Posted on September 9, 2008
Filed Under VC Insanity |
I substituted a siesta this afternoon to watch the TechCrunch50 panel on venture capital.
The members of the panel were Sumant Mandal of Clearstone Venture Partners, George Zachary of Charles River Ventures, Roelof Botha of Sequoia Capital, Raj Kapoor of Mayfield Fund and Ross Levinsohn of Velocity Interactive Group.
Joining them was serial entrepreneur Mark Pincus, no stranger to Sand Hill Road (his current startup Zynga just under $40 million in funding).
The only interesting part of the discussion was a specific criticism Pincus leveled at VCs about the way they work. While the video recording of this panel discussion is not (yet?) available, Pincus basically stated that VCs should not care about terms and valuation - if they truly believe in a company they should load up on as much stock as they can get at any price and do so as quickly as possible.
Ross Levinsohn pointed out that he’s making investments with other people’s money and that he is a “steward” for that money. As such, it is impossible and would be irresponsible for a VC to simply load up the boat in the manner Pincus described.
At this point, Michael Arrington jumped in and called bullshit. Agreeing with Pincus, he mentioned that at some firms give a single partner veto rights over a deal. A brief discussion about the indecision that apparently often exists at venture capital firms ensued.
While I’m no fan of VCs and I’ve avoided them like the plague and will continue to do so, I was quite surprised that an entrepreneur like Pincus, who has relied heavily on VC over the course of his career, would be so naive.
Load up on all the stock they can get at any price? Don’t worry about terms? Get this thing done as quickly as possible so that guys like Pincus don’t have to wait? Forget about returns and risk management? Ignore fiduciary duty?
I want whatever Pincus is smoking.
Note to entrepreneurs: VCs are not in business to subsidize your dreams. And the individuals and institutions that give VCs money to invest are not doing so for philanthropic purposes.
Entrepreneurs, especially those who’ve been around the block a few times like Pincus, ought to know that.
For those who don’t want to wait and don’t like strings, there is another financing method: your own bank account.
Of course, when you need $40 million to build a network of free online games, whatever money you made from your last exit (Tribe.net) probably isn’t going to suffice. Hence the need for access to the bank accounts of:
- Avalon Ventures
- Clarium Capital
- Foundry Group
- Pilot Group
- Union Square Ventures
- Reid Hoffman
- Peter Thiel
- Bob Pittman
- Andy Russell
- Brad Feld
- Kleiner Perkins Caufield & Byers
I wonder if all these angels and VC firms bought as much Zynga stock as they could get their hands on at whatever valuation Pincus dreamt up. With no strings attached, of course.
Outside of perhaps , I doubt any of them bet the retirement on Zynga.
Bottom line: there are always strings attached.
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