Why I hate VCs

Ok, I don’t hate all VCs. In fact I probably only hate a couple. But I am wary of all of them. In my mind, being wary of VCs is just good common sense.

In the interests of full disclosure, some of my caution certainly arises from having taken money from an individual that, in my personal opinion, is one of the most Machiavellian VCs in silicon valley. The stories I could tell would curl the hair on the back of your neck. As a side note, if Google had existed in 1999, given the public record, I never would have taken his money. Though I didn’t know it, his reputation had already hit the San Francisco Chronicle.

Nevertheless, both before that time and since then, I have become friends with several VCs who I would trust implicitly. Beyond my VC friends there are many others that I am sure are awesome people. So I don’t want to paint with too broad a brush. But I still say, beware.

The core of my argument is that founders and VCs interests are generally misaligned in several important ways.

First, for the founder, this business is probably the biggest single asset the person has. All the founder’s eggs are typically in this one basket. The VC operates a portfolio that allows for significant failure. His goal is not to have a portfolio with a collection of solid but not enormous businesses. The VC *needs* a homerun or two to balance out the law of averages that most companies fail. This means A VC may push a founder to swing for the fences when a safer play might be more likely to ensure survival.

Second, VCs tend not to respect or care about founders. There is an old joke within VC circles that the most important job a VC has is to replace the founder. Of course, once replaced, the likelihood that the founder will make any money, even in a scenario that might be a win for the VC, is very low.

Third, VCs generally don’t add that much value beyond cash. They will try to say otherwise. Unless they are famous for adding such value (check Google) they are probably lying. Aside from the fact that they are probably incapable of adding much value, even if they could, VCs are extremely busy managing their portfolio, meeting new companies, dealing with limited partners, etc. If you want your company to succeed, you will really have to do it yourself. Believing that a VC is going to add some incredible value that is going to help make your company is foolhardy. There are definitely exceptions to this rule, but they are few and far between. In short, founders should take the best financial deal they can get, from whatever source seems best, with the best available terms.

Finally, if you are a technical founder, be particularly wary because most VCs tend to think of techies as totally fungible, weird, and not capable of leading. This is often so, but often it is not. I think most of us would agree that Larry Page and Sergey Brin are and were always capable of leading Google. And yet, if you step back in time, people were from the beginning, skeptical of their leadership. They were perceived as smart but goofy. They probably never really needed Eric Schmidt, and yet it is totally conceivable that if they did not have the leverage that they had, that they would have been pushed out for not being “seasoned” enough. That certainly was the general industry perception at the time.

And So, I guess after reviewing my list I would just say to be careful out there. VCs can be good people and valuable resources too. But a bad one (and there are plenty of those) can really make you feel like, by comparison, anesthetic-free tooth extraction wouldn’t really be too bad at all.