An Interesting Twitter Thread on VC

Was perusing Twitter with a cup of coffee this morning and I ran across this thread.  I turned it into a “moment” and will add to it over time.  There have been some interesting tweets in the past weeks around VC.

That tells me the VC world is starting to get in flux.

Part of it is the massive funds that have been raised at the top end, part of it is the ICO market and then flame out, and part of it is the difficulty that microVCs are starting to realize.  This is a tough business.  It looks easy from the outside.  The math is unforgiving.

If you don’t want to take risk, and you are lazy, it’s also not a business for you.  Following the herd is easy.  But, eventually you get trampled.

Here is the tweet that piqued my interest.

VCs: “We’re contrarian.”
Also VCs: “We only hire people with previous Founder experience or an MBA—double points if they went to Harvard or Stanford.”

— Benjamin Crane (@bjc290) January 21, 2019

and

VCs: “We’re contraction.”
Also VCs: “Pattern matching.”
Also VCs: “Who else is participating in this round?”

— Jeff Lesser (@jefflesser) January 22, 2019

I talk to a lot of young people about getting into VC. It used to be that you were an investment banker or a consultant and you made the jump. You definitely had an MBA. Or, like the Fairchild Republic mafia, you were an entrepreneur that made the jump.  If you haven’t watched the movie Something Ventured you should.

I do think the best VC firms have a little of both in their firm. Operators and people that were not operators. The type of people you have in the firm should be dependent on the stage you invest at. If you are a seed investor, you need a different skillset than a Series C,D pre-IPO investor.  You need people with engineering backgrounds in VC, but you also need people that don’t think like engineers.

Seed can really entail doing a lot of psychological work.  It can be totally frustrating to some people.

I do think there is an incredible bias in VC toward Stanford, Harvard, and Wharton.   It shows in the data of firms.  Jason Rowley wrote about it awhile ago.   If you don’t fit in the round hole, you cannot break through the wall.  You will have to find another way.

There are a lot of pressures on venture capital that are uncontrollable.  For example, when interest rates go up it changes the cost of capital for everyone and changes risk preferences of investors.  Maybe that fund of funds would rather be in safer securities than VC?

The startup world is also a victim of its own success.  It is incredibly costly to operate a company in a place like San Francisco.  An entrepreneur raises money and how much of it goes for overhead?  It would be better spent actually scaling the company.  Valuations rose as more capital was chasing fewer deals.  That’s going to impact returns.

The VC world is due for a shakeup.  Maybe one is coming.