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An Inside Look at Venture Capitalists
Christopher Thomas writes: "IEEE Spectrum has a scathing review of venture capitalists this month. Authors Nick Tredennick and Brion Shimamoto paint a devastatingly cynical picture of venture capitalism from the engineers' perspective." Funny to read, but probably 100% accurate. Wow.
They're not called "vulture capitalists" for nothing. They'll squeeze you for every last bit of stock and control possible. So, before you begin talking to them prepare yourself! I would try and take my project as far along as possible before selling any shares to these people. If you want more detail on just what I'm talking about visit the bootstrapper's website which will show you how to do this. Remmember the more sales you have the stronger your negotiating position will be.
I have to disagree that Venture Capitalists will "squeeze you for everything." Unlike many in the "those that can't do--teach" category, I've actually done venture capital deals. I've also done private offerings (equity financing sold to individuals), bank financing and debentures (privately held debt) -- as well as non-traditional methods of raising cash.
At different stages of growth, different types of capitalization are appropriate. In my experience, Venture Capital is most appropriate after you've gotten a start-up off the ground and built a management team (which can be as small as two people).
Besides going for Venture Capital mid-way into your growth pattern, you need to have a business that can realistically offer very high growth. If you have a less explosive business, private offerings can work -- they can be successfully sold if the folks get 2-3 times their money back.
Other options include setting up a non-profit entity alongside your start-up, assigning a charitable or socially helpful role to it, and seeking grant monies from private foundations or corporate foundations. The grant money can help offset operating costs for your for-profit start-up by paying you a salary and covering some office expense and equipment.
Still other methods for raising capital include piggybacking with established businesses. For example, a publisher can get an endorsed promotion of a book or booklet from a large association, the association solicits orders for the book via its members' newsletter, you split the revenues with the association, and generate substantial incoming cash.
One question I have is... is it truly ethical to use a non-profit organization as a front for your for-profit business venture?
One idea that I've had is to do this:
This would go along with my one-man jack-of-all-trades computer sales/web design/hosting/ISP/consulting/programming/but-wai
business. But, who knows. Maybe I'm biting off more than I can chew. (Nah...)
... someone once said that VCs want impossible goals. How many business opportunities that existing with triple digits compound growth, clear exit strategy, and quantifiable risk? Nobody wants to be first to bake but everyone wants a double helping of the successful projects. The very nature of investments (harking back to the British India company) is to create competitive/proprietary positions which means exclusion of some sort, whether knowledge or opportunities.
... wait until someone tell them they bought 40% share of a electron microscope :-). What VCs continually forget is that they are investing in people, not business plans.
... at least every engineer has got someone else to blame for the stress :-).
Unfortunately VCs are the only people willing to invest in high risk (read unknown to them) speculative ventures. Banks are basically pawn-brokers and bean-counters, they only risk their money on assets which have a ready secondary market. But unfortunately there's none for failed (or half-finished) ideas which leads to a fair amount of cluelessness. I've just come from a dinner where someone said that the only reason a "VC" invested in their company was that they read in Red Herring that nanotechnology was going to be "big" and they thought a name like Nano-xxxx (name disguised to hide the guilty) was related
Oh well
LL
You're generalizing here. You can't say that all engineers are economically ignorant, and all VCs are mentally challenged.
My girlfriend's father is a very business-savvy man, and he's been an electrical engineer longer than I've been alive.
However, I do agree with you, to a point. People who have no idea how to spend money shouldn't be given large sums of money. But it's not just engineers... it's rock stars, actors, directors, and whoever else thinks they know more about economics than the guys who invested in them.
If you failed Micro Economics in college, then don't expect to make millions once you find a sugar daddy and a business plan.
I can attest to this from personal experience: I am one of a small group of people to have received the (questionable) pleasure of being cold-called by a VC firm. It didn't matter to them that I was still finishing my BSc in mathematics; all that was important to the VC was that 1. Distributed Computing was hot, and 2. I was responsible for a recent distributed computing project.
Of course, calculating Pi isn't likely to be commercially profitable any time soon; for that matter, distributed computing isn't either. So I wrote back explaining that I had no intention of helping them waste their investor's money on ventures doomed to failure.
Ever since then I've refered to that day as "the day I refused five million dollars".
Tarsnap: Online backups for the truly paranoid
Nope, there are, in fact, different kinds of geeks. There are the clueless geeks who think that they can make a quick buck by developing big sounding technology with expensive tools and on impossible deadlines. Sometimes they get lucky, but more often, they get f*cked.
Clueful geeks never participated in this game. They work steady jobs, save money, run small consulting business, and generally are having a much better time. If a VC contacts them, they just politely refuse.
You don't need millions of dollars in order to be happy. Engineering and software development is a decent way to make a living, and you can be quite well off without ruining your health on startup dreams.
Oh, as for the open source startups, the VCs that invested in them were fools. But if VCs are going to waste their money, they might as well waste it on something that contributes to the common good. I suspect many engineers working for such companies weren't dreaming on getting rich but just liked the idea of creating open source software fulltime. (Support of open source by companies like Sun and IBM, on the other hand, makes business sense for them.)
However, I do agree with you, to a point. People who have no idea how to spend money shouldn't be given large sums of money. But it's not just engineers... it's rock stars, actors, directors, and whoever else thinks they know more about economics than the guys who invested in them.
;)
I disagree. People who have no idea how to spend OTHER people's money to MAKE MORE MONEY shouldn't be given large sums of money.
But then one can also look at it another way. Those who can't manage other people's money wisely shouldn't be given large sums of money, UNLESS a FOOL equally incompetent GIVES his money for this moron to invest.
In the end you'll find these 2 idiots deserved what they both got from each other (unless there was fraud of some sort). Survival of the fittest my friend. Let Darwin into your home too.
eTrade SUCKS
A programmer is not an engineer. There are software engineering programs at some colleges but I am not sure that it really qualifies as engineering. If a graduate of one of those programs qualifies as an engineer (something I am not willing at this point to stipulate). The vast majority of programmers never have had and never will have the kind of training it takes to qualify as an engineer. True engineers have had training and experience bringing projects in on time and under budget. All of the succesful businesses I know of that have been started by engineers were started by people with experience managing projects and budgets. The vast majority of the dotcom businesses that went flop were started by people with not enough eudcation, experience, and financial savvy. Being able to code in C++ or Java does not make someone qualified to lead a project or manage people and resources. The dotcom boom was a youth boom as much as anything. VC's in love with the idea of funding the next superstar high tech company and young people without the skills and knowledge to develope their ideas while managing the project within a budget.
"If there is nothing you are willing to die for, then you are not really alive." Myself
The old saw about "The world beating a path to your door if you have a better mouse trap" is pure hokum. The one thing that Microsoft proved with Windows 95 is that if you have enough marketing money you can sell anything - no matter how bad it is. Conversely - take the best commercial program you can find - write up a sign that says "Software $5.00" stand on a street corner with the sign and see how many copies you sell. I have tried that: all you'll get is sun-burned; marketing is far more important than product when it comes to making money in a business.
I have to admitt, 100%, with the author of the article. The feeling I have nowdays is that when the VC are in over 50% of the company, the company is lost. They will drive the company to its knees and force the orignal enginners out. All that without really wanting it, just by pure incompetence or ignorance. The VC (pet) CEO will be changed within 12 month when, accoring to plans, the company has outgrown his set of competences (allthough not much may have changed in the company). They have no eye for talent since they really don't care for technology or development. The product is the company, not the technology put into to product of the company. Once a structure reminding of a company has been created it is due for introduction to more traditional investors that may buy the company on the basis of "track record" and build up of market presence.
/Jarek
Female Prison Rape in NY
Seems to me that if you need a LOT of smaller companies, who make a SMALL profit to be able to hire a FEW developers.
What is happening is that VCs draw much money into very few supposedly LARGE companies in spe, who should make LARGE profits and still hire only a FEW developers, because they can overwork them. The smarter the engineer's and developer's ideas are, the more their ideas will minimize the development, implementation and maintenance costs. So basically their own inventiveness reduces costs for their own company they are working for, reduces costs for their customer's companies (to whom they want sell their idea) and all their brain work in the end is going to do is the reduction of costs for hiring developers and engineers. If that is not a tragic irony, I ask myself what is.
The architecture of the network itself seems to lead to few "large" companies. Very few "small" profit making companies are needed. OSS is highly desirable for non-for-profit organization therefore. The only way OSS can really be funded and developers hired en mass, is by support from the government. It's a shame that OSS is not used in all educational institutions.
The monopolization is a process, which the current laws don't prevent from happening adaequately.
If I were an engineer, I wouldn't care, if I work for a large company or a small one, as long as I would believe in the product I am developing and as long I am decently paid for by the company to provide for my family. That's what apparently is not happening for too many engineers and developers, because midsize and small companies can't pull through more than a few years before they have to sell themselves out to the big guys, who most probably won't hire all of the small company's engineers and developers.
I was always wondering if the funding mechanism for companies like SuSE was different than the process described in the article. Even if SuSE lacked money lately, they did seem to grow more organically out of themselves. I would be interested in understanding, if there is a major difference (legally or culturally) in how privately held companies are formed and funded in Germany vs. the U.S.
Needless to point out that I don't know what I am talking about, but I try to listen as best as I can.
An inside look at venture capitalists, and nobody's posted a link to goatse.cx yet?
There are a huge number of yeast infections in this county. Probably because we're downriver from the bread factory.
I've been ".COM'd" twice in 5 months. Both times I had a real good view of the financing process; the first time, because the CEO was very open with the company and took time to explain what was going on; the second time, because the company was very small and the CEO and I talked fairly regularly about it.
While the article in question has some obvious flaws, in general, it's on target. VCs are looking to screw you any way they can, in the hopes that it'll make them some money. It doesn't matter whether they're dealing with engineers or financially astute CEOs.
The general pattern looks like this:
1. Meet with the VC, present the business plan
2. The VC offers unrealistic terms -- like, grow the company by 1000% and we'll invest the money, and make financial assumptions on 1000% better productivity.
3. Lather, rinse, repeat, until you realize those are the only type of terms you're going to get.
4. Nod along, get the cash.
5. Hire like crazy, according to the "plan".
6. Money runs out in some short period of time (usually around a year). Nothing has happened, because growing a company by 1000% doesn't give you 1000% better productivity, even if you were hiring pre-trained employees.
7. VCs say, "gee, shucks, guess we need more money". BEND OVER.
6 and 7 get repeated a few times and all the original players get diluted to nothing (except the original VCs, of course). You go IPO with a horrible product and no cash inflow; the VCs make their cash, but your company is bound for failure, and your restricted options/shares guarantee that you won't make any money. Or you go under and the VCs swoop in and take the technology in an attempt to sell it to get some of their money back.
Welcome to high tech.
What an interesting phrase. Is it 90% probable that it's 100% accurate, or just 51% probable, and in any case what the hell does that mean? Are you certain of its accuracy, or uncertain? Or are you not sure which you mean? ;-)
Slashdot - News for Herds. Stuff that Splatters.
To be fair, some VCs do recognize this and do something about it. I have a friend who's been involved in a few startups. Not too long ago he described what had happened in one funding round. BTW, you're practically always involved in some sort of funding-related activity or another, all day every day. If you're a true techie you'll go insane wishing you could sit down and write code again. Anyway, this is basically what the lead VC said:
What ended up happening is that some of the previous-round investors saw their share reduced so the founders' share could be increased. I'm sure they didn't like that much, but I'm also sure that if it was presented as a choice between that and losing the lead investor (with nobody else ready to step in) they would have gone along. Losing the lead investor like that at that point in time would basically have meant that the company had zero prospects of survival (in fact it did not survive).
The upshot is that a "vulture capitalist" really - for once - did try to do the right thing by the founders, and even leaned on other investors to make the right things happen. They're not evil people. They're ambitious, they're greedy, they're often ruthless, they almost always have goals that are at odds with techies' goals, but they do have honor.
I wish I could name the east-coast VC company involved, because I like to see good behavior rewarded. Unfortunately, I don't feel safe doing so. One character trait they hold very dear is "discretion"; it's not very discreet to tell stories like this one in a place like slashdot, and I might want to do business with them myself someday. ;-)
Slashdot - News for Herds. Stuff that Splatters.
I say this from first hand experience, well from a parent that is an engineer and an extremely experienced and successful entrepreneur (e.g., not naive), but this article really does hit the mark with a great number of them, really. I've seen them at their best and at their worst.
Speaking in general terms:
As a community they are extremely incestuous.
As a community they are very risk averse, in a personal sense. They're willing to risk their investors money, but not if they themselves will hang out to dry. What this means is that they'll invest in the latest fads, so long as the herd is with them. By and large, they will not invest in superior investments from a risk/return perspective, if the herd is not there behind them.
Many are extremely amoral. There is a difference between being greedy and neglecting obligations and duties, to both the investors in their own funds and investors in that companies that they hold board seats on. I've personally seen this border into the illegal territory.
Many are simply ignorant--in both the financial, operations, and technical sense. Ok, they don't need to be experts, but what makes them dangerous is that the dont know what they dont know. On technical issues, they consult "experts" that are not experts in the least and consider it "expert" advise.
Most are in there for the short term. They're willing to invest in companies that are doomed to fail, just as long as they can flip it over in an IPO or to another company before it craters.
And it goes on... I really hate to make such sweeping statements, but this a terribly universal experience with VCs. Not just one or two firms, but many of them, in different regions and industries and from different perspectives (CEOs, founders, engineers, etc).
In short, many VCs really serve all involved poorly [In other words, I believe there are better real-world solutions for the necessary parties]. There are some really good VCs out there, but they are hard to find and they have finite resources. A beginning entrenprenuer would be well advised to get some solid and independent advise, both legally and otherwise, from people that are experienced with startups and dealing with these kinds of investors. Especially when it comes to issues like drawing up a solid board of directors...
I'm not going to report to a boss after taking this long to become my own boss.
You always have a "boss". Be it your business partners (who boss you and whom you boss) or your customers... there is someone that you are ultimately responsible to...
One question I have is... is it truly ethical to use a non-profit organization as a front for your for-profit business venture?
You probably won't have much chance for 501c3 status unless you completely separate the two businesses... better to stick with a for-profit. Starting a non-profit is hard work, and not something that should be taken lightly... or with expect for anything but a trival return on your time investment.
You're 28! That's not even old enough, in most cases, to have reached full technical competency, let alone to have also reached the level of maturity and business skill where you could be entrusted with employees' livelihoods. There are only so many hours in each day to learn all these very different skills.
"Taking this long" my ass. Along with all the other things you need to learn, try learning some patience.
In a word, no. In two words, HELL NO. Anybody who would even stop to think about it has a lot to learn about ethics.
Slashdot - News for Herds. Stuff that Splatters.
A few thoughts on VCs, Engineers, and Managements:
1) VCs, in general, are not very trustworthy. They are in business, they are looking to make money, and they are not afraid to step on some toes to get it. I don't think there is anything particularly shocking about this, but it is something to keep in mind when dealing with them.
2) "Your ideas, Your work, Their company" - let's not forget their money. As the author of this article himself points out, it is very difficult to raise money. The fact that VCs give people astronomical amounts of money and ask for something in return (i.e. a share of the company and a voice in how it is run to protect their investment) is not unreasonable.
3) VCs, like most people, and especially those controlling large amounts of money, tend to have a herd mentality. Do they take more risk than the average investor? Absolutely. Looking at the number of ideas that have been funded in the last few years and then turning and blaming vcs for not funding "enough" risky ideas to me seems pretty silly.
4) Good management is critical to the success of a company. This may be anathema to many of the people who frequent this site(or at least this topic), but one of the mantra's of VCs is "management, management, management." Now, I am an engineer, I started a company, but I am more than willing to admit that:
A) I am not well suited to managing it
B) If I don't find someone who is, the company will have real difficulty succeeding.
Now, obviously there are many examples of companies that have been run into the ground by bad management. Does this mean that management is evil or (perhaps even more absurd) unnecessary? No. Good management is critical to a company's success, just as bad management is critical to its failure. This may not be pleasing to our egos as engineers, and there may be exceptions to this, but having worked with some good managers and some bad ones, it seems to me to be generally true.
5) Engineers are often not good managers. Let's be honest here. Sometimes the guy from Wharton is a really lousy manager. But just as often (I would argure more often) the brilliant programmer is also a really lousy manager. Being a good manager is an hard-to-acquire skill, in some ways as nuanced and difficult to achieve as technical proficiency. Just as a cs degree does not assure programming competence, neither does an MBA assure management competence.
6) In general, I found this article to be whiny and annoying. Yes, I don't like VCs either. Many of them are "sharks"(as I was told before I got involved with them, and have generally found to be true). They are not necessarily (and I would argure are rarely) the best businessmen, the best partners, or the best engineers. They are though the guys with the money. And if your talking to them, you are most likely the guy who needs. Now, the historical balance of power in relationships between those having money and those asking for it does not need to be summarized here, except to say that one of them (I'll give the author of the article a hint, not the one without it) holds a significantly stronger position.
What would be nice is a more practical-minded article about engineers dealing with VCs(because there are many useful things to keep in mind, and are things to watch out for, even if you don't have an axe to grind), rather than the sort of flailing complaints that we have received here.
John
Of course, calculating Pi isn't likely to be commercially profitable any time soon; for that matter, distributed computing isn't either. So I wrote back explaining that I had no intention of helping them waste their investor's money on ventures doomed to failure.
;-)
Nice attitude! There was no commercial future for things like "home computing" and garage-built Apple I's, either! Take the money and let the funds decide if they're overstepping their investors' risk aversion levels. (The highest upside generally comes at high risk, and that's exactly what some people are looking for.) Does this mean you're looking to take equity or a salary in a nice, safe, obviously commercial idea instead?
>Doing a couple of states in a parallel hardware design is easy, but thousands, or ten's of thousands of states is nearly impossible.
Depends on how complex the states are. It might be possible to compile the hardware from a representation language that is close to the IP domain.
> Plus, a firewall needs to be flexible, (catch the latest un-expected hacker exploit, log it, etc), which is something most hardware designs are not.
Hmm. He said they were using programmable logic. There are programmable logic devices that are dynamically reconfigurable in real time. I assume they would use them.
The idea was definitely high risk, but in my opinion can definitely be done. I work with equally complex ASICs every working day of my life. Whether it is worth doing, is very arguable; but it's definitely possible.
-WolfWithoutAClause
"Gravity is only a theory, not a fact!"I'm convinced that most startups don't need venture captial. What they do need is a core crew of engineers and (later on) a skeleton crew of support staff (ie, people who will find paying customers) who are willing and able to take equity instead of cash until paying customers are found. When and if those paying customers are found, profits not reinvested in the company are paid out as dividends to the shareholders. Add angel investment into the mix as appropriate. Don't even consider going public (not worth the overhead and distraction, especially now that the IPO bubble has gone kaboom), but if the stockholders (mostly engineers, if you've managed to do this right) want to sell out to a Big Company that offers the appropriate pile of lucre, that works too. (A local crew did this, selling out to Cisco for $millions. Neat trick.)
Benefits:
1) Paying out cash to employees is inefficient, since the marginal tax rate in America is roughly 50% (28% Federal income + 12.4% SocSec + 2.9% Mediscare + the state income tax that pays for the roads/schools/fire/police that people actually use). This is known as "soaking the rich", aka slavery, aka how the Democratic Party has adapted from the pre-Civil-War era to the Information Age. Equity doesn't get taxed until it's sold, and the long term capital gains tax is 20%. Which is why the 1993 Federal income tax hike didn't kill the economy, people just switched to financing with stock instead of cash, which had the unfortunate side effect of making it easy to fund things like pets.com.
2) Very little corporate overhead, very simple. Minimizes contacts with lawyers, accountants, and other such creatures that add friction to the economy.
Problems:
1) The U.S. Federal Tax Code is rigged to royally screw companies that pay out dividends. Corporate profits are taxed once as income, and the stockholders are taxed again on what's left of that income when they receive their dividends at the stockholders Federal income tax rate. So $1,000 in gross profits becomes $650 in net profits becomes ~$450. Possible workaround: profit-sharing checks for the employees, but that doesn't help angel investors if you have them. Killing the double taxation of dividends would make more sense but it would never get through the Senate.
2) Surviving on little to no income while the company gets off the ground. Even without dependents, just paying for housing is a bitch, and geeks tend to congregate in territories with the looniest real estate valuations. (In the Midwest, that means my home city of Ann Arbor, Michigan, home of the University of Michigan, with housing valuations second only to Chicago.) The reason valuations are so high is that the Federal Mortgage Interest Deduction encourages real estate inflation, and the average voter is too stupid to realize that giving up their precious deductions (aka social engineering) and switching to the Flat Income Tax plan would leave them at least as well off. Local zoning regs that make high-density development impossible do the rest (thus why we have yuppie lofts in renovated decrepit downtown buildings renting for $big bucks rather than highrises).
3) Stock is much riskier than cash for workers. Nice upside when it works, though.
4) This doesn't work for companies with heavy capital expenses. Fortunately, many/most geek companies don't fall into this category.
Fair warning: IANA(lawyer | accountant), just a geek who follows finance and politics enough to be dangerous.
Look, if the founders of the company themselves do not fundamentally believe in the technology OR how they're approaching their targeted market(s), then they have NO business wasting other people's money. First, not every idea is worthy of investment. Second, and perhaps even most importantly, even if the idea itself is worth something, if management does not know where or how to execute, it is wasteful of everyones time and money. If you don't at least have a fairly clear plan, you have no business being in business, at least when you're playing with other peoples' money.
Furthermore, while it is true that high return investments almost always bear higher risk, that does not mean that every high risk investment will or can return a decent amount. For instance, I could loan a fugitive 1 million dollars, while this is certainly high risk, it's almost certainly a formula for ruin. This point being that some investments are simply bad investments, deserving NO investment because they do not offer a return commensurate with the risk, relative to what can be had else where. Fundamental to the field of finance is that at any given level of risk you want the maximum amount of return. This is why: some companies cannot get additional capital, why some shares are priced so low, why some land is worth so little, and so on.
Now, I'm sure that in the Real World it's more often that the IP would be worth $150 million, and the engineers brought in maybe $5 million, and the VCs only pitched in $50 million, and the engineers end up with a 15% share of something they conributed 75% of.
It takes money to make money. You might have a great idea, but generally great ideas need financing. I might make the world's greatest cheesecake, but without the hundreds of thousands of dollars needed to buy a restaraunt, outfit it properly, fill the pantries and larders, hire and train employees, purchase advertising, invite the media &c. my idea is worth very little indeed. Someone needs to finance me--and he's taking a huge risk. That costs me.
The best solution is to finance your activities yourself. If you cannot, sell the rights to your IP to others. You lose the opportunity to become the leader and known name in that market (which one needs to survive after the patents expire), but you turn your idea into cash. You might then use this cash to fund another idea, and this manner become the market leader. When the patent expires, it doesn't matter, because everyone knows and trusts the Smith family of widgets. And then you'll have a profitable corporation.
Remember, though, that it's more lucrative to have a 1% share of a $100 million concern than it is a 10% of a $5 million concern.
To me it sounds more like the way people tend to behave when there is an imbalance between power and responsibility. Not all people, but it only takes a few abominable ones, and the memories linger.
And people who have been wronged and are enraged tend to shout about it, whereas those who have been treated decently just expected it. So they don't say anything.
VC's are one example, but only one, and not the most vicious. Somebody above said (approx.) "You need more money, then bend over." But it's worth remembering that some people experience that being said literally, and without the promise of any reward. Not even "and then I won't kick you".
The problem is a power imbalance.
I think we've pushed this "anyone can grow up to be president" thing too far.
News flash: Venture Capitalists bail out Australia, in exchange for a 75% share of the country, majority control of the legislature, and control of all top government posts. Elections have been canceled as a cost cutting measure.
now we need to go OSS in diesel cars
He might have the skills. It's highly unlikely, but it's possible. More importantly, 28 is not old enough to feel all entitled about the whole thing, or to whine about "oh, I've had to wait so long". Even if he is All That, there are plenty of other people who are also All That plus they have some ethics plus they've already had to wait longer due to reasons beyond their control. I'm sorry, but I'll save my sympathy for them, not some 28-year-old punk who thinks that six years past college is too long to wait to become a multi-millionaire.
Slashdot - News for Herds. Stuff that Splatters.
I agree with the comments above, but there doesn't seem to be an understanding of WHY VCs are so vulture-like.
It is really very simple. There is no such thing as a "win-win". Or rather there is no reason why a win-win has to be 50-50.
When dollars are on the line, it is a zero sum game. What the VC gets, you don't get. What you get, he doesn't get. What he doesn't get, his investors don't get.
If you were an investor in a VC fund, you would want that guy chiseling every percent he could from the companies he funded. As the entrepreneur, you want to chisel every percent for yourself. Both sides are justifiable and equivalent.
It's nothing personal.
"The difference between theory and practice is small in theory and large in practice..."
This article entirely misses the point of VC. VC isn't out for you or your company, they are out for themselves, and if that means they leave a body count behind, it's just part of the business.
the VC's goal in investing is increase his money immensely. Just like a lot of folks had as a goal when they dumped untold millions on Power Ball or the Big Game. Start Ups are VC's version of the lottery, and just like when I lost powerball, both toss the ticket when it's clear it's a looser. (and since these are folks who if they loose a few dollars aren't going to miss a meal, it's little emotional investment for them to toss you and your company)
Just like a loan shark, expect unreasonable demands, exhorbitant interest rates, and an indifference to anything but getting their money back and the expected rate of return... since VC is a little more than legal loan sharking.
As a founder it's in your best interest to be very very clear on this before you sell your soul to the devil. My suggestion for an education is go look up the reference to Mark Twain's Republic of Gonder... walking in assuming these people are interested in anything more than their money is just poor thinking.
Then I would say you have a rather weak definition of evil. Ambition, greed, or ruthlessness do not necessarily involve a total lack of interest in the suffering or anguish one's actions cause. They do not necessarily make one more likely to cheat, steal, break promises, or worse. There are people in the business world who will tell you a lie that will wipe out your life's savings, and they won't even blink. Some will even take pride in having been so clever, and brag about it to their friends. Those are the people I would call evil.
Aside from the percentage of bad apples that exists in every field, I don't think VCs are evil in that sense. They don't want you to fail. They are, if not friends or even necessarily allies, not adversaries in a zero-sum game. Their ambition and greed are what - along with your own ambition and greed - what brought you together, and their ruthlessness can work for you as well as against you. They might not be the best of company, but calling them "evil" robs the word of meaning. If that's evil, how little must someone do for you to consider them good?
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But I'm still surprised the previous poster would lay a blanket statement like "distributed computing isn't going to be commercially profitable any time soon".
This is rather off topic, but it elucidates somewhat the problem with flocking VCs. Distributed Computing -- as exmplified by d.net, SETI@Home, GIMPS, and my own project (PiHex) -- has so far been dedicated entirely to attacking embarassingly parallel problems: All the problems so far have been trivially decomposable into cpu-sized chunks. This makes it really easy to create s distributed computing project... working on a meaningless problem.
It is almost a theorem that "interesting problems aren't embarassingly parallel"; in fact, certain results can be proved along those lines. "Interesting" problems are always problems which don't decompose trivially: In fact, the standard supercomputing benchmark (linpack) in its normal form requires networks with latencies of a few microseconds. In general, the problems which are commercially interesting all require large amounts of bandwidth and reasonably low latencies.
Now I'm not claiming that these problems can't be overcome; the issue of latencies can generally be solved by switching to different algorithms, and the bandwidth requirements will be met over time (bandwidth is growing must faster than computing power). Thus my comments "... any time soon".
However, none of the VCs even considered such issues. They saw "distributed computing", and knew that "distributed computing" was hot... without even checking that the distributed computing being done bore much resemblance to the distributed computing they wanted to do. It's as if someone decided that they wanted to start a company to transport people between New York and London, so they invested in a company which had been carrying people from New York to San Francisco... simply because the company was "transporting people thousands of miles".
I think the VCs have gotten so overwhelmed with using buzzwords to sell their companies upon IPO that they start to listen to the same buzzwords when people come to them looking for initial funding; unfortunately most (all?) VCs lack the technical expertise to actually evaluate companies' modus operandi, so all they can do is fall back on the buzzwords.
Tarsnap: Online backups for the truly paranoid
You are incorrect in one aspect - if I were investing in a VC fund I would want a fund that sought a global maximum of return from companies funded, not a local maximum as you describe.
As I've seen from companies I've been in, what really matters most is not IP or existing code assets, but in fact the employess working on them. No matter how good the IP you mioght have, it is worthless without a team working well with each other to bring an idea to fruitful realilty.
By attempting to pay the people that actually make things real less, you are more likley to loose some employess and thus reduce the effectiveness of the team. You then reduce output and in the end the returns from the company.
More than that though, if you seek to make the employees with the good ideas and a knack for execution much better off, then later (after the company has produced) these same people can feel free enough to go off and start thier own companies with other good ideas, producing even more companies to reap profit from.
I see it as the difference between slash 'n burn farming vs. real cultivation.
"There is more worth loving than we have strength to love." - Brian Jay Stanley