The Business of Venture Capital. Mahendra Ramsinghani
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Название: The Business of Venture Capital

Автор: Mahendra Ramsinghani

Издательство: John Wiley & Sons Limited

Жанр: Личные финансы

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isbn: 9781119639701

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СКАЧАТЬ Ironically, this was reported by none other than Sir Michael Moritz, who was then a journalist and would become a venture capitalist and chairman of Sequoia Capital. Of his own experiences as a VC, he would say, “Every day is composed of a hundred soap operas — it's an exhilarating place to live and work.”2

      As a venture capitalist, you are not creating anything new, but rather fueling the creation of new innovations and businesses. Often regarded as a commodity, a VC is often compared to a role of a slick, glorified financier — most of whom take credit for the entrepreneur's successes and hide their losses or blame them on others. On the other hand, some practitioners find a way to take credit for all successful outcomes.

      This chapter looks at a few challenges of being a venture capitalist.

      Emotionally and Intellectually Demanding, a Business of Thousand Nos

      Friends come and go; enemies accumulate. At Sequoia, we meet with thousands of companies every year, and only partner with 15–20. That's thousands of interactions where we run the risk of making a negative impression. Regardless of whether we end up partnering with them, we always want founders to know we respect them and their ideas. I'm mindful of how I treat people and I think about the long-term consequences of my interactions. The people we meet with will tell others about their experience, good or bad.

Schematic illustration of the New Yorker cartoon.

      Source: Bob Mankoff/Cartooncollections

      High Level of Churn

      Once you get in, staying in the business of venture capital is easy only as long as you can generate superior returns. Successful practitioners continuously need to adapt themselves to economic cycles. Besides performance, the business is rife with partnership challenges, greed, and politics. Often, people leave and firms fall apart.

      Performance of Partner

      Performance of Funds

      The Business of Home Runs

      Only a small number of startups are meant to be successful. The same goes for venture firms. I expect most VCs to fail. The entire business is about finding exceptional, awesome companies. If you find one of them every five years, nothing else matters.

      Market Forces

      At times, changes in market trends can hurt highly specialized firms. Not too long ago, clean-tech investments were at an all-time high. As the waves receded, the green practitioners had to tweak their resumes. Some repositioned themselves as generalists. Others went back into the technology sector and sought “clean web” opportunities. Often, when technology/software investments are on the upswing, life science sectors take a beating. Technology sectors have a shorter path to exit, while the time horizon of life sciences investments is longer, often mired with technological, regulatory, and financial risks.

      No Payday

      Of the 8,000 practitioners in the business in the United States, very few have seen any financial profits, or as they say, a “carry check.” In other words, most practitioners have survived on salaries coming from management fees. This is yet another cause of heartburn for VCs who feel frustrated that their bets have not paid off fast enough, and for limited partners (LPs), who think incentives are misaligned when VCs get paid fees for poor performance. One investor with over nine years of experience says, “We need to own up to the fact that there may never be a big payday.”

      Ego, Greed, and Intellectual Dishonesty

      The VC business is subject to pressures from multiple ends: the supply of capital, the availability of investment opportunities, liquidity time frames, and regulatory dynamics. Elizabeth “Beezer” Clarkson, managing director of Sapphire Ventures Fund-of-Funds, says, “Often, you don't know if it's you or its luck. Having humility is essential.”

      In any career where those two imposters of fame and fortune prevail, you can be assured of petty politics, backstabbing, and opportunistic behavior. Ego, greed, and hubris have often turned practitioners into primal beings — ask any founder and they will share plenty of VC horror stories.

      Being Reasonably Nice Can Be a Competitive Advantage

      I've СКАЧАТЬ