

Why VC's invest in Pigs not Chickens - dfriedmn
http://bostonvcblog.typepad.com/vc/2011/09/why-venture-capitalists-invest-in-pigs-not-chickens.html

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trevelyan
One nice thing about getting revenue positive is that you can tell people like
this to fuck off.

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fedd
As VC firms are not about charity, but profit, I can only understand that they
think they are able to buy those who invested their last dollars much cheaper.

If I were a VC (or when I become one) I wouldn't trust desperate people, those
who bet everything and their arm on a deal. I understood that the article
describes these as pigs. Such people could actually be even dangerous.

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wccrawford
Did anyone really need this explained? I think anyone questioning this is
trying to be a chicken and just grousing about the status quo.

I mean, if they aren't willing to commit big-time, why should a VC?

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CPlatypus
As the first paragraph of TFA points out, the VC is _always_ a chicken.
They're not "committing big-time" so that appeal falls flat. If someone wants
to take a risk because their partner is taking a risk that's fine, but anyone
who takes a risk because a VC will be a little put out otherwise is a sucker
who has over-delegated responsibility for making strategy decisions about
_their_ company. True pigs won't turn chicken around VCs. ;) They'll take the
risk of displeasing a VC along with all of the other risks mentioned.

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wccrawford
A sizable chunk of cash is a big commitment. And if they aren't risking a
sizable chunk, they aren't worth dealing with.

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fedd
the same amount of money has different 'utility' for different people. losing
$10K, a poor guy loses more that a VC losing $1M. it's not that a guy won't be
able to buy the next porsche.

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atirip
oh c'mon, money is commodity and i can get it from hundreds of sources. as an
entrepreneur i choose, not you, my dear VC.

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NY_Entrepreneur
If an entrepreneur takes equity funding from a VC, then likely the VC will be
a Member of the Board of the entrepreneur with enough power to fire the
entrepreneur. So, the entrepreneur, in his trip in a small canoe across rough
waters on the way to distant, solid land, needs to be very sure anyone else in
that canoe is really good to have along and won't be a nervous Nellie who will
break ranks, stand, and scream at the first big waves that rock the canoe.

In particular, in information technology (IT), what fraction of the VCs would
an entrepreneur eagerly hire as, say, a co-founder, a CTO, CIO, lead
developer, DBA, network administrator? How about listen to in a discussion
about a 'pivot'? How about as Chief Scientist to stir up new, powerful,
valuable 'secret sauce'? Did I omit Power Point expert? Gee, why would I omit
Power Point expert?

Another point: The day before taking the check, the entrepreneur may own 100%
of the business. The day after taking the check the VC owns maybe 30% of the
business, an additional fraction is set aside for employees, and the rest
'belongs' to the entrepreneur except is in a four year 'vesting' schedule
which means the entrepreneur now owns NONE of his business and, if fired by
the Board, leaves with NOTHING, zip, zilch, zero, not even the source code he
typed in to begin with. Bummer.

Next, now IT VCs don't invest in pigs, chickens, dedicated, driven, devoted
founders or any other barnyard or other nonsense. Instead, VCs invest in
numerical metrics that correlate well with future financial value. Generally
the VCs invest in 'traction', just traction, already significant and growing
rapidly.

Then there's now a rub, a big issue: If the traction is significant, say, 10
Web pages served a second with 3 ads per page and $1 CPM, then just why should
the entrepreneur take the check?

Or, think of a US Main Street business in anything from a carry out pizza shop
to a landscaping service: They don't get venture capital. But a PC server able
to deliver 10 Web pages a second costs much less than even an oven for a pizza
shop and much less than a truck for a landscaping service. The difference for
the IT entrepreneur is that if the project is at all successful, then (1) the
entrepreneur can lean back and let the server PC do the work and (2) has a
chance of growing rapidly into a significant business to own, sell, or do an
IPO. So, an IT entrepreneur can proceed as for a Main Street business until
money is coming in and then see if a really good business can result. Nowhere
in there is much of a role for a VC Power Point expert.

