On Venture Capital… Or Maybe It’s Because I’m A Bayesian
During the last couple of months, there seems to have a been a flurry of M&A activitiy amongst a few companies (good and bad) that I follow. If you’re in the mood for jargon, some of these are what you might call “value-creating” deals - where it makes real sense to put the companies together. But in others, the VCs involved in the companies are clearly just trying to bury some “skeletons” - skeletons being companies where everyone remotely well-connected in the industry knows that the investments have been disasters.
Of course, every VC has their skeletons… However, I have to say, it’s often blindingly obvious that some investments are going to fail, well before people have sunk $40M into them. So, why do people make mistakes like this?
I think it’s partly because, too often, people just don’t pay attention to the right things. There’s a reason why the following quote from Guy Kawaski makes me laugh out loud - and that’s because it rings just a little too true. Writing about when/when not to become a VC, Guy describes a frequent VC modus operandi (and an all-too-common start-up, for that matter!):
You should not sit in board meetings listening to an entrepreneur explaining why she missed her numbers while you read email on a Blackberry and intermittently spew forth gems like, “You should partner with MySpace; I can also introduce you to a few of the losers in our portfolio.â€
The point is: when I meet with VCs or bankers, maybe 50% of the time, I find that their skeletons seem a little too close to the top of their minds. That is, as soon as anyone walks through their door, VCs seem to think about merging them with some loser in their portfolio.
Maybe it’s because I’m a Bayesian, but it seems to me that focussing on your successes would be a much better way to go than focussing on your failures. That’s not to say, of course, that making badly broken assets valuable can’t be incredibly profitable, and even fun. But sometimes, things really are too badly broken to be fixed.
Or, to think of it another way. What do you get if you place a pile of shit atwixt two pieces of the finest bread? Answer: a shit sandwich…
Mike Turner wrote:
I like how you venture capitalists so easily do such things to companies which people have poured years of their hearts and souls into when they don’t meet the ridiculous ROI you are after and then laugh about it… but hey, I guess life is good when you’re playing god eh?
Posted 11 Jun 2007 at 6:11 am ¶
simon wrote:
Mike - I’m not a VC, I’m an entrepreneur. I’m not sure I understand your point though. When anyone raises venture capital, surely they are aware that if their business doesn’t perform to the expected level, things can get tough.
Posted 11 Jun 2007 at 7:51 am ¶