Posted on December 28, 2007
Filed Under VC Insanity |
The New York Times has published an article that discusses the increasing number of Google employees who are leaving Google and deciding to become investors. Some are becoming angels, some are joining VC firms and others are raising their own funds.
TechCrunch has proclaimed “Here Comes The Google Mafia” in reference to the PayPal Mafia that has carved out a niche in Silicon Valley (I hear they control all of the racketeering east of Sand Hill Road). While the legion of Google investors have not yet organized in the same way that the PayPal Mafia has, that could be changing. Former Googler Aydin Senkut, who left Google in 2005 and has been an angel ever since, stated “We are planning to bring all the ex-Googlers who are starting companies and investing in companies together to tighten up the network.”
The fact that Google employees are deciding to cash in their chips and to make an effort to turn small fortunes into large fortunes by investing in companies that they hope can become the next Googles is not surprising. It’s to be expected. Unfortunately, I don’t think that Google investors are going to have greater success than most investors, who on average, are lucky to see “acceptable” returns.
- As noted by Erick Schonfeld at TechCrunch, there are some significant differences between the Google Mafia and the PayPal Mafia. I’d argue that most of the members of the PayPal Mafia were entrepreneurs more than they were employees, while most of the members of the Google Mafia were employees more than they were entrepreneurs. This makes a huge difference.
- Google is a big company (16,000+ employees) and a lot of employees made money. Even a part-time masseuse who joined Google when it had 40 employees is a multimillionaire. As such, it’s safe to say that just because you made a mint at Google doesn’t necessarily mean you’re the type of person who has superior potential as an investor. I’ve met several Google millionaires and while none of them was unintelligent, none stood out as the type of street-smart, savvy and versatile businessman I’d want as an angel either. In fact, I’d consider that some of them, because of their experience at Google, might be just a little bit naive about the challenging situations most startups face. After all, while I’m sure Googlers faced challenges, they probably weren’t of the type that the average early-stage startup faces (getting a first customer, dealing with cashflow problems, making the most of limited resources, etc.).
- While most investors talk about all the “value” they bring to the table in addition to their money, most of the time this talk is pure bullshit. Entrepreneurs should look for investors that can provide more than capital, but far too many entrepreneurs get suckered in when an investor discusses the value of his relationships, his ability to connect a startup with other current and former portfolio companies, etc. More often than not, these things rarely add the significant value that the entrepreneur expects. And so it is with Google investors. I’d imagine there are more than a few entrepreneurs willing to take money from an ex-Googler simply because he’s an ex-Googler. After all, that should help you get acquired by Google, right? And I’m sure that there won’t be any shortage of Google investors leveraging their Googler status to close deals knowing full well that these sorts of things are being inferred by the entrepreneur.
I wish Google investors the best of luck. There are very few angels and VC firms that have proven an ability to pick winners on a consistent basis. For all intents and purposes, most investor-backed startups fail and it’s a few big winners that provide the ability to earn a decent return. Frankly, I’d argue that being a full-time investor might look sexy, but it’s actually not. In the end, I’m not expecting Googlers to have any more luck than the average investor.
At the end of his post, Erick Schonfeld asks “So if there existed a Google Mafia venture fund and a Paypal Mafia venture fund (which would include Facebook, where Thiel sits on the board), which one would you rather invest in?” My answer: neither. That’s not just because I think putting money into a VC fund is about as intelligent as letting my 16 year-old son drive daddy’s new Lamborghini Murcielago. It’s also because the vast majority of the deals both groups are making look less-than-appealing. Googler-turned-investor Chris Sacca is correct when he states that “there is a world of opportunity” but most of the opportunity to make large fortunes is not in Silicon Valley technology startups. And when it does come to the best technology investments, I don’t think they’re to be found amongst the old boys network in Silicon Valley.Print This Post