Culture Archives

Briefly Taking Stock Of The Uber Shakeup

I think about Uber a lot, before this week, to the point where I committed to write a book about the company (back in October) and its effect on the world. As a disclaimer, I’m a fan of the company. I do not own shares in the company (but I wish I did) and will likely buy shares as a civilian when the company goes public. Yet, despite this, like many others feel, it’s disappointing to see a company with so much potential and the future in their hands fall on their face — not for taking product risk, or launching new features — but for not being smart about how powerful they are and will be. Power requires awareness, and everyone in technology now plays for Yankees.

I’ve been contacted by countless media outlets (CNBC, Bloomberg, and more coming) about my own views on this week’s news given I’ve written about Uber and the space they’ve opened up for years now. Here’s what I’ve told everyone, see below. I copied this from an email I sent to a reporter, modified slightly:

Michael: I have to believe they’re making preparations to part ways. I don’t see how he will be effective in his role as inking BD partnerships when his name is plastered across the web in such a manner. However, there is a case to be made that keeping the team intact at this time is best for the company, however painful it is, so we will have to wait and see.

Kalanick: I have to believe he’s waiting to make a statement and give an interview. Maybe at tomorrow’s Goldman Sachs keynote in Vegas. He has to because if not, he’ll be asked this even more and more. (This is the #5 ranked post on my blog by total page views, it’s about Travis’s entrepreneurial journey.)

Impact On Fundraising: Uber has been rumored to been soliciting inbound offers to invest for months. I wouldn’t be surprised if it’s already done (before this all happened), and I wouldn’t be surprised if the valuation number is much higher than is reported. If and when that happens, expect Twitter to break again.

Role Of Investors: Lots of people seem to want the investors to “reign in” the company execs. I’m not sure that’s possible. They also want them to speak up, but I can’t imagine any of them saying anything before Travis does. The CEO leads the way. (I also have to imagine the larger investors are discussing this with management privately — and a lot.)

Impact On Brand: Uber had a complicated brand before, but this kind of narrative is one of the rare examples of truly bad PR. Like many of you, I believe it will stick and it’s on the company to earn back respect from those they have spurned.

Impact On Company: I have some friends who are early employees of Uber. I haven’t talked to them, but I imagine they’re pissed because all of their good work is taken out of the spotlight for a series of bad decisions. I don’t know enough about Uber on the inside to know what it’s like, but my hope is that this all moves the leadership to examine within and hopefully get better.

The Role Of The Crowd: I will admit being naive, I was surprised at how many people actively dislike Uber. I underestimated the intensity of that. I like Uber (the product) but certainly don’t condone what happened this week. My hope is all of this unfortunate news forces the company to not repeat history, lest they want this kind of congressional attention. About five years ago, Zuckerberg was under an intense microscope, was dubbed to have had a “Nixon Moment” at D8 by AllThingsD, and received congressional inquiries from the Federal Trade Commission. Facebook built an unstoppable network of IDs on top of the Internet, and that translates to power; Uber has built a network on top of mobile operating systems, it too getting into the unstoppable territory, and therefore, the masses are just starting to learn just how much power Uber has accumulated.

 

 

Consumer Concepts And The Enterprise As The End Customer

Benu

Earlier this week, I helped lead a discussion re: on-demand services with an old friend (Kevin from Shyp) and a new friend (Sara from Postmates) — Basti double-booked himself! Our chat was part of Emergence Capital’s annual fall “Mobile Enterprise” event (see below for the Twitter timeline from the event), which is always great. I learn a ton at these events. My favorite sessions were the 1:1 interviews with David Barrett (Expensify) and @Stewart Butterfield (Slack). Both founders are unapologetic about how they work and provide real-talk in the face of generalized mantras and blogs people read/share re: how to startup, how to get investment, how to hire. These guys are the real deal and I wish I had my hands on the audio feed for these chats.

I seem to get called to help organize every “on-demand” panel, which is nice but also confusing. Is it really a big deal? I go back and forth. Almost two year ago now, when I was lucky to invest in companies like Instacart and DoorDash, I thought — yes, it’s a big deal. Then, I started to get wind of more companies, and they were contacting me, and I got overwhelmed, so I shied away. That turned out to be a mistake and I missed one awesome company because my brain shut off. Then, more recently in LA at the Rutberg Media event, on another panel, someone from the crowd asked a question about on-demand services for business, and Kevin got me thinking about something — what if on-demand is now just table stakes for delivering new customer experiences, even when the customer is a business?

That’s what we discussed on stage, and what I’ve been looking for in my investing. So far, I’ve invested in a small handful of ODS geared at businesses as the end customer, and it turns out they also like this type of service. Maybe there’s something here. And, maybe a bigger trend. The phrase “consumerization of the enterprise” is quite overused and old, but what if consumer concepts like the sharing economy, on-demand services, and personalized software invade the business segment and give new companies a leg up on incumbents and even growing startups? That’s what I’ve been thinking over the last few weeks and would love to meet founders who are thinking along similar lines.


Quick Thoughts On Slack’s Big Round

Now that the frenzy has passed a bit, I wanted to share a few brief thoughts on Slack, their latest investment round, and all the chatter it all created. Whenever a company breaks out under our noses and simultaneously hit that billion-dollar mark, the peanut gallery (myself included) try to figure out why. Incidentally, a few days before that, I wrote my annual “Breakout Tech Company Of 20__” post and concluded that 2014 didn’t produce any singular breakouts, but instead the new incumbent elite (Uber, Stripe, Snapchat) widened their gap from the pack. While I don’t think I was directionally wrong, my post was premature and I should’ve waited and picked Slack rather than just mentioning them in the comments.

As usual, it’s the founders who make moves and prove the rest of the field wrong. I overheard so many people around town talking about Slack, the really high valuation, how investors are piling money into companies, how this provided 60 years of runway, but no one mentioned that the team may want to grow fast, it’s hard to hire right now, companies need cash in the bank for extra leverage if they enter any kind of bigco M&A discussions, and with all the SaaS seeded companies out there that won’t make A, they may elect to acquihire some of them. We just don’t know.

With that said, here’s what’s interesting re: Slack’s rise and $1B mark, from my point of view:

SaaS Attack & Connective Tissue: We live in a time when there are *so* many SaaS companies. Both private and public investors love the predictability of the SaaS model, and it’s of course a huge evolution from having to sell licenses and require updates in the old school ways. As a result, however, it’s become more difficult to suss out which early stage SaaS companies have breakout potential, and enterprises themselves (the end customers here) experience fatigue in the same way consumers and consumer investors experience app fatigue. Slack addresses this by having done the “schlep work” of integrating with a variety of 3rd party SaaS services and adding a communication layer on top that’s different than email. In a sea of disparate SaaS solutions, Slack becomes critical connective tissue.

Email Overload: Ask anyone at a startup or larger company if their use of Slack at work cuts down on email, and the resounding answer is “yes!” That’s not only a threat to Google Apps, but something employees don’t want to lose. People don’t like to be on threaded, cc’d conversations that are 17 or 80 strings long.

Humanized Conversations: On top of this, a friend remarked to me that the interactions at his work on Slack turned more conversational, and as a result, more humanized. People didn’t feel they were being told what to do and managed over email, but that they were part of a conversation, and people were polite, casual, and focused on helping each other. I’m sure that varies from place to place, but that’s quite a powerful endorsement.

Valuations On Multiples Vs Intangibles: So, much was written about Slack making $12m a year, but we don’t know churn yet, and the price of the round valued the company at $1.2B, about 93x earnings, so that’s crazy, right? But, let’s step back…Dropbox and Box need workflow layers to compete with the big companies, Google has tried and failed at collaboration, Asana and Trello are great but don’t yet have the product that will breakout nor a distribution strategy to get there (I say this with love as I like both products very much). So, who is going to do it? And if Slack does, does a $1B or $1.2B price tag matter? Remember, the folks at KP are close with Google and Google Ventures also was in this round. And, then there’s the founder — first time lucky, second time for real? Who knows, but from what I’ve heard, this guy doesn’t mess around and figured out a widespread problem to solve and did so with cross-platform software. It’s the people that venture investors back. This person led his team to this point. Who is going to bet against him now? And, therein lies all the answers to the valuation the company earned.

On-Demand As Tablestakes For Mainstream Consumer Experiences

The mobile-fueled “on-demand economy” has gone through a few phases. It started with magic, like — “hey, I can order an app from my phone!” Then, as distribution choked on mobile, entrepreneurs starting building “Uber for X” ideas like Postmates and other great apps — then people said, “hey, how many of these services can we have?” It started to sound like a bubble of ideas that wouldn’t be supported by the market, let alone venture capital. The economics of providing an on-demand service in today’s mobile world vary from company to company (and related to the cost of goods sold, where the delivery is often a loss leader or subsidized by the customer through a fee and/or tip).

For now, as 2014 ends, it seems the next phase for on-demand services is going to be seeping into the mainstream. Whether the economics work or not, the reality today is that consumers now expect on-demand service options and offering them can change consumer behavior. This month, Starbucks CEO Shultz announced on a public earnings call that Starbucks will begin testing “coffee delivery” in 2015. Or, consider Costco, which is now open to shoppers (note: they don’t have to be members) through Instacart or Google Shopping Express. Or, consider a startup called Curbside, which offers the ability to order and pick up at store — not quite on-demand, but moving in that direction. Has your spend at Target declined over the last few years? I thought so.

I was paying my credit card bill this morning and noticed the charges were overwhelmingly for two things: transportation or food. With transport, aside from airlines, the charges were for ride-sharing services, and with food, spread out over an array of new services and payment apps, many of which deliver things to me. It is the new expectation for mobile-first consumer experiences. Look at companies like Sprig and Spoonrocket — these are are entirely new brands and could be delivering amazing craft coffees right to your desk, bypassing your need to wait in the Blue Bottle line for 20 minutes. This is a silly example, but illustrates a point — when mobile is combined with a clear brand which offers a suitable or better substitute to something we already do, companies like Starbucks even need to start thinking about new interactions around consumer experience.

Nursing My Stocktoberfest Hangover

Earlier this week, I ventured down to San Diego to hang out at Stocktoberfest 2014. As soon as I touched down, I asked myself: “What took me so long to go down here for this?” It was fun right from the beginning, and Howard puts on a great event. As I ventured over to the bar for the opening happy hour and to watch Game 5 of the World Series, I immediately made new friends, talked shop, and even stress tested my presentation for Monday on someone with way, way more knowledge about the topic than I have. That turned out to be a useful beer. (More about that in a second.)

I’ll start with Tuesday first. @HowardLindzon graciously had me participate in two sessions. On Tuesday, it was a more general panel on mobile trends for the whole audience. The panel consisted of Howard moderating, myself, Jordan Mendell (DraftKings), Alex Bard (Campaign Monitor), and Justin Overdorff (Yelp). We discussed the classic stuff around mobile ecosystem — Apple vs Google/Android, Yelp and Pandora, and apps which truly benefited from the timing of the shift to mobile. As this is mostly a crowd of technical public stock enthusiasts, it was harder to explain how to play mobile in the public markets, partly because mobile is still immature in the big picture yet maturing for entrepreneurs given the distribution constraints. Public investors think about the big companies, the handset makers, the chip layers, infrastructure, carriers, and other parts of the ecosystem. Outside of Facebook or just mobile ads in general (a growing market), it’s hard to pull this off in the public markets.

Now, back to Monday. I wasn’t worried about the Tuesday panel because I’ve done tons of panels on mobile. Easy. But on Monday, Howard wanted me to lead a breakout of how I come about picking technology stocks. I called it: “Can insights from startups drive public market calls?” Given the audience is quite technical about stocks, my method and presentation are the exact opposite, so I was a bit nervous. As a result, I worked to make it more of a question than a session, and then fostered a discussion after explaining my own methodology. (I’ve put up the slides from the talk below.) What was great about the session, after overcoming the fear of presenting it, is that nearly everyone in the breakout raised their hand and offered a comment about their reactions, and it started a great discussion. My biggest takeaway from the session actually applies to investing generally, public or private — so much of it is driven by “entry prices,” as investing is about multiples, and right now, so many of the private entry prices to obtain equity are getting quite high.

Finally, Howard and his team did a phenomenal job to make everyone feel comfortable and I saw some old friends and made new ones. As the tagline goes, for “profit and joy.” It was a joyous occasion, indeed, and speaks to the community Howard has built with Stocktwits. Thanks for hosting, Howard!

The Story Behind My Investment In Auxy

About a year ago, a close friend of mine told me to get back in touch with @lg, and I did immediately — and that was a good choice. I had known Larry before and wanted to invest in Envoy on the spot. (You can read the Envoy story here.) As Larry and I reconnected, he graciously introduced me to this guy who was leaving one of my favorite startups to create his own product and company. So, of course, I took that recommendation seriously. And, I’m glad I did.

Larry recommended that I met Henrik, one of the earliest employees at SoundCloud. I love SoundCloud and have been friends with Alex for a while. Henrik was in town from Stockholm and I rushed to the city to meet him. We walked around the city for about 90 minutes. I was definitely going to invest and just was hung up on one detail — creating for the iPad vs iPhone. I was stuck on iPhone, he was bullish on iPad for music creation.

Auxy is iOS software that allows anyone to create their own electronic sounds, to stitch them together, to change the tone, pitch, tempo, and beat to create their own electronic music. Check out the video above and make sure to download Auxy for iPad — Henrik convinced me of why the iPad is better for this to start, just like good entrepreneurs do. Aside from that detail, I believe electronic music is the music of today’s and tomorrow’s generation, and is a lingua franca to connect people around the world in a common belief or experience. [Product Hunt discussion on Auxy.]

Henrik lives in Sweden. It’s the first international investment for Haystack. It was a quick decision in a product that’s built many miles away. But, like electronic music, our shared belief in the power of music makes that distance a minor footnote. Now, I have a friend in Stockholm, and I wonder what new things I’ll learn from him.

The Breakout Tech Company Of 2014

For the past two years, I ended the year with an attempt to name “The Breakout Tech Company” of that year. In 2012, I picked Stripe [see post here]. In 2013, I picked Snapchat [see post here]. Had I done this in 2011, I would’ve picked Uber. Each year, I tried to use the same framework — “the right person, the right idea, the right product, the right time, and the right market.”

As 2014 rolls to a close, I’ve been thinking about which company achieved this feat. And, I’ve been thinking about it for the past few months, and asking other friends in the industry. And, yes, there are great new companies forming every month and many of them are growing quite quickly. But, compared to what we’ve seen over the last three years, it’s hard to find a suitable comparison.

So, therefore, my vote for Breakout Tech Company of 2014 is to simply say that the previous three — Uber, Stripe, Snapchat — are actually continuing to breakout even more. They’ve already left one orbit, and now lurching for the next orbit. Uber is growing rapidly worldwide into the mega-market which makes up transportation and logistics; Stripe is operating on all cylinders and one of the marquee partners for Apple with Apple Pay; and Snapchat “Stories” are creating a new media format that’s poised to be a hit with advertisers given the scale, brand, and interactions native to this unique app.

So, there you have it — this will be a short post. It’s not fair or ideal, and I know many newer tech companies are doing well, but I don’t see anything breaking out on the level of Uber, Stripe, and Snapchat. They’ve raised the bar, and right now, these new “incumbents” are widening their lead with the help of different tailwinds. So to speak, the rich are getting richer, and the bar for newer companies to breakout is getting even harder.

Hey, I’m Writing A Book About Uber

I have some personal news to share. I am going to write a book. Yes, a book that you can physically hold in your hands, or download to your Kindle. Though many people who know me came to know me through my writing on blogs, I don’t consider myself a writer — rather, it is just the way I interact with the world around me and just a byproduct of the work I’ve been doing, either at companies, in venture capital, and as an independent investor. Yet, about a month ago, on a Sunday morning tailgating before a football game with a bunch of colleagues, we had a few beers and got on the topic of an idea that turned into a longer conversation.

And, since then, I couldn’t shake the idea. The more I thought about it, and the more I socialized the idea with friends, they too agreed it would be a good idea and that my background, more diverse than deep in any one category, could provide an interesting lens with which to write this book and share the associated ideas widely. I am going to put my name on the line and use my little platform to market the book. My intention is to make the book an organic extension of this blog, with more organization, and to share the story in an authentic, civil manner and attract the proper audience for it.

“OK, OK,” you say, “What’s the book about already!?” My answer: “Uber.” For lack of a better title, for now, I’ll call it: “The Uber Effect.”

Over the past year, I noticed that I would write more and more on this blog about Uber, and then when I searched the history on the site, I noticed it came up much more than I had imagined. And, recently, it has come up in conversation more, and when people I’m talking with realize the company is a big deal but have a harder time imagining how big the company can get and what type of influence it will collect and exert, those conversations turn into debates that touch on many aspects of how we organize society today. The more and more I think about the company and its growth potential, the more I’ve come to realize it will not just be a financially powerful company, but Uber will hold all other sorts of power related to data, mobility, logistics, commerce, transportation and more. Like Amazon, Google, and Facebook before it, it is a once-in-a-lifetime company, it is on the verge of going public within the next two years, and I have made a personal decision to commit some of my time to organize and tell that story as the drumbeat gets louder.

“What will the book cover?” you ask. I am still sorting that out, but expect it to touch on how mobile devices help create the largest technology market our society has ever witnessed, how humans are migrating to cities worldwide, how centralized systems (like governments) are being challenged by decentralized networks, a citizenry more willing to pay by the mile rather than pay more taxes and the subsequent effects on public transit infrastructure, a bifurcating labor market between high-skilled and not in an age with automation on the horizon, the distribution of knowledge via cloud-based servers and mobile devices, just-in-time inventory management powered by mobile devices, and how autonomous vehicles may turn this all upside down again.

Truth is, I’m still sorting this out, talking to an agent and publishers, but I want to commit to it, so I’m publicly sharing it, and I will need to really sharpen the scope and focus. That’s what the holidays are for, I guess!

All that said, here’s what will not be covered in the book:

One, this book will not be a hit-job on the company, nor an excuse to be an academic cheerleader for the company. I am an Uber “bull” and would love to own stock in the venture, but I have no financial connection to the company and I do believe Uber will face some bumpy times ahead. Uber is also a company which has been described as “unscrupulous” by many, and I will look into those stories. I want to write a fair book.

Two, the book won’t be unnecessarily long — rather, I want to write it in a style that a smart person can dig into it for a few weeks, let it marinate and digest, and then talk about it with other people.

Three, the book won’t go into gossipy detail about the company’s formation or startup competition — nothing wrong with someone else taking up this angle, and I’m sure there’s an audience for it, but it doesn’t interest me personally.

Four, it won’t be an excuse to show off data porn — I don’t want to be reliant on getting proprietary data nor do I want to get into academic debates about how one labeled a graph and such. There will be people who disagree with the book, and that’s great — heck, right now, many smart people think the company is grossly overvalued.

Five, my goal is to not make it the typical business or strategy book — think of the brilliantly short “Holidays On Ice” book by David Sedaris that you can read every holiday season with a heavy dose of the type of writing that’s on this blog already, but much more organized.

And, Six, this won’t be an “official” account or the “official” book on Uber. I won’t have that kind of access nor would make that claim. It will simply be my point of view on the company, in greater detail than could afford on this blog, and something tuned for the more casual reader who is interested in issues like globalization, mobile technology, new business models, labor markets, and reimagining cities.

Anyway, that’s it. I’ll share more details as I organize them. Will probably start with a Table Of Contents. Also, there will be many people reading this and on Twitter with a much better grasp of the company than I have — I want to write this book both for the technology early-adopters who have seen the Uber tidal wave coming for a while, but also for a more general audience who may have not yet. I hope that I can set expectations here and write a book that will appeal to both. Thanks for reading, and thanks to friends already who have listened to my idea and offered feedback and guidance. (And, yeah, there are probably typos in this post, so I’ll have an editor and fact-checker clean up the book.)

“A Round By Any Other Name Would Smell As Sweet”

** Update: I rec’d a lot of email/DMs on this one. My takeaway from this is there’s a mismatch of expectations when founders meet VCs. The founders may perceive they’ve raised Seed and are “going for A,” while VCs may perceive that same company to have already raised an A and, therefore, expect B-level metrics.

Monday night was a night on Twitter I did not expect. It’s easy to say that all the naming of rounds (seeds vs A vs ____) is semantic and tired — that’s true. What is interesting (to me), however, is the general knowledge gap between bigger institutional funds and the seed ecosystem at large. If you open this tweet and click through the various threads, the key lesson for me is that founders at the seed stage should be aware of how a larger VC firm will evaluate them based on the amount of money they’ve raised to date.

In particular, and this is just one person’s POV, but one of the largest, most public VCs said he viewed startups that took on around $3m or more in seed funding or notes had already raised their “A round.” Yes, semantics again, but founders are obsessed with these monikers, so everyone else is, too. A step further, for seeded companies that have raised this or more, a VC firm may benchmark that opportunity against other Series B deals they’ve done and/or are evaluating at that time.

This is all important today because (1) most people who aren’t on the inside don’t understand these goalposts; and (2) founders are operating in a climate where they can raise many rounds within a set of rolling closes of notes with caps. So, lamenting about what rounds are named misses the main point: Now that this knowledge has been made public, how will it impact how much founders raise, will it impact seed investors from continuing to invest in or bridge their companies? Whether or not $3m is the right benchmark, people are searching for guidance, and in the absence of perfect information or standardized milestones for companies to hit, a discussion like tonight’s helps shine a spotlight on companies who raise too much in the seed round.

It is not about the semantics. That may be obvious to some, but it’s great to have a leader in the world of VC just come out and say it so clearly. Not many people would.

Reflecting On Cendana’s LP/GP Summit

A few weeks ago, I was invited to Cendana Capital’s & SVB’s annual “LP/GP Summit” at the Bloomberg offices in San Francisco. I asked the head of Cendana if I could briefly summarize my takeaways of the event (without ascribing any comments made on stage to anyone in particular), and Michael graciously agreed. As I am new to the investing game and the smallest player by every standard, these types events are really impactful for me. Please note, Cendana is focused on early-stage VC or microVC, and less so on the bigger funds. I’m like a sponge trying to soak up everything I hear. So, here are “The Big Takeaways” for me:

[Before I do this, a few big disclaimers as inevitably people will read this with all different perspectives and points of view. What’s below does not necessarily apply broadly — rather, it’s based on what I’ve observed. Many funds have different relationships with their LPs. Therefore, these are my observations, and only that — my perspective on what I’ve noticed, and it’s likely to be at odds with what others may have seen.]

Today, everyone wants to invest directly. / This was the biggest theme of the day, and as I’ve been mentioning on Twitter, everyone and their parents want to invest directly into private companies. Crowdfunding, AngelList, Kickstarter, and so on. By now, we all now private companies can stay private longer, so as the opportunity set in the private sector grows, money on the sidelines is getting hungry. And, I mean HUNGRY. LPs increasingly want to not just follow-on into their GP investments, they want to co-invest at the time of the original check. // The inverse of “everyone wanting to invest directly” is that what people are saying is: “I don’t want to pay fees.” This can cause tension between LPs and GPs, and brings up all sorts of issues around which LPs are shown opportunities from which GPs, and so forth. There’s something broken in the VC fund model (fees or carry, or both) that’s aggravating LPs at a time when the real growth of new companies is captured by private investors.

LPs expect GPs to design their funds to be ahead of the curve. / It’s 2014. Venture has been through a few industry corrections and every smart person I talk to about this expect a few more. In a somewhat similar fashion as GPs scout the landscape for founders to back, so to do LPs scout for GPs to invest with (and alongside of). What does this mean in reality? It means larger funds (over $100M) might be expected to have budgeted fees instead of fees based on a percentage of total capital managed. Some larger firms have done this a while ago, and we should expect more will. LPs are looking for GPs to commit even more of their own capital to the fund. // On top of this, LPs seem to be digging into just “who” are GPs they’re partnering with, how they interact, how long they’ve known each other. One LP said that a common mistake in meetings was to notice GPs talking over each other. I chuckled at that one.

***A few other observations***

A dollar travels far before it reaches a founder. / Overall, now a week or so after the event, I find myself still thinking about how far a dollar travels to reach a founder. This stuff is all over the Internet in detail if someone wants to dig into it, but I’ll offer up a basic example to illustrate: Consider back to when you were in high school, working over the summer to earn some money toward college tuition. Those tuition dollars (along with other university revenues, like donations) go into the school’s endowment, which in turn hires sophisticated investment professionals to manage the endowment and grow it. One of the ways an endowment management team can grow the pie is by allocating a portion of its assets into riskier categories, such as venture capital. From there, they allocate funds directly to VC firms whose names you’d recognize and/or into “Fund of Funds” (FoF) which in turn invest those dollars (for a fee and carry rights) to VC firms. The VCs take fees on the money they manage and then allocate that pool to founders — though “some” also invest in smaller funds, if you can believe it. // In the previous example, you can replace a university’s endowment with a range of institutions or organizations which manage big sums of dough — corporations, sovereign wealth funds, pension funds, hedge funds, governments, wealth families, and so forth. However the dollar reaches these funds, it then is allocated and depleted a bit with fees every time new hands touch it. In the event a single dollar isn’t returned, it’s OK because it’s usually a small portion of the overall cash the original lender manages; but, when a single dollar put into Facebook when it was worth $100M is returned, it’s the type of money multiplier rarely seen.

Given that context, here are few things I’d point out that happen in the world of venture that may not be totally obvious to folks who observe, especially the founders who are busy team-building, product-building, and growing the company:

  • It’s easy to assume VCs are just investing other peoples’ money. There’s some truth to it, but in most funds, the LPs have the GPs also commit their own money to the fund, and that number seems to be increasing.
  • When there’s a big exit or uptick in the price of a company, the press and chattering class can easily latch on to what the estimated stake of a fund’s rake is. For instance, when Facebook was creeping up to $50Bn in the private markets and equity shareholders were selling some stake, people may have thought Fund X owned $Y because of some estimate of percentage ownership. That’s only part of the story — those proceeds are mainly sent to the LPs, usually 80%, and the GPs can take home the remaining 20%, give or take.
  • Investing is definitely easier than founding and/or building a company, but that doesn’t mean it’s a cushy or easy job. Yes, there are perks, but there is a lot of pressure, uncertainty, long feedback loops, and if someone doesn’t do well, the post-VC career options can taste a bit overripe. I don’t think anyone needs to feel sorry for a VC, but saying it’s an easy job doesn’t match reality.
  • Historically, lenders aren’t viewed favorably. In today’s climate, investors have become more public to share their thinking but also to help differentiate their offering beyond the same dollar everyone else has. That, combined with all new classes of early-stage investors and more diverse pools of financing available to founders combine to put a bright spotlight on VC firms that are not performing and/or not behaving well and/or who can’t raise future funds. There’s probably a ton of legacy stuff that still needs to shake out, a lot of which likely originated way before I became interested in this stuff. And, while I would welcome things getting better, I do find the chatter online against investors to be different from the reality I’ve seen firsthand. Yes, there are unsavory actors and plenty of time-crunched distracted VCs, but overwhelmingly I see professional investors who work basically around the clock to help their companies, to help out people in the ecosystem, and to advance the careers of the executives and recruits around them. That story isn’t often told, but maybe that will change as time carries on.

Haywire is written by Semil Shah, and is published under a Creative Commons BY-NC-SA license. Copyright © 2014 Semil Shah.

“I write this not for the many, but for you; each of us is enough of an audience for the other.”— Epicurus