
Vinod Khosla: I believe 70% of VCs reduce the potential of a company - cft
http://www.gsb.stanford.edu/insights/vinod-khosla-be-wary-stupid-advice
======
SiVal
So, he thinks it's best for entrepreneurs to ramp up the volatility, because a
90% chance of failure with a 10% chance of $100M is the way to go. Advice from
a guy with his own risk spread over a portfolio of such companies to a guy
whose whole net worth is invested in one company that has a 90% chance of
wipeout.

Hmm. Maybe there's something to that estimate he makes about how harmful VC
advice tends to be.

~~~
notahacker
Ironically, VCs prioritising "10% chance of $100M" as the way to go was
exactly what I thought of when I saw the headline suggesting they actually
tend to reduce the potential of the company

There's no shortage of perfectly viable $xx million businesses pushed into
chasing an [ultimately optimistic] hypothesis there was a 10% chance of
breakout success which, when the mass market turns out not to exist, leaves
them with the potential to achieve nothing other than failure.

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tim333
The Greenspun article on his experience with VCs back in 2001 is interesting
if you're in to that stuff and have not read it
[http://waxy.org/random/arsdigita/](http://waxy.org/random/arsdigita/)

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coleslawfail
90% of the time Vinod Khosla pulls numbers out of his ass.

It's amazing really how much this guy subs the press. He acts as the
entrepreneur's friend when the truth in the Valley is the exact opposite.

Beware.

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wjnc
VCs have some sort of superstar economics going. The highest potentials hit
the superstars VCs first, and get picked up. Second tier goes to second tier
VCs and so on. The market sorts itself out.

So when a first tier VC disses lower tiers for 'not adding value', he is
probably stating the truth, but sadly there is no alternative. The superstars
can't scale up without lowering the bars somewhere, so they don't. The
companies looking for VC can't be too picky since no capital is no chance of
traction. So in the end, you'll settle for the capital you can get and take
the reduced value as a given. Remember that the outside option (no VC) gives
no value, and the negative value is relative.

~~~
s73v3r
Wait, why is VC the only option? What happened to the old fashioned way of
getting money, taking a business loan?

~~~
pge
It depends on your business model. For companies that require capital to build
product before being able to sell, and thus don't have near term positive cash
flow to pay off loans, debt is usually impossible to find. Only equity capital
(i.e. VC or angel money) is willing to take that risk.

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ChuckMcM
Wow, was surprised to find the beach comment on the top :-) Amongst people who
know Vinod I have heard a common theme but he is included in the list of
inhibiting potential for second guessing everything, and creating an unhealthy
tension in the founding teams. But isn't that the way of things? VC's want
their investment to thrive, and because they have money and you don't they
will always assume they know how to make it thrive and you don't. The only
difference is how much leeway they give you.

~~~
dchichkov
Why are you surprised? This issue is still outstanding, Vinod layers are
_still_ trying to block access to this public beach. Also it looks like he is
violating the judge decision by "only opening the road sporadically".

[http://martinsbeach.blogspot.com/search?updated-
min=2015-01-...](http://martinsbeach.blogspot.com/search?updated-
min=2015-01-01T00:00:00-08:00&updated-max=2016-01-01T00:00:00-08:00&max-
results=3)

If you feel that this is not how it should be:
[http://martinsbeach.blogspot.com/p/get-
involved.html](http://martinsbeach.blogspot.com/p/get-involved.html)

~~~
ChuckMcM
Because I felt it didn't really add anything to the more important question
which is "Do VC's add value or subtract value to your company?" For me, I
think about that question from time to time and try to find empirical evidence
to back up one side of the argument or the other. I will admit however that
"Good Character" does not seem to correlate at all with "Effectiveness" in VC
circles, there are bastards and there are saints and it doesn't seem to really
effect the success or lack thereof of the companies they fund.

------
danieltillett
What amazes me about VCs is how passive they are about the whole process. Why
sit and wait for talent to come to you? Why not go out and hire the best
people and then put them to work with adequate funding and see what they come
up with? If every start-up ends up pivoting as soon as they get funding why
not bypass the whole process and just put a great group of people together and
let them come up with something fantastic.

~~~
ido
They call those "entrepreneurs".

I worked in several companies bootstrapped by very wealthy founders.

~~~
danieltillett
If the founders are wealthy is the company really bootstrapped, or just
privately financed?

If VCs think the idea is worthless and execution is everything why waste time
listening to pitches? Just hire the best people able to execute, give them the
money and get out of the way.

~~~
AndrewKemendo
That's actual work though, and that would also tie them directly with any of
their failures. Can't have that.

~~~
danieltillett
It is true that it would take more work, but surely the rewards would make it
worth trying. I can understand following the current modelled you are one of
the tier 1 VC firms, but if you are tier 2 or 3 you need to do something
different to succeed.

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bitL
I run an exponentially growing fully automated business that is limited by my
available operating capital. If VCs are useless (or finding a good one is a
lottery), what are the other reasonable ways to raise capital (that don't eat
all the profits nor want to control everything)?

I would prefer Vinod's brutal honesty to fake politeness any time.

~~~
bmh100
Assuming that your question is not rhetorical, there are multiple ways to
address this cash flow problem. You can focus on collecting revenue faster,
offering new customers less generous payment terms, demanding payment up front
or in advance, taking out loans against your receivables, asking vendors to
finance your spending, converting a portion of employee compensation to a
profit share that is payed out on a later date, finding strategic partners to
provide financing or resources, etc. I hope this is helpful. There are many
possibilities, but none are necessarily better than selling equity.

~~~
copsarebastards
> You can focus on collecting revenue faster, offering new customers less
> generous payment terms, demanding payment up front or in advance,

It's worth adding that these in particular are good business practices with or
without VCs, because:

1\. It demonstrates that people will pay for your product. Nothing is worse
than spending money making something only to discover nobody will pay for it.

2\. It's aware of the 80/20 rule. Up-front payment does a good job of limiting
you to the 20% of your client base who will make you 80% of your money. The
clients who want things most on their terms, who will nickel-and-dime you,
make unreasonable demands, and review you poorly to other clients, are going
to balk at an up-front payment and go elsewhere, _and that 's a good thing_.
You don't need them. They'll weigh down your competitors and leave you more
efficient.

------
copsarebastards
Say what you want about Vinod Khosla, but that doesn't make him wrong.
Disproving what he said would make him wrong.

I'm not a fan of the man personally, but I think he's right--and it's not
surprising. When you bring in a VC, you get a team which is personally,
emotionally, and temporally invested in the project, and you bring in an
outside person for whom this is only a small part of his larger financial
investments and give him a significant amount of control. _Of course_ taking
away control of a project from the people who are most invested in its success
is going to decrease its chances of success. I'm not sure why this would be a
topic of debate.

~~~
mirashii
Because it doesn't matter how personally, emotionally vested you are in a
company if you don't understand how to run one, how to monetize, to find new
customers, hire good managers and leaders, or a whole slew of other things
which your team at a startup hasn't done before but a good investor knows how
to advise on, or has connections with advisors who do. Success of a company is
determined by a lot more than how invested your team is in the project.

~~~
copsarebastards
What you're saying is correct, I'm just not sure why you think it's relevant.
It's entirely possible to have both personal investment _and_ competence.

~~~
mirashii
It is, but the point was more that bringing in an outside person who may be
less invested but has some skill that falls outside of the team's existing
range isn't necessarily going to decrease your chance of success. We have
advisors and incubators for a reason.

------
tlrobinson
624 days ago: _Vinod Khosla: 70-80% Of VCs Add Negative Value To Startups_ :
[https://news.ycombinator.com/item?id=6369626](https://news.ycombinator.com/item?id=6369626)

~~~
melvinmt
I wonder what caused the 14% regression of negative value.

------
rdrock
I sense a strong dislike for Vinod Khosla the person himself in almost all the
responses irrespective of his actions. Are a few incidents like the martin's
beach and some statistics which he pulls without references the only reason
for it. The responses to beach discussion and statistics themselves are very
hostile like "If he dosen't like shelling out $500k for maintainence of a
public property he should not have bought it" which I think is unfair and "my
best dev is an english major" when he clearly meant that for Business
consultants and Journalists etc. And can't one pull a number based on a
lifetime of personal experience without backing it up with statistical data?
Don't we all do that in everyday lives? Even when someone mentions having a
good personal experience with him, it gets discounted.

I have never been to the valley. Genuinely interested in knowing what makes a
person so universally hated on this fourm. Unless he is the Donald Trump of
the Valley. In which case I understand.

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coleslawfail
If only the Onion knew the Valley, this would be a great headline:

Vinod Khosla: Be Wary of “Stupid Advice”

that's like saying:

Donald Trump: Be Wary of "Gold Diggers"

------
andyidsinga
> "Why pay attention to an English major?"

one of my best devs was an english major. So ....I don't discount ANYONE for
being an english major.

edit, another point: I wish there was more advice on how to separate good from
bad advice based on more than what is described in the article text - english
major, not having been a CEO etc.

~~~
javajosh
I've noticed that some of the best devs come from the humanities, too. I think
a lot of it has to do with a certain calm, centered approach to learning. If
you watch a young CS major "learn" something, they approach it with a manic,
wild-eyed approach where they try to do things as fast as possible because
their time is so valuable, they don't read docs because they don't need them,
and so on.

Confession: I approached Docker like a maniac before humbly working my way
through the official Docker user guide slowly and methodically, without
distractions, doing all the exercises (and taking notes with questions). When
I look back, I've done this with Maven and git, too. In every case my frantic
scramble up the learning curve left me with broken, incomplete and unreliable
knowledge that had to be repaired later. Lesson learned!

~~~
andyidsinga
ha! the first paragraph in this article (letter to Isaac Asimov:
[http://chem.tufts.edu/answersinscience/relativityofwrong.htm](http://chem.tufts.edu/answersinscience/relativityofwrong.htm))
touches on the key issue:

> In the first sentence, the writer told me he was majoring in English
> literature, but felt he needed to teach me science. (I sighed a bit, for I
> knew very few English Lit majors who are equipped to teach me science, but I
> am very aware of the vast state of my ignorance and I am prepared to learn
> as much as I can from anyone, so I read on.)

------
bsbechtel
Regardless of your attitudes towards VCs, purely from a statistical
perspective this makes sense. If you consider only a small percentage of
individuals are capable of running or leading a high-growth company to
millions or billions of dollars of revenue, then for every VC you add to your
board, you have a greater chance of adding someone who isn't capable of adding
value. Say only 1 out of every 10 individuals are rockstars in the
startup/investing world. Assuming you and your co-founder are those rock-
stars, the other 3 people on your 5 person board are only going to drag you
down ;-)

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Enzolangellotti
"Journalists? Why pay attention to an English major?"

Tell that to Jack Ma.

------
coolandsmartrr
Reminds me of my interview with a Japanese venture capitalist. He doesn't have
experience startup, but managed to invest in a few.

[http://rickyreports.com/archives/kinoshitayoshihiko/](http://rickyreports.com/archives/kinoshitayoshihiko/)

------
ksk
Most VCs could be safely ignored as toxic (if not useless) if they were
restricted to investing their own money. The fact that they're allowed to
gamble with retirement pension funds (which are sometimes insured by the
state) is troublesome.

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taphangum
Probably closer to 99.99%.

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DodgyEggplant
Sometimes you learn about a person implicitly more than his explicit
intentional declarations. This is the same Vinod Koshla who seized a public
beach, and a beautiful and rare one, to his own utility against the law. This
says a lot about attitude to others, maybe in business too.

[http://www.huffingtonpost.com/2014/09/27/martins-beach-
vinod...](http://www.huffingtonpost.com/2014/09/27/martins-beach-vinod-
khosla_n_5885662.html)

~~~
sqeaky
What I gather from that is that this guy does not know how to monetize a road
and/or run a public beach.

Build something along side the road. Build a strip mall and rent bays to surf
shops and restaurants. For the amount of money the article claimed he spent he
could have afforded to build a hotel or resort.

~~~
declan
> Build a strip mall and rent bays to surf shops and restaurants

The government would not allow this to happen. The California Coastal
Commission prohibits any such development. I've talked to a local architect
who had his plans to remodel an existing single-family home in that area
scuttled by the commission. That's why, when driving south after Half Moon
Bay, you encounter essentially no coastal development until you hit Santa
Cruz.

There are one or two shops scattered along the way but those are grandfathered
in; as far as I can tell if it didn't exist 30-40 years ago, it never will. If
Vinod Khosla proposed building a strip mall, anti-development activists from
all of California would converge on Martin's Beach and chain themselves to the
bulldozers while conducting a hunger strike while environmental groups would
file at least three parallel lawsuits.

Put another way, SF bay area politics are non-intuitive.

(Note I'm not expressing a normative opinion about whether development
_should_ be allowed; I'm merely saying what is currently allowed.)

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api
84.3% of all statistics are pulled from the nether regions.

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puppetmaster3
agree

