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As best as I can see from Silicon Valley (SV) VCs, what they really like is not youth, age, ideas, or advanced technology but 'traction'.

If SV makes mistakes on age, then maybe they invest too much in very young entrepreneurs. One cynical reason is that people so young can be easier to manipulate. If they have a great business but are doing a poor job managing it, then the VCs can bring in one of their buddies as CEO; apparently in the past this was more common and, really, an intended act.

One SV firm wrote me, "We would not consider investing in anything like your project before you have 100,000 unique visitors a month."

Okay. Suppose 100,000 different people come to my site, on average each person comes 5 times, on average each time they come they see 8 Web pages with 5 ads per page, and suppose I get paid $2 per 1000 ads displayed. Then my monthly revenue would be

100,000 * 5 * 8 * 5 * 2 / 1000 = 40,000

dollars. Then why the heck would I take their term sheet where I would suddenly go from owning 100% of my company to owning 0% of it with some chance of getting back to maybe 60% on a four year vesting schedule, when during those four years the VCs could fire me for any reason or no reason and, really, just take all of my company the day after I cash their check.

And, my company is based on some technical work, and as the company grows I will need to do more technical work. Then a Board would need to approve the budgets for the technical work but would not understand that work. So, the Board would be reluctant to approve the budgets and, more generally, would want to exercise their 'fiduciary' responsibility to 'control' the company. They would kill all prospects of growth for the technology of the company. VCs don't always do this and clearly have not done that for Google, but the VCs write their agreements so that they have the power to do such things.

The solution of the two entrepreneurs in the article is to (1) see a suitable problem, (2) think of a good solution, (3) write the software to implement their solution, (4) go live by having the software run on a Web site or selling it, say, as an app. They should think of (1) and (2) so that they can get to, say, $40,000 a month in revenue just with their own checkbooks.

For the VCs, from a Fred Wilson post at AVC.com some months ago, the average ROI is poor, really, just awful. So, Darwin will be along shortly, and the ranks of the VCs will thin out.

Net, the VCs will have to make money or do something else. If they make money, then their LPs will continue to invest and it will be a little foolish to say that the VCs are making mistakes.

Recently Fred Wilson had a lecture on 10 ways for an entrepreneur to be their own boss and emphasized that getting venture capital is not nearly the only way.

My background in doing projects was from US DoD work and also academic research. From those two, I have had to conclude that VCs do projects in very different ways. While I do believe that VCs are making some big mistakes, some of the VCs are making money. Maybe Benchmark, Sequoia, USV, and a few more are making money.




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