
Ron Conway: Third-rate VCs are paying off entrepreneurs - brett
http://venturebeat.com/2007/06/12/ron-conway-third-rate-vcs-are-paying-off-entrepreneurs/
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pg
Ron's a pretty smart investor, but I disagree with him on this one. I
advocated this years ago:

<http://www.paulgraham.com/vcsqueeze.html>

We partially cashed out in an angel round at Viaweb, and it worked out well
for everyone. The investors made a lot of extra money, and we founders were a
lot more willing to take risks.

~~~
JMiao
I'd say the scenario is highly dependent on the founders and what they're made
of.

This money can go towards a "want" or a "need." Addressing a "want" could
create new distractions for the founding team. Addressing a "need" could very
well put aside existing distractions (i.e. immediate financial future).

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stuki
Sounds like a nobleman griping about commoners' ability to crash the party
with cash. Venture financing would be a strange animal indeed if there was one
true best way to structure every deal for every venture. If there is a big
demand for this, the big boys refuse to serve it, and being funded by the big
boys truly increases success probability substantially, some clever Wall
Street'er could find a way to buy part of, say a Sequoia funded, founders
upside; or at least something somewhat aligned with it. Even if it means
working around some legal headaches. As an aside, these founder liquidity
events could be just the ticket for those much maligned 'idea guys':).

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sanj
After reading Andreessen's blog about the extra money that VCs have because of
large endowments' asset allocation, it appears that VC money is less expensive
than it used to be.

Ron Conway will just have to live with the fact that his services, and those
of VCs, are worth less in this new world than they used to be.

It's not a "cash bonus for going with that VC...a payoff or a bribe...I think
payoff is a great word for it.", it is a sound (albeit possibly locally
optimized) financial decision.

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paul
A partial cash-out helps the founders diversify a bit, which can be good
because they can then afford to take big risks.

However, I'm guessing that Ron's concern is that it can also act as a sort of
bribe, causing the founders to act not in the best interests of the
shareholders (which kind of screws earlier investors).

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brezina
These third-rate VCs aren't just competing with Sequoia and KP for these
investments, they are competing with buyout offers which would make the
founders semi-rich. This is very appealing alternative to selling out early
when you are a year out of grad school, have never owned a new car, and the
$500 plane ticket back to the east coast is keeping you from seeing your
ailing great aunt Betty (okay I went a little far with the last point)

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zach
We all know VCs worship at the altar of the huge liquidity event, so it's no
surprise to hear one speak of cashing out as utter blasphemy. But finger-
wagging about "how it's done" and how "everybody benefits" is excess
protestation, especially considering the Facebook counterexample.

Investors have to look after their stake and so does every other shareholder.
It's not a moral issue whether a VC gets founders to take a Warren Buffett
never-cash-out vow or lets them take pre-liquidity money. It's a strategic,
market-driven business arrangement made by people whom are accountable to the
company's shareholders. If I was Ron, I would try harder to look at "paying
off" as an opportunity even if I dismissed it in interviews. I hope he's doing
that!

~~~
zach
You know, after watching Ron Conway's interview where he talks about this in a
nuanced way:

<http://www.podtech.net/home/3632/calacaniscast-beta-30>

I understand his perspective better and I agree that it's at least an
uncomfortable development. I still think that shareholders have every right to
look after their stake and investment, though.

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staunch
A partial cash-out puts founders and VCs on much more equal footing. It's not
surprising that bothers him. It is surprising he's so short-sighted and stuck
in his ways.

I think the best argument against it is that some founders might stop pushing
as hard after becoming mildly rich.

~~~
mdakin
If VCs are half as good at reading and understanding people as they like to
think it should be rather trivial for them to filter out these hypothetical
slackerpreneurs who give up once a modicum of success is achieved.

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daniel-cussen
"Bribe, payoff...." How disgusting. He seems to feel entitled to ride on the
coattails of entrepreneurs and bet on them as if they were racehorses.

It is ridiculous to compare buying part of the company from the entrepreneurs
to bribing them. A bribe entails a betrayal of trust. According to Ron, the
entrepreneurs are betraying the company by accepting money. But the
entrepreneurs are the company and are the shareholders. There is no betrayal
of trust.

The entrepreneurs are suddenly getting better offers and "first-tier" VCs
can't keep giving them raw deals. So of course Ron is sad. It looks to him as
though the good old days are fading away. If this trend continues, the
entrepreneurs will be able to get the company to achieve their own, more
modest goals. They won't have to strike out when swinging for the fences in
order to make VCs happy.

Forgive us for not wanting to be your slaves, Ron.

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Mistone
With a bit of froth forming in the VC market again its no surprise they are
using some alternative tactics to land deals. When the situation is right, I
think it makes sense to modestly reward the entrepreneur at the funding
milestone, especially if they may happen to need to money.

Sometimes it feels like the VC dollar is made out to be so such a huge
blessing to the entrep that they should be forever indebted. This puts the VC
on this high pedastool when in fact both VC and entrep should be on the same
footing, each brings value to the relationship so its a partnership.

I don't think this comment came out as Ron intended.

