Yesterday, I moseyed my mohowke down to San Mateo for a venture capital conference called The Future of Funding. For those Dear Readers that aren’t tech nerds, Venture Capitalists give software startups some initial money to operate in exchange for a chunk of the company.
:: EXAMPLE ::
–> VC Firm X buys 20% of tech startup Y for 2 million dollars (high fives all around!). X then prays Y gets bought by Google for 500 million so they can transform that 2mil initial investment into 100 millon dollars.
So yeah, venture capital is just gambling for ballers. Mostly what happens is that company Y epic fails so the trick is for for venture capital firm X to invest in Y, Z, A, B, C, D, E, F, G, H, and eventually one of them will go big. Without turning this into a giant blog post, I will just say that there are some fucking crazy incentive structures involved in this whole process that make it sort of sketchy and ridiculous. There are also a lot of lawyers, hedge funds and banks involved. I went because A. I think it would be interesting and fun to work for a venture capital firm and b. I got in for free (go me).
The number one tedious thing VC’s love self-aggrandizing about is how “venture capital is broken.” Here’s an actual conversation from yesterday (paraphased)
VC: The problem is that venture capitalists fund within a hard to enter social network. Innovative and brilliant ideas don’t get money because entrepreneurs can’t infiltrate the cliques of high level investors.
[2 minutes later during the same conversation]
Dustin: So how do you decide which companies to fund?
VC: Well, I only give money to my friends because all my friends are smart and they wouldn’t want to personally let me down.
Dustin’s Friend J: Wait, didn’t you say two minutes ago that the problem was VC’s only funding their friends? VC: Well, if I was an entrepreneur I would move to silicon valley.
So I pretty much woke up at 5:30 am so I could hang out with a bunch of people who had become entirely divorced from reality. Those who know me would be surprised by just how few arguments I started. The upshot was that I learned some cool things and met a bunch of interesting people. I also got to chill in posh hotel all day and eat lots of good food. Thursday for the win!
The conference was put on by this guy Adeo Ressi who runs a website called TheFunded.com. It’s a way for successfully financed entrepreneurs rate the douchebaggery of VCs who funded them. The website goes a long way in keeping venture capitalists honest so it’s unsurprising that there have been some lawsuits. Adeo is super nice and hilarious but most importantly doesn’t put up with bullshit.
For those unwilling to endure an entire room of VC’s, here are some take aways from The Future of Funding:
* Venture capitalists aren’t quite the ballers they used to be. 2/3rd’s of their operating funds have dried up (that’s the money they have to dole out before they blow it on pointless tech adventures).
* The heady days of the early oughts are behind us and companies just aren’t getting bought for nonsensical sums anymore.
* The market is maturing and companies are being sold at a much slower pace.
* Venture capitalists aren’t intelligent enough to justify their arrogance, as such a lot of vc firms are flailing hard.
** In short, Venture capitalists that still exist have way less money, they’re making less with what they have and it’s taking longer.
* Yet, Venture capitalists still love bloviating about smart they are, even when they are clearly just lucky. Scientists are baffled that I have the patience to tolerate this phenomenon.
* Luckily, my friend, Famous Journalist Anthony Ha was there to save me during “networking” breaks. We made snarky comments during panels. http://venturebeat.com/author/anthony-ha/
* The general trend will be towards more angel investors (random individuals with a lot of money) that give smaller chunks to more companies.
* That sucks because angels can be even bigger tools than VCs and they usually don’t hook up as many of the favors that actually grease the wheels of business.
* More angel investors means a dramatic rise in the number of incubators (communal offices where small startups can meet other startups).
* VCs and angels will make most of their money on private secondary asset markets where they sell early shares and bundled derivatives of early stage companies. That couldn’t possibly go awry. The people who run those markets are making money hand over dick.
* I continue to get horribly annoyed when people thrust their business cards into my hand for no reason. I only snapped on one person. Most people have really boring business cards.
* There were a few burners in disguise at the conference. We’re going to start start a club and have dinner together.