Vinod

The Venture Confession

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Vinod Khosla, who raised about $2B in Venture Capital funds recently, expresses in an article on Reuters PEHub that he does not like the Venture profession much. To which purportedly Jim Breyer, partner at Accel responds:

Total BS from this snake oil salesman. At 70+ years old with no friends left, he wants us to like him now. Oh puuuhhhlease! This guys is a jerk, dont take money from him, stay away as far as you can. Khosla is always about Khosla, super arrogant punk. He will destroy your company.

To which I need to respond:

Well Jim, as the former Chairman of the NVCA you should be ashamed of the “best practices” of Venture Capital as well. Negative 10 year IRRs, a handful of companies with any socioeconomic value produced by VC as the arbitrage in an 80% greenfield and Venture Capital performing under the adoption rate of technology (in the worst of economic circumstances), and a loss of trust by the public in that arbitrage is the despicable outcome of the mediocrity that holds our most precious asset (innovation) in a headlock.

Perhaps what Vinod is eluding to is that Venture Capital is a mediocre asset class and arbitrage despite the enormous capacity and adoption greenfield to innovate. With less than 35 out of 790 (original) VCs making any(!) money and around ten doing so with Venture Capital as the monolithic thesis, Venture Capital has proven to be the improper economic construct to drive innovation.

And I can fully understand why few smart people want to be associated with that performance or its “best practices”.

Venture Capital is a dumb economic construct to capture and arbitrate our capacity to innovate. For reasons why visit The State of Venture Capital.

 

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About Georges van Hoegaerden

Georges is a serial entrepreneur, venture catalyst, 4x CEO, board director turned innovation economist (by fate). His ideas have raised $14M in venture capital and produced over $100M in returns. More.

  • Bruce LaFramboise, AInstIB

    Good question Georges!  My only comment would be that as an advisor working with many small and medium firms over the last decade, I have found the majority of cases where I have sought out VC options for clients growth interests, to all be dead ends, at least for my clients interests.  The purported interest is to invest with an eye toward strong returns and high likelihoods with an exit window in the range of 5 years. Yet what I have seen in my albeit limited exposure in the last 5-6 years (10-14 accounts considered for VC) has been an attitude to develop unrealistic returns with excessive pressure on companies and management from the get go to make early exits for VCs.  These have reasembled (if not been outright) close to “pump and dump” schemes, and I have for my part recommended away from them.  The net seems to be a great deal about how can we squeeze this new operation to the maximum profits to us as VCs and get out before they tank.  Management I have worked with that has had such involvements recently reports that they received little or not help from the VC and were left largely to meet levels of returns to the VCs (or else basically), such that they found themselves directed proimarily to fulfilling VCs needs for ROI and little or no concentration on the business vision that was supposed to be at issue except to push it to the limit for return.  Seems the exit inside 5 is likely to be the one that occurs just before the empty husk of the company falls dead?   I am sure there are quality organizations out there in VC, and maybe I just haven’t seen it for a while. However, there is enough negative, that it strikes me as an intermediary to question if VC is even a realistic consideration for any firms I may counsel now and in the forseeable future.

    Regards,

    Bruce

  • http://venturecompany.com/ Georges van Hoegaerden

    Venture Capital is the improper economic construct to support innovation, and by economic principle is it unable to scale with the massive greenfield of consumer adoption. Full stop. Yet that doesn’t mean a handful cannot succeed regardless, but the odds are not much better than winning it big in Vegas.