Views from the front lines…

so fred, brad and allen have been blogging lately about the VC world from allen’s 10 commandments to fred’s vc cliches and brad’s diary from the front. i thought some of us entrepreneurs should chime in with what it’s like trying to come up with the next great idea (then get funding, market traction, revenue, profits and keep a sliver of equity). 

[this would be a cool thread if other entrepreneurs would add and tag it as ‘entrepreneurs’. (and if i could figure out how to do that.)]

i’ll kick this off with…"Where’s the leverage?"

so the big dilemma facing most seasoned entrepreneurs today is about leverage. the vc’s and other investors get plenty by making multiple bets within large funds. they can be reasonably confident that over their fund’s life they can deliver good returns and make good and sometimes obscene money. entrepreneurs have to make totally concentrated bets and wait several years to see if they pay off at all. this gets hard when the rest of your business school classmates seem to make as much in one year managing their hedge fund as you hope to as your final payout if it ever comes.

so where’s the leverage? well, you can try to start multiple companies but that is frought with landmines like the fact that over time companies will readjust equity to compensate current employees and investors so you can count that your equity will be highly diluted when you leave.  also, you will inevitably dilute your attention to the winner by spreading it across a lot of losers.

you can try to raise a fund and start an incubator (and party like it’s 1999:). while this may be great for the investors who get to buy into your companies at founders prices, it is very hard to put a lot of capital to work and now you’ve reduced your payout to a carry across a relatively small number of bets (as compared to a vc fund).

you can join a vc fund. this seems to be the most popular route for successful entrepreneurs (most recently bill joy going to kp). for some people, this represents a kind of nice, easy retirement. they probably dont last in that business which gets more competitive as it gets more crowded. my problem with that (other than nobody inviting me to join:( is that i’d get frustrated with such a passive role (though some are notoriously not that passive:).

for me, it seems to be an inescapable loop of saying i’m going to do something else until i find i’m overtaken by some idea that i cant bear to see others go do only to wake up again to a 9 to 9 job with team meetings and board calls wondering how i ever wound up in the same ground hog day existence and dreaming of the next escape and the path to something better.

17 thoughts on “Views from the front lines…

  1. Where’s the Leverage for Entrepreneurs?

    A nice post by my Cole Valley neighbor Mark Pincus who groans about the lack of leverage entrepreneurs have. VCs and other investors can make several large bets among various companies in different market segments, hedge fund managers are pretty

  2. As someone who has seen plenty of his b-school buddies pulling down lots of loot, I can understand where you are coming from. Spend some time with them and you will find out that for the most part, they are stressed beyond anything you probably want. And don’t kid yourself, the hedge fund model is coming in for it’s day of reckoning. The competition there is just getting heated up.
    As for the leverage, well, there are a couple of options. Asvising early stage companies usually comes with no money, but plenty of shares. If you are a senior enough guy, becomming a board member and getting more shares is certainly an option. Think about the things you like about the VC model and see if you can’t replicate it, but in a place (both locality and stage) that has less competition. Something to think about anyway.

  3. But it’s not just a job, it’s an adventure…
    and…and…investors need you…the economy needs you…
    you just gotta keep doin’ it…you just gotta…

  4. Mark,
    Entrepreneurs do what they do for the same reason that writers do: Because they have to. As you point out, I doubt you’d enjoy the life of a VC.
    But the issue here isn’t leverage. Who is more leveraged than the entrepreneur who turns his sweat into a 60% stake in a company that is then funded with other people’s money.
    The issue is diversification. If you can start 6 companies in the course of an entrepreneurial career, and the chances of non-success are about 90% for each company, you have a 53% chance that you’ll never start a successful company.
    I haven’t been able to figure out a good workaround, other than to make friends with a lot of other entrepreneurs, then put each other on each other’s advisory boards.
    I have heard about entrepreneurs pooling equity to achieve diversification, but it seems like it would be very hard to do in practice.
    –Chris Yeh

  5. In my experiences, VC’s and entrepreneurs differ in this important aspect: entrepreneurs don’t mind going it alone, while VC’s travel in packs and need lots of validation from each other before believing that they are correct.
    Someday, I am going to study if there is a shared trait between VC’s collectively annointing the next hot startup investment and teenage boys collectively deciding which high school girl is the most desired. That is, beauty and hot startups must be a function of the number of friends who agree.

  6. Good question….what’s after the start up?
    I reckon you’ve covered it very well. There’s also philanthropy and micro credit financing.

  7. I started writing a comment and then realized that it was
    really worthy of a blog
    …I started thinking, why is it I do what I do anyway? I hope you
    enjoy it.

  8. Blogging the Business Plan/ Seeking CEO

    Update: Looks like we are in good company. We’re not the only ones blogging what is usually kept very secretive. I finished rewriting the latest draft of the WhizSpark business plan executive summary. About the only thing that I don’t

  9. More on the Serial Startup from A VC Perspective

    Fred Wilson: I posted about serial entrepreneurs last week and got some great comments. Understanding the mind of the entrepreneur, particularly the successful serial entrepreneur, is a hard thing to do. But it is one of the most important things…

  10. New Breed of CEO: Beyond the Bootstraps

    As an experienced CEO [see my LinkedIn profile] and blog post about my availability, I’ve already bootstrapped dozens of companies. To be honest, I’m out of boots and out of straps. I’ve traded them for stock, options, warrants and a bit of cash. I’v…

  11. Hello. I stumbled on your blog late tonight in London (after a rabid bout of LinkedIn whoring) and found myself astounded to find another entreprenuer in the same place as myself.
    I had suspected that it simply a subtle symptom of mid-life ADD – which caused this inability to want to commit. But reading I realize it’s as much a fear of lost opportunity and lack of risk arbitrage. Kids do that to you.
    Truly there should be a mechanism for entreprenuers to hedge their risk, while being able to go deeper into something that peeks our interest..
    Thanks for a good think and a good read. Best

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