Hug a VC today

Paul Kedrosky has a funny paean to VC's over on TechCrunch - there are some classic lines I wish I'd written, and probably will...... (actually, there is some Irony in them - is Paul actually Canadian?*):

Hating venture capitalists is profoundly satisfying. After all, they are slack-jawed, monied, oily, know-nothings who carom off innovation, fire capable founders, squash angel investors, and exist mostly to make commercial bankers look smart and interesting.

But as Paul points out, its not that easy:

Creating a successful startup is among the hardest things you can do in a capitalist economy. Entrepreneurs must successfully navigate a sea of multi-dimensional uncertainty, from technology (will it work?), to people (do I have the right employees?), to market (will anyone care?), to financial (can I finance doing this, and can I then sell the product or service for more than it costs?) At big companies you can fail at launching a product, fail at hiring people, fail at making money on a product, and fail at figuring out whether something will work. Your big company will probably be unaffected, and you may even get promoted. Do any of those things wrong at a startup and, in all likelihood, you’re dead. You are wandering a maze of dark and twisty passages — most of which are paved with trapdoors to hell.

The idea that anyone at all would build a business around funding startups is the remarkable thing. No revenues, no sure market ahead, no collateral, no liquidity, and doe-eyed founders who were in high school when Enron blew up. It all adds up to more ways to break down than an old Winnebago. Far from wondering why so few companies get venture capital, we should perhaps wonder why any do, and how venture capitalists remain so damn optimistic. To borrow an industry adage, the best venture capitalists retain the capacity to fall in love despite having had their heart broken over and over again.

And if it works, someone else gets all the glory while VC's remain non-venture capitalists in everyone's mind:

The “VCs as innovators” problem wouldn’t be so bad, of course, were it not for the scene-stealing entrepreneurs. Those bastards keep creating risky startups and getting all the glory. Damn you Sergey Brin and Jeff Bezos and Steve Jobs. Just in case you needed a reminder, it’s not VCs who create companies, it’s entrepreneurs. Blaming venture capitalists for their capital not changing the world is like blaming Pfizer’s treasury department for Viagra not saving your marriage. Yo, you have bigger problems, so to speak.

Wouldn’t it be nice if venture capitalist drove more innovation? Of course it would. But that’s like saying “Wouldn’t it be nice if supermodels followed you home?” Of course it would, but it’s fanciful.

It's a really good piece.

Except, except..... as an asset class its under major threat today, with diminishing returns as startup require less capital to get going, but also (like in media) stay on the hit parade top 10 for less time. I look forward to an equally sharp post from Paul about what they have to do to sort that issue out.

Also, I'm not sure that what they do is the hard bit compared to actually founding a startup. By definition a portfolio de-risks investment strategy. There is also a fascinating piece in Ian Ayres' book Supercrunchers where he notes that movie moguls hate using mathematical analysis to predict movie success, even though it provably works, because they prefer the system that those moguls in power have monopolised - ie a comfortable relationship game. There is also some similarity, I hypothesise, in predicting the success of movies and startups, but I have yet to see any serious study made apart from a few prediction market plays a few years ago. For a small consideration I wouldn't mind looking at this area

Just sayin......

*Americans are famous for their lack of irony. Brits are famous for a love of stereotypes