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Stupid VCs?

2007-06-18 22:22:03.766696+00 by Dan Lyke 2 comments

Something I've noticed in various organizations is inclusion of flashy features "to wow VCs". I'd like to toss up a contrarian view: VCs are actually really smart. They aren't super rich and tossing around hundreds of millions of dollars because they're just lucky. That when a flashy feature wows a VC, it's because that feature displays an understanding of the market that transcends implementation.

Just something to consider when letting features influence development direction.

[ related topics: Economics ]

comments in ascending chronological order (reverse):

#Comment Re: made: 2007-06-18 23:01:23.347438+00 by: meuon [edit history]

Great VC's invest in good people. Industry specific feature creep SOMETIMES is because good people saw a need for that feature, even if it's just a B.S. market differentiation bullet point. The good people show the feature to the V.C., and then explain why the flashy feature is both needed, and totally B.S. at the same time.

Good V.C. invest in balance sheets, cash flow, ROI..

Bad V.C. believes.. in the product, in 1% of the market, in the sales slicks.

Best line I've heard at a meeting recently:

"I don't care what ya'll are doing, I want to invest in it with you, if you are also taking a personal stake."

#Comment Re: made: 2007-06-19 12:49:58.452689+00 by: other_todd

It's quite possible to wow venture capital if the angel is new to the business of VC. I've been around when it happened. There's an experience ladder in VC just like anything else, and it's become more extreme with the influx of the VC equivalent of "nouveau riche" over the past, oh, twenty years or so.

First tier of VC: Is the product cool?

Second tier: Never mind how cool it is, will it sell?

Third tier: It'll sell even if it's a dog if you have the right people. Do you?

Fourth tier: OK, we know you can sell it, but can you run a business well?

I disagree with meuon that assessing only the product is the mark of "bad VC." It doesn't HAVE to be. But it's shallow, and therefore the investment is more prone to failure. I agree with him that the best investors judge *people.* However, that's a skill which is hard to acquire and quite rare, so sometimes the wedding of idea and money has to settle for less.