A VC Rant with an opportunity

Short story. “Joe” has been working for 5 years to bring a software product to market while keeping the day job waiting & bussing tables. He has a wife, two kids, a dog and they live in a small nothing apartment.

For years, Joe toils away while pounding the VC pavement looking for angel, seed, anything.  He is in the apartment because he’s already sold the house, already maxed the credit cards, hiding from bill collectors, etc, but he believes!  He also driving a Pinto with a billion miles on it; trillions if you do it in kilometers.

Finally, one day, he gets funded. 3 million brand new Yankee dollars into the company. He is flying.  The VC says, Joe, you gotta do this full time, quit waiting on tables and Joe says, amen. The VC says, Joe, take a salary with the founder title and Joe says Amen. 

After seeing the first actual paycheck for this business and seeing some personal income, Joe decides he owes his wife; big time.  Joe leases her a 2002 Mercedes (in Dec 2005). He keeps the Pinto. I didn’t know you could lease a car that old, but that’s another story.

One day, Joe drives the Mercedes into work because, surprise, the Pinto is in the shop.  Board meeting day.  Later that morning the VC comes into the meeting and, in front of the whole board, with two guests (employees) in the room, proceeds to lecture Joe on spending VC money for Mercedes. Joe says, excuse me, it is my wife’s leased car not mine. VC says, doesn’t matter, we didn’t pay you to go off and get cars for anybody. If we had known you were going to buy cars, we could have cut your salary, we think for the good of the company, you should never drive that car again.

I got all this because “Joe” called my cell today, told me the story, said he’d read my blog, and asked a simple question:

“How hard is it to return VC money, I can get my waiter gig back.”

This is probably an extreme case. I’m sure it is, but it started me thinking about my VC world.  My conclusion is this world has some issues that need to get fixed. Everything from being nice (no referrals) to defining the customer (you, the start up), we have lots of issues. Add this to the changes happening on the Web, the big guys using the HR department to handle buying small companies (hire em and ‘buy the company’ via big sign-on bonus), we’ve got trouble brewing.

It was this thinking that lead me to think about ways to make things better both for VCs and for our customers, the start-ups.  I’ve taken input from Robert Scoble, Chris Pirillo, Hugh Macleod, and Doc Searls, to name a few. I spent a day with Doc which you can read about here.  He has forgotten more about pretty much everything I know. When you add his knowledge to his lovely wife Joyce’s knowledge, you get 2 + 2 = 100.   In the end, we concluded a number of really fun/smart things that should be done.  Hopefully, I can convince Doc and a few others to take a shot, make some new rules, and try to apply the clue train and hughtrain to the art of getting good ideas into sustainable forms that create the because of effect.

Read Doc’s piece and stay tuned.

Comments

[hugh macleod]

Funny, Doc Searls cites English Cut... which Tom and I started without VC... for about $500, happily bootstrapping ever since.

[Nicole Simon]

Well, besides the point that I don't know if a 2002 Mercedes is recognizable as a 2002 - if this really is a funded company why the hell should he not lease a Mercedes? Stupid people don't go for a Mercedes, they go for a Lamborghini and such. :)

A Mercedes is a safe care where the founder can drive and keep himself save.

And I may sound cynical, but if this is the behaviour of the VC now, what will it be later? Starting with such a small thing and making a big deal out of it instead of asking "what is this" ...

And yes, your world probably needs some disruption too. :))

[hugh macleod]

Nicole, all worlds need disruption. Like flowers need sunshine. ;-)

[Peter Cranstone]

Just a thought – VC’s manage a lot of money. VC’s have beautiful offices (if you ever been to Sand Hill Road you’d be amazed), VC’s parking lots always, always, have incredible cars on them. On average VC’s lose money on 7 out of 10 deals, maybe breakeven on two and hopefully hit one out of the ballpark.

So when the LP’s pull up for their meetings to see where their money has gone do they ever tell the VC’s to change offices, sell their cars or take a lesser salary. Nope.

You shouldn’t judge a book by it’s cover. I don’t care what car someone drives, I don’t care where they live – that’s their business – what I care about is customers, customers, customers. If I execute and deliver value to a customer then the employees and the stakeholders will be rewarded which is what it’s all about.

And the VC’s can judge me by business metrics (which is after all what they invested in) rather than the car I drive. It’s easy to disguise the car – much harder to disguise the bank account at the end of each month.

[Nicole Simon]

Hugh, but flowers do like sunshine. :)

[Jeremy Wright]

Huh. Now you've got me thinking. And that's disruptive. Bad Rick / Doc. Bad!

[Fraser Kelton]

Timing is everything.

Rick, I've been mulling over the idea that the VC industry needs disruption for some time now and after collecting my thoughts I finally completed the (long) post today.

You can find it on my site.

Interested in what you have to say about disrupting the industry.

[Kerry Thacher]

Rick,

As someone who has experienced the "how dare you approach me without a reference" stare and numerous other forms of humiliation on the financing trail, I certainly appreciate your thinking which is like a breath of fresh air. You have almost convinced me to cold call you if and when my new startup needs series B funding. :-)

[TechTrader]

VCs are full of shit and so are entrepreneurs. It's just sad that VCs get to drive the nice cars and own wineries while entrepreneurs have to hack away in shitty offices in Santa Clara.

[Papasik Rugasik]

Isn't what you described is what they call in B-school NANOMANAGEMENT ?