one of the executive, sales, or biz-dev people our VCs pushed on fell into this trap. Without fail, they would dig into their network until reaching an impressive contact, put together a powerpoint proposal with shockingly good projections, and then expect someone else to make it all happen. However, in every case they were ousted by the board and the VC firm after 1 year of not producing results.
This part hits very close to home. Every single one of the executive, sales, or biz-dev people our VCs pushed on fell into this trap. Without fail, they would dig into their network until reaching an impressive contact, put together a powerpoint proposal with shockingly good projections, and then expect someone else to make it all happen. However, in every case they were ousted by the board and the VC firm after 1 year of not producing results.
When you say "they would dig into their network" do you mean that first, the VCs recommend that you hire the executive, and then the executive hires his impressive contact -- the one who is supposed to make magic?
What do you suppose is going on here? Is the executive just trying to build his empire from the start? Or, are these executives circulating around in a system of favors, going from failure to failure? Do you think it's naivete, stupidity, or cynicism on the part of VCs to hire these guys?
What do you suppose is going on here? Is the executive just trying to build his empire from the start? Or, are these executives circulating around in a system of favors, going from failure to failure? Do you think it's naivete, stupidity, or cynicism on the part of VCs to hire these guys?
Reads like the Hacker equivalent of a Harquelin Romance novel... by the end you want his VCs' heads put on stakes :)
If it had been a Harlequin romance novel, the vaguely abusive but mostly misunderstood VC would probably have gotten the founder, after several speeches about how she was not to be tamed.
My not-so-secret shame is that I have a Kindle full of urban fantasy, which is essentially isomorphic to romance, except the bodices get ripped with retractable claws. Oh, and the lover is her sire, so he has a excuse for being abusive and controlling when he isn't being a suave sex machine. By the way, she didn't consent to being turned but kind of enjoyed it anyhow. Both parts of that are major plot points, frequently returned to.
The worst part of it is I just can't stop reading them. sigh
My not-so-secret shame is that I have a Kindle full of urban fantasy, which is essentially isomorphic to romance, except the bodices get ripped with retractable claws. Oh, and the lover is her sire, so he has a excuse for being abusive and controlling when he isn't being a suave sex machine. By the way, she didn't consent to being turned but kind of enjoyed it anyhow. Both parts of that are major plot points, frequently returned to.
The worst part of it is I just can't stop reading them. sigh
Sounds fascinating. Some recommendations? (not kidding)
Typically they're marketed under an identifiable naming scheme and the heroine's name. I'm going to give you titles from the first in the series, you can search on Amazon to find the rest.
Let's see: Dead Witch Watching (my first urban fantasy series and a decent one to get started on if you're new to the genre). Succubus Blues (an... amusing choice in a protagonist). Trick of the Light. Nice Girls Don't Have Fangs ("He vamped me against my will, comedy edition"). Some Girls Bite ("He vamped me against my will, drama edition" -- probably the quickest teach-you-the-tropes book on this list).
Let's see: Dead Witch Watching (my first urban fantasy series and a decent one to get started on if you're new to the genre). Succubus Blues (an... amusing choice in a protagonist). Trick of the Light. Nice Girls Don't Have Fangs ("He vamped me against my will, comedy edition"). Some Girls Bite ("He vamped me against my will, drama edition" -- probably the quickest teach-you-the-tropes book on this list).
Most urban fantasy isn't very good (at least what I've read so far: Justine Musk, Mike Carey, some others). But if you get a chance, read Lev Grossman's The Magicians: http://jseliger.com/2009/08/28/the-magicians-lev-grossman . Although it's more straight-up fantasy than urban fantasy, Philip Pullman's His Dark Materials trilogy is also excellent.
Ugh, this just reinforces the idea I would never want to take venture capital. To me, being an entrepreneur means you only answer two yourself, your employees, and your customers. Having to answer to a board sounds like the most miserable thing ever. To spend your life building a company, putting your blood, sweat, and tears into your business only to be fired by a board that dislikes you would be devastating to me.
It really makes me respect purely bootstrapped companies a lot. (I know, I know, we wouldn't have a lot of huge companies that we depend on daily without venture capital).
It really makes me respect purely bootstrapped companies a lot. (I know, I know, we wouldn't have a lot of huge companies that we depend on daily without venture capital).
Getting a VC investment is just like a marriage except for the things being equal part. Typically all the power comes with those preferred shares and the only real way to "get a divorce" is to buy them off just like the founder did.
There really are only 3 true options if you need to raise large amounts of institutional capital. 1) Stage a round with so many VCs that if you get one or more bad ones, they get shouted down by the other ones 2) Just take investments from people you know for certain are great (hard to do unless you've taken money from them before 3) Only take a very small amount so you don't actually give up control. That's harder to do since most vc's won't do the deal otherwise.
There really are only 3 true options if you need to raise large amounts of institutional capital. 1) Stage a round with so many VCs that if you get one or more bad ones, they get shouted down by the other ones 2) Just take investments from people you know for certain are great (hard to do unless you've taken money from them before 3) Only take a very small amount so you don't actually give up control. That's harder to do since most vc's won't do the deal otherwise.
Hmmm, yeah ... it's possible that these VCs only accepted a non-control position because they were desperate due to their fund closing fairly soon (let's assume within 2-3 or so years) and needing another chance at a big hit.
The general lesson I've gotten from most stories related to VC is to not involve VC if I can help it. It's the safer, simpler course. And also, ideally, never take on investors of any kind. Again, as long as there is no real pressing need. Instead, start tiny, grow organically. Maybe take on a co-founder, give them equity, if they have the right talent and the fit is good, and you want to conserve cash to help stave off needing investment, etc.
Also, don't take on employees unless it's necessary to turn it into a (more) passive income stream. Speaking ideally again.
Also, don't take on employees unless it's necessary to turn it into a (more) passive income stream. Speaking ideally again.
Yeah, but the problem with the above is that it necessarily limits the scope of your venture. E.g. you're very unlikely to do anything related to hardware with such constraints (I keep wondering where the next "wow" hardware development akin to the FPGA is going to come from in the current post-dot.com crash funding ecosystem).
I suspect there's a continuum from keeping the most control to having the greatest chance of "changing the world".
I suspect there's a continuum from keeping the most control to having the greatest chance of "changing the world".
(he has eleven attorney’s in his practice at a major firm)
we had watched three company’s raise more than $10M each in our space
I am genuinely sorry for it, and part of me feels elitist for insisting on it, but I will always [EDIT]be[/EDIT] wary of anyone who doesn't know their apostrophes.
we had watched three company’s raise more than $10M each in our space
I am genuinely sorry for it, and part of me feels elitist for insisting on it, but I will always [EDIT]be[/EDIT] wary of anyone who doesn't know their apostrophes.
I will always wary
Muphry's Law, a truly remarkable thing! http://en.wikipedia.org/wiki/Muphrys_law
Muphry's Law, a truly remarkable thing! http://en.wikipedia.org/wiki/Muphrys_law
I love being the proof ;-D
My only gripe is that I'm looking forward to the day I can do the same in Polish... and make it look like an accident ;)
My only gripe is that I'm looking forward to the day I can do the same in Polish... and make it look like an accident ;)
A guide on how to get rid of your vc when they start becoming problematic would be good. I suppose another way out would be to find someone capable of sustaining a longer view (for the companies that avc would call 'Zombies'... zombies being profitable but not earth shattering.)
Prompted by/in the blog comments to http://news.ycombinator.com/item?id=1423669
Yes, Fred Wilson's recent blog, and commentary contributors, have a lot of valuable input on this.
The battle of the wills described in this piece could only have been possible because the founders retained their majority control and even then it was obviously painful as could be dealing with the types of bullying investors described. Had it not been for this, the founders would have been crushed.