Joel on VCs

I always enjoy reading Joel Spolsky’s writing, and his latest (Fixing Venture Capital) is no exception.

The fundamental reason is that VCs do not have goals that are aligned with the goals of the company founders. This creates a built-in source of stress in the relationship. Specifically, founders would prefer reasonable success with high probability, while VCs are looking for fantastic hit-it-out-of-the-ballpark success with low probability.

I think Joel is right on the money (in a manner of speaking). Another issue that Joel doesn’t go into is exactly what the VCs are expecting for an “exit”. He quotes Joi Ito as saying that the VCs want to cash out in 6 years. That means either an IPO or a sale. During the dotcom boom, many companies went for IPOs before the business was really ready for it. A public company has tremendous reporting requirements on it, and public shareholders sometimes seem to have a very near-term mindset (just watch how wildly many stocks will swing around earnings announcement time!)

2 thoughts on “Joel on VCs”

  1. I think he is confusing younger VCs now with his lack of rembmering old time VCs who often brought into a startup an experienced team of managment and accoutants to help the startup be on solid business foundations. Examples of the oldstyle of VCing in our recent history are:

    Intel
    Apple

    and some other ones from the first breakup of the first chip company in Slicon Valley..

    Are theere old style VCs around still doing it the right way? Yes there are probably few even in your state and you do not notice them because they are not about grabing headlines..

    This down turn in Market growth will do more to fix current mainline VC pratices than any laws or other guidelines we can make up..

  2. From talking to folks in my area, I’ve gathered that our VCs here in Michigan are a bit more conservative. I think that Joel is right about what many VCs are after, but I’m sure that his generalizations can’t apply to all VCs.

    I’d imagine that the venture capital business is just like any other: you’ve got some who manage things well and are consistently successful. Most are less successful and sometimes win by luck, but will eventually run themselves out of business.

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