I follow a lot of VC’s and I have been trying to grasp exactly how it is that the tech industry works at a startup level. For a while now, I have been dreaming of building my own company. I have lots of ideas but not the time nor funding to really get any of them off the ground. As you get older, you have less ability to focus on ‘side projects’. Certainly, having a family means that there is no way your dependents are going to tolerate some sort of life altering change where you take a risk that jeopardizes their lifestyle.
This all means that you really can’t do it on your own. I read Hillary Clinton’s It Takes a Village and one of the things I remember most was her overarching theme that needing a village is more than just for raising kids. The Village is a metaphor for everything we do and that for the most part we can’t do much entirely by ourselves. I guess that’s why I like obstacle racing so much. It’s one of the few times when I can push myself in a way that is truly about self reliance.
So inevitably, my dreams of success as CEO of one of my companies, relies on a pretty extensive village. Family keeps me grounded in reality. Friends keep me sane. Athletics keeps me spiritually fit. And VC’s are my only source of real capital. This last part vexes me the most.
There is an almost single-minded focus in the VC world that founders should be the technical developers. That somehow, only computer geeks can be ‘product’ guys. What is really crazy, is that they expect most of these founders to be young. Considering the need for a portfolio 30% return, this one kills me. Here is the logic.
If you hire real young kids, they live on the cheap, with mom and dad, and no spouse/kids. So if they somehow manage a big return, our cost basis is so small that we can yield a single-point 10x (1000%) return that will offset all of the other investment failures (also in high risk young kids). Thus netting to 30%. So we pull these kids, with mediocre ideas, straight out of college or their first job. We throw them in an incubator/accelerator program in the belief that surrounding them with smarter people, will invoke some sort of fast-track osmosis. In the end we hope for great execution on an idea that might not even be the original premise. We bet on a person, that we acknowledge knows little.
I remember being young and wondering why no one trusted me to do anything meaningful, now I know why. Maybe I was the exception like some of these kids. I wish someone had given me a shot.
I’ve read commentary in the VC world claiming that inexperience specifically enables risk taking that a calculating experienced person wouldn’t touch. Thus unlocking the potential for a 10x return. eg. You want to build a platform for sharing 140 characters of your most recent stream-of-consciousness thought? Seriously?
Lets unpack this a bit. If you are going to throw money at a kid to take an extraordinary risk, why is it inconceivable to throw a little bit more money at someone with 10x the experience to take the same risk? Wouldn’t that effort have a higher probability of success? Let me be blunt, are you so against paying me a livable salary, that might yield an 8x super-payday, to build you something extraordinary just because while I am building it I won’t live on Ramen?
I’ve done failure. I’ve planned a complex rollout, having to overfactor server demand. I’ve coordinated installs on 3 continents. I’ve managed $2M of dev spend in a calendar year. I am an architect on a $20m program. We build stuff that can’t fail. But my coding skills are best served for self-deprecating humor (I’m working on it ). I feel a little like Stephen Hawking; there are great thoughts in my head, but my body is preventing them from coming out. I simply can’t quit my job to focus on building a product any more than a brilliant physicist can’t conjur an ALS free body.
In big companies, developers are relatively cheap. Designers, architects, thinkers…those are the product guys. We write specs and coders code. If a $12B company will pay me to build what they want, why won’t some VC fund me to build something the world might want?
I hear you bro. I think you have a valid point. Have you heard of search funds? A hybrid of a search fund and incubator would be a great counter to the Ramen culture.
I had not heard of a Search. I think the idea of an incubator/accelerator would be good for the culture and real estate. Just seeing some of the silliness that went into Techstars amazed me.
Hey brother, that was a good post and I think you hit on a lot of things people wonder about VC. I can probably explain a lot of it because I had some experience iwth it in my last couple years of college. We should find a brewhouse, always enjoy endulging in a few libations and talking start-ups and business ideas with people that have the same mindset about ‘living the dream’.
Definitely! Miss you buddy, no one to help me make fun of all the knuckleheads without you around. I’ll shoot you a note so we can hitch up sometime.