
Idiot CEOs - jasonlbaptiste
http://www.venturecompany.com/opinions/files/idiot_ceos.html#unique
======
pg
It's an interesting exercise to ask what the thesis of this article is. It's
not that all founders who take VC are idiots. He's not saying that Larry &
Sergey are idiots-- and implicitly that he's smarter than them. He hedges
pretty conspicuously there. All he's saying is that some VCs are bad. But that
is hardly news. Every line of work has some people who are bad.

Imagine the corresponding article about roofers. It would be called "Idiot
Homeowners," and say, as if it were some great discovery, that some roofers
are bad-- that they overcharge you, and then do bad work as well.

~~~
thras
"Founded in 1998, The Venture Company is a catalyst for disruptive innovation;
helping entrepreneurs, corporations and investors innovate."

I noticed a similar article yesterday. I'm skeptical that Hacker News will
weather the upcoming storm once all of the professional-entrepreneur-advisers
decide to start drumming up clients here.

~~~
pg
It's nothing new. In fact it used to be worse. Remember, HN started out as
Startup News.

------
krschultz
\- Exorbitant loss of upside Great entrepreneurs are known for their passion
to pursue their dreams at virtually any cost, and sub-prime VCs smell their
blood and desperation. Those companies become owned by VCs quickly and because
of the investors' lack of relevant operating experience yields a further
deflation of the valuation of the company. We've seen many companies with end-
game founder stock way below 5%, which is unlikely to become life-changing.
So, why would you take the scrutiny of the CEO job with that outcome in mind?

Always think about that, is it better to own 100% of a company worth 10
million bucks or 5% of a company worth 200 million? I would rather own
completely the smaller business and have fewer people to answer to and focus
on a more niche (often times more interesting) problem.

~~~
diego
Except that if you own 5% of a company worth 200 million you should be able to
quit and walk away with 10 million (for the standard definition of "own" and
"worth").

If you own a company worth 10 million you can't really quit. If you sell it,
chances are that the acquiring company will want you around for years so
you'll be in the above situation but with golden handcuffs.

~~~
tptacek
You say that if you sell a 10MM company, chances are you'll be handcuffed to
the acquirer. This seems like pure supposition on your part. I know plenty of
people who wound up handcuffed to their VC-backed team, due to vesting,
incentive packages issues after shatteringly bad valuations, or just terms and
conditions of the deal.

The same forces seem to be at play in the 200MM case as in the 10MM case, with
the significant difference that in the 200MM case, the interests of the board
aren't aligned with the interests of the founders.

This is all a big moot point, of course, because you aren't going to build a
200MM company.

~~~
diego
It's not supposition, I'm speaking from experience. For a tech startup, 10M is
a price point at which you have a small team and a product with a few man-
years of development behind it. Acquiring the product without the team is only
worthwhile when the product is a brand. Otherwise, the team/product
combinmation is what gives the company most of that value.

To name one example: in 1999 my company paid $13M for a company with 11
people, most of them developers. The company failed to offer them an
interesting package so they quit after the acquisition. A team on our side was
left to deploy the software. After a few weeks we decided it would be easier
to develop the same functionality from scratch.

On the other hand, the assumption was that you 'owned' 5% of the 200M company.
If you are handcuffed, then you own less. If you owe the bank 70% of the value
of your house, only 30% is yours. Same with vesting.

~~~
tptacek
I respect your experience, but I don't understand how your example has
anything to do with $13MM vs. $200MM. In neither case is the CTO, VP/E, or MTS
more or less necessary to the acquiring company. You can "own" 5% or 100% of
200MM, but if an acquirer thinks they need you to execute on the acquisition,
they're going to keep you, right?

~~~
diego
The idea is that if you own 5% of a company worth 200M and you quit, the
remaining 95% ownership of the company cares enough about it that they will
replace you and move on. In this scenario there is no acquisition, and you
walk away without making the company lose any significant value.

I've seen that happen: one of the fully vested founders of the company I
worked for left on a sabbatical. After six months he decided he didn't want to
come back. By then all his functions had been taken over by other people. He
sold some of his stock, kept the rest and went back to grad school.

The point is not so much the size as the fact that you can walk away more
easily if you own a small fraction of a company without causing a significant
drop in value.

------
ido
I've only skimmed the article, but one bullet point caught my eye:

 _\- Low salary

Opportunity rather than salary is top of mind to entrepreneurs, but that
changes quickly when they struggle to support their families and pay
mortgages. $175K is not a salary that leaves much on the table, especially not
when you live in the expensive area around Sandhill Road._

------
MaysonL
I do find it interesting that for all the griping and sniping at sub-prime VCs
and the idiot CEOs they fund, he doesn't mention one single example of either.

~~~
knightinblue
That's just good business.

------
danbmil99
I worked with 2 VC's, one was an idiot and the other was great. It's like
anything else.

As for $175/bay area, what he really means is live like you are 'supposed' to
live if you are a hot CEO -- live in the right neighborhood, send your kids to
the right schools, take the right vacations at Tahoe, etc. That may sound
silly but it's part of the networking needed to play that game among that
crowd.

------
erlanger
_"$175K is not a salary that leaves much on the table, especially not when you
live in the expensive area around Sandhill Road."_

Is he serious? I'll bet money gets _really_ tight when you factor in the
silver cutlery, butler, and other essentials.

~~~
krschultz
note he says "support family", it is easy to be a bachelor on a lot less but
175k if you want to do any kind of saving for retirement, saving for your kids
education, and paying for healthcare is not much. So if you want to look your
kids in the eyes and say "hey I'm gambling on something for my own personal
fulfillment rather than giving you the opportunities that I could easily if I
had kept my old job" then go right ahead but its difficult for others to do.
Thats why I want to my whole risky-taking entrepreneurship thing BEFORE having
kids so you don't run into that quandary.

~~~
erlanger
If you can't support a family on $175k, you're doing it wrong.

~~~
comatose_kid
You seem pretty sure of yourself, and some differing data points would be nice
to hear. Are you raising a family in the Bay Area?

~~~
catch23
There are quite a few poor families making a living in the Bay Area that
happen to have other mouths to feed too. If you want more data points, come
visit my neighbors and ask them how they do it. The cost of living here is not
as bad as you might think.

~~~
comatose_kid
I probably should have been more clear - are there areas in the bay area with
good schools, and homes that require significantly less earnings than 175k per
year (say, 125k?) And I'd like to not spend 2 hrs commuting, because spending
time with my children would be nice. In my experience, you have to pay a lot
more here to get the same quality of life that you could find elsewhere.

I live in the Bay area, and am raising a family here. It is expensive -
175K/yr would probably buy you the same standard of living as 80k/yr would in
Ottawa, Canada, where I grew up.

~~~
tptacek
It's not as if it's hard to actually figure out the cost of living difference
between Ottawa and San Francisco. They're ranked all over the place. Ottawa
and Chicago are neighbors in the rankings on the first page of the Google
results. $80,000 in Ottawa therefore approximates $108,000 in San Francisco.

