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Jim

If you have a great management team and a great business plan addressing an enormous market, the question arises as to the value added by the VC. Based on extensive European experience (sitting on a VC board, being an angel, setting up a start up fair etc), I observe quite a number of strong start ups going from angel to IPO on AIM or similar small public markets (particularly medical start ups) cutting out VCs. I can understand why. In the early days of SV the VC firms were staffed by the Fairchild descendants - former managers and industrialists who had one particular skill the VC community as a whole largely lacks nowadays: business building skills. This meant supporting, nurturing and guiding start-ups through the inevitable convolutions and reformulations that characterise the development of new businesses. The typical hold was 7 or so years. Most exits were trade sales. Contrast this with current practice: VCs follow voguish areas with a time-line ideally of 18-24 months trying to be one of the early parties to IPO. The firms are staff with young analytical types that look at though they were out of Harpers or GQ, few of whom have ever worked at a senior level in any industry relevant to the ones they are investing in. When things get tough, they try to fire key individuals, or find a solution by selling in the secondary market for venture capital investments. Typical holds have fallen to 24-36 months unless constrained by lack of IPO conditions. The idea of sticking with a business and helping it sort through its problems is almost a joke. For example, I was looking at the Sequoia presentation given a few weeks to 100 of the CEOs of its investee companies. The basic message was cut costs/scale back/minimise because there will be a recession. How can one possibly reconcile this with a notion of long term partnering through good and adverse business conditions relying on the financial strength of the venture backer to persevere with development when others are backing off? My advice to new start-ups is boot strap and angel.

posted 4 years, 6 months ago
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