
Network of ‘Scouts’ Spreads Money Through Silicon Valley - ganeumann
http://www.wsj.com/articles/secretive-sprawling-network-of-scouts-spreads-money-through-silicon-valley-1447381377
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vadym909
I'm not sure if or why this is news? Everywhere you read, VCs say- don't cold
call- come through a warm introduction which makes it clear that there are
insider groups and people that carry weight. Not necessary that their scout
circle has insight into every great idea/company.

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thinkcomp
There's a pretty significant difference between a warm referral and a
kickback, and especially a kickback that makes use of a shell company that
disguises from entrepreneurs and other investors the kickback's existence and
the origin of the funds used.

If it's not illegal, it should be. Investments typically involve disclosure
for good reason.

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snarf
The lack of disclosure that the scouts are agents acting on behalf of Sequoia
is definitely wrong, though it is unclear if it's the norm or the exception.
However, the shell company that disguises the source of the investment from
other investors does serve a useful purpose to the entrepreneur in minimizing
signaling risk in the follow on round. If Sequoia invests in your seed round
but passes on the subsequent series A, every other investor you're talking to
is going to wonder why one of the top VC firms is passing on the investment.

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AndrewKemendo
As a founder, the whole world of startup finance is incredibly depressing and
very easy to become cynical about.

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cperciva
I wonder if it would make sense at some point for VCs to make seed investments
at infinite valuations -- that is, taking no equity at all -- in order to
obtain information rights. Even if there are no follow-on investment rights
attached, having insider information on how well a startup is doing must be
worth something...

(For legal and tax reasons I'm guessing the "infinite" valuation would instead
need to merely be astronomically high; the point remains however that in an
economic sense they would be buying information rights rather than shares.)

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pen2l
> I wonder if it would make sense at some point for VCs to make seed
> investments at infinite valuations -- that is, taking no equity at all -- in
> order to obtain information rights. Even if there are no follow-on
> investment rights attached, having insider information on how well a startup
> is doing must be worth something...

Somewhat incidentally, I think this is one of the reasons why YC is such a
powerful force. YC recently invested in their 1000th startup -- couple that
with the many other thousands of applications they've gotten (when you submit
an application to YC, you're spilling a lot of beans already about yourself /
your startup to YC), all of that put together is quite the house of knowledge.
And on top of it all, it owns HN and thus to some extent has the power to
frame the prevailing narrative of tech, I think there is no other entity in
the world more in tune with the spirit and direction of startups than YC.

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cperciva
I'm sure YC benefits tremendously from the information they've gathered about
all the companies they've funded. Probably less so for the applications... I
suspect those are incredibly noisy signals and the effort required to extract
meaning from them would be prohibitive.

On the other hand, YC Fellowships might be pretty much the "infinite valuation
investment" idea I mentioned -- while there's no formal information rights
attached, I'm sure they're getting a strong signal for which companies they'll
want to fund.

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rajacombinator
Not sure why WSJ thinks this is exposé-worthy. Just a clever tactic on
Sequoia's behalf, probably a good example of why they've been considered top
dog in VC for so long.

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lmroz
When a startup receives investment from a VC firm, are all the limited
partners in the fund disclosed? If so, how do you know those aren't also shell
corporations, etc?

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thinkcomp
As a former CS50 student and Mark's classmate, I personally find it depressing
that Harvard's current CS50 professor, who is widely praised, is secretly on
Sequoia's payroll via a shell company so that they can have the inside track
on the "next Zuckerberg."

If professors want to teach, they should teach. If they want to invest, they
should invest. But they shouldn't be doing both without making it clear to
students what they've actually signed up for.

Actually, all of it is deceptive (to entrepreneurs, to students, to the
public, to other investors) and depressing. But that part is particularly
disturbing.

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rajacombinator
What makes you think there's a conflict of interest here?

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angelbob
The fact that entrepreneurs are regularly encouraged to drop out, so the
investor and professor roles are potentially in conflict?

