Why VCs Really Reject Startups

itwbennett writes "Instead of simply not following up with startup proposals that he doesn't intend to pursue, venture capitalist Josh Breinlinger decided to change things up and not only hear every pitch request but respond with honest feedback. For those on the receiving end of that honest feedback, Breinlinger's silence may have been golden. It turns out that Breinlinger, and perhaps most VCs, reject your proposals because you lack experience and leadership skills and your team is weak. Would you rather hear the hard truth about why your startup didn't get funded or some vague dismissal?"

Comments

Hard truth

[Anonymous Coward]

You can't fix what you don't know.

Re:Hard truth

[Anonymous Coward]

Agreed. Additionally you can't make a strong argument against a rejection you don't understand. If you know why you are being rejected, next time you can say. Look I have experience X or even though Joe the programmer seems week, he actually is excellent at Y.

Re:Hard truth

[SomePgmr]

Agreed. And even without asking for funding from an outside party, I wish I'd gotten some honest advice before pursuing some of my past ideas.

I suspect most would say this though... right up until they hear why their idea sucks. Then that person is, "just a cranky old hater trying to ruin my dreams".

Re:Hard truth

[SomePgmr]

I should've added, it reminds me very much of this:

http://www.youtube.com/watch?v=u6gZ4vk_Tw4

Which is a conversation I've had more than once with only minor variation.

Re:Hard truth

[Anonymous Coward]

Is it the hard truth though? Or just somebody's snap judgment? It's possible that the perception of one VC is way off.

Re:Hard truth

[Anonymous Brave Guy]

I suspect most would say this though... right up until they hear why their idea sucks. Then that person is, "just a cranky old hater trying to ruin my dreams".

Maybe so, but if my dream is going to be ruined, I'd rather it happened before my career and/or personal finances were ruined with it.

My immediate reaction to the original question, "Would you rather hear the hard truth about why your startup didn't get funded or some vague dismissal?", was that almost everyone who is ever going to succeed in business would want the hard truth, and a lot of people who were going to fail would think they knew better and didn't need to hear it.

Re:Hard truth

[timeOday]

IMHO what's difficult is giving constructive feedback to somebody who doesn't interview well or doesn't perform well on the job simply because they aren't very intelligent. I don't know what to tell them. It's not helpful to say "don't get confused so often" or "have better ideas."

(And I say this freely admitting there are people smart enough to justifiably feel the same way about me.)

Re:Hard truth

[SomePgmr]

I'm neither a successful VC or a gajillionaire start-up guy, but I hope I'd think of it like this...

If someone points out a problem with my idea and I immediately get defensive, it's probably a very serious problem.

If it's something I've heard more than once, I'm probably really screwed.

If they made a judgement based on my pitch and I think it's because they just don't understand, then I'm probably not good at communicating ideas and I'll probably fail at communicating the idea to the masses, too. That's a big weakness, just of a different variety.

If I think I've explained it well, in a way everyone would understand, their concerns are not problems, and it's a very workable idea... I'd ask myself how someone that evaluates these ideas for a (successful) living could be that, "stupid". More likely than not, an amateur like me is wrong, not the other guy. Work from there...

Re:Hard truth

[AlexOsadzinski]

Oh man, this is a hard one. I was a VC for almost 8 years, and made a point of giving feedback, because I'd done 6 startups before, and knew how frustrating fundraising can be. There's nothing worse than being turned down (or ignored) with a BS reason, because you can't learn from it.

If the reason was "I don't understand your space and so can't add value", or "We don't invest in companies at your stage" or "We already have a competitive company in this space", it went down ok with the entrepreneur(s). If it was "I don't have confidence in the market opportunity" or "I think that there's too much risk in your technology (this never applies to software, but often applies to new semiconductors, batteries, alternative energy and the like)", it sometimes annoyed the entrepreneurs.

But, if the reason was "You're not the right CEO", oh, boy, it usually went badly. The problem was, that was the most common reason.

Worst of all were the crazy people. #1 on the crazy list are the "lossless compression" types. Even taking them through the math that, of course, no compression scheme can reduce all arbitrary data sets (n bits can only represent 2^n different data sets) had no effect. They also tended to get the most annoyed when I turned them down. #2 was the astonishing number of entrepreneurs who would present business plans showing revenues over the next 4 years of $1M, $10M, $100M and $1B, with >95% profit in that 4th year. Telling them that they simply had no idea about how to run a business also went badly. You could invent matter transmission and not get that kind of profitability.

There's another reason that VCs don't always give feedback: they don't want to miss the deal if another VC decides to invest. Maybe that other VC sees something unique, or has a plan to replace the not-good CEO, or something else. VCs really hate it when they invest in a company and it all goes to hell, and they lose their investment. They hate it even more if they turn down a deal and someone else makes a fortune on it. Some of the more self-effacing (and hence more likeable) firms will post on their sites a list of the great companies that they turned down. A lot of people turned down Google and Facebook, for example.

I still think that the best way is to give honest feedback, without being offensive.

Re:Hard truth

[Kergan]

"Had I asked my customers what they wanted, they'd have answered stronger horses". (Henry Ford)

Your points are valid, but only up to the point. Some people, and VCs are no exception, simply can't see the elephant in the room. I'd wager that more than a few VCs rejected, say, Google, or Twitter, or Instagram. When you're doing something completely out of the box, your audience will generally not get what you're onto.

The guy who started Europe Assistance is but one example. Faced with rebuttals from his potential financiers that there was no demand, he eventually showed them a phony market study that suggested there is. The rest is history.

Re:Hard truth

[Surt]

Exactly. A VC is a person who got lucky, once. It doesn't qualify them to judge startups, but allows them to do so.

Re:Hard truth

[sribe]

You can't fix what you don't know.

Yes, if you seek VC funding and do not get it, there are only 3 possibilities (and of course combinations):

1) Your business plan has the problems described and you should figure out how to fix them;

2) You did not communicate something well enough (management skills, risk mitigation, market potential) and need to figure out how to fix your presentation;

3) Your idea is not suitable for VC funding, and you need to figure whether and how to proceed without VC funding.

Re:Hard truth

[Anonymous Coward]

On the other hand, the other 1000 guys the VCs rejected were not Google or Twitter.

Re:Hard truth

[ArsenneLupin]

Is it the hard truth though? Or just somebody's snap judgment? It's possible that the perception of one VC is way off.

Then it is still useful to know. First you could give counter arguments. Or if that is not an option (VC may feel to lose face if he is swayed, or may think that it's bad form to "react to feedback"), then you could pre-emptively work your counter arguments into your presentation to the next VC, so that that one doesn't make the same "snap judgement" as the first one...

Re:Hard truth

[Larryish]

Wrong.

Life is a meritocracy.

Re:Hard truth

[Kergan]

On the other hand, the other 1000 guys the VCs rejected were not Google or Twitter.

Possibly... How can you know, if they never got the chance to try it out?

Re:Hard truth

[Pfhorrest]

Life is a meritocracy.

Tell that to everyone who scores in the 1% across the board on aptitude tests but isn't in the 1% economically.

Re:Hard truth

[Larryish]

You are missing the point of that statement.

Life is a meritocracy.

Your benefit is the result of your action.

If you do not have the things you want, you have not filled the requirements to get those things.

It doesn't matter what you got on your report card.

Life is a meritocracy.

Re:Hard truth

[Anonymous Brave Guy]

Your benefit is the result of your action.

It is also a result of the opportunities you had.

Life might be a meritocracy if everyone started out with equal opportunities, but that obviously isn't even close to true.

Re:Hard truth

[Anonymous Brave Guy]

You forgot a very important one:

4) The VC made the wrong call.

Successful VCs will, on average, make successful investment decisions, but the "on average" really matters. No VC can possibly be an expert in every field that every candidate company works in, and no expert in any interesting, fast-moving field can possibly explain all the intricate details to educate the VC fully within the kind of discussions we're talking about. At some point, it's going to come down to a judgement by the VC of whether the ideas/assumptions/resources/whatever underlying the business plan are sound.

That means it is entirely possible that a given VC will decide against funding a business, even if in fact the plan was reasonable and would have been a good investment, simply because that particular VC didn't understand the business/market/whatever and there wasn't time to get educated enough to make a better decision.

Re:Hard truth

[Surt]

I wish life were a meritocracy. It'd be so much better a world to live in. The actuality is closer to a corrupt lottery.

Re:Hard truth

[Surt]

But the reality is that your benefit is NOT typically the result of your action. The most probable way to become rich in our society is to be born that way. That's the opposite of meritocracy, assuming you subscribe to the standard definition of meritocracy.

Re:Hard truth

[DigMarx]

I remember when I thought things could be boiled down to a meaningless three-word sentence. Then I turned 6.

Re:Hard truth

[chrismcb]

The hard truth. If they say some vague wishy washy thing, you might try and fix the vague wishy washy thing, even though that isn't the problem.
As far as hearing why your idea sucks, I think it depends. If they say "your idea sucks." then yeah he is "just a cranky old hater..." But if he says "your idea sucks because of X, Y, and Z" You can either try to change X, Y or Z. or do further research on the subject

Re:Hard truth

[chrismcb]

"Had I asked my customers what they wanted, they'd have answered stronger horses". (Henry Ford)

I would much rather have the customer or VC tell me that they want stronger horses. Rather than say "blah blah blah but quite the time" or some other vague nonsense. The hard truth is always better. It gives me a chance to refute it, or come up with an answer to it. Vague nonsense is just that, nonsense

Re:Hard truth

[Dachannien]

Worst of all were the crazy people. #1 on the crazy list are the "lossless compression" types. Even taking them through the math that, of course, no compression scheme can reduce all arbitrary data sets (n bits can only represent 2^n different data sets) had no effect. They also tended to get the most annoyed when I turned them down. #2 was the astonishing number of entrepreneurs who would present business plans showing revenues over the next 4 years of $1M, $10M, $100M and $1B, with >95% profit in that 4th year. Telling them that they simply had no idea about how to run a business also went badly. You could invent matter transmission and not get that kind of profitability.

These are the same people who file patent applications pro se and then freak out when their application gets rejected. They usually call the examiner repeatedly, call the examiner's boss, and generally make a nuisance of themselves, because they're too cheap to invest in the not inexpensive process for appeal the same way they were too cheap to invest in an attorney. When that doesn't work, they take to trolling patent-related forums and the USPTO Facebook page.

Re:Hard truth

[BitZtream]

People born rich often lose it. Staying rich requires above average performance.

You're trying to redefine meritocracy to only apply to people who get rich from not being rich, which is just a false premise you're adding. You're initial wealth has nothing to do with your ability to maintain or grow it proportionally.

Re:Hard truth

[Anonymous Coward]

bwahahahaa! Thanks, I needed a good laugh. I suppose you think that the same person born in Mexico and in the USA and given the same amount of effort, skills and intelligence will reach the same station in life? How about in Uganda? You are describing a belief in a just world: "A just world is one in which actions and conditions have predictable, appropriate consequences." Go read and actually understand http://en.wikipedia.org/wiki/Just-world_hypothesis

Re:Hard truth

[sribe]

You forgot a very important one:

4) The VC made the wrong call.

No, I did not forget it. I said "if you seek VC funding and do not get it". No one goes to a single VC, gets turned down, and quits. "If you seek VC funding and do not get it" obviously implies rejection by multiple VCs. If they're all turning you down, then it's some combination of the 3 reasons I listed. If you're think they're all making the wrong call, you're deluding yourself about 1 or more of those 3 reasons.

Re:Hard truth

[slew]

I think some people miss a very important point about VC funding. For some business plans, you really need to get it (e.g., for corporate connection reasons if there is no other "exit-plan" for your business). It isn't just about the money. If it is the case you need to get VC money and you can't craft your business plan to attract VC funding, no matter how good your idea might be to your end customers, your business plan is a fail.

Sure, some VCs get it wrong, but many folks instead blame the VCs instead of their plan. A VC is simply a customer for your business equity like a end-user is a customer for your product. Many folks forget they are selling their equity to the VC and their product to the end-user. Sure the VC might be interested in the details of your product, but that's not what they are buying.

Of course some business just need money and that is something that can be gotten from Angel investors, relatives, or even credit cards, but if you need to strike while the fire is hot, sometimes VC funding is required.

Re:Hard truth

[Anonymous Coward]

Some of the more self-effacing (and hence more likeable) firms will post on their sites a list of the great companies that they turned down.

And to show just how self-effacing I am, I'll admit I've turned down Angelina Jolie, Scarlett Johansson and Megan Fox.

Re:Hard truth

[westlake]

"Had I asked my customers what they wanted, they'd have answered stronger horses". (Henry Ford)

Which isn't that far off the mark.

What Ford delivered, after all, was a tough little beast that could cruise the dirt and gravel roads of its era at 35 to 45 mph without complaint, while hauling a family of four plus dog and cargo.

Re:Hard truth

[Anonymous Brave Guy]

"If you seek VC funding and do not get it" obviously implies rejection by multiple VCs.

For what it's worth, no, it doesn't. In fact, given the context, I read it exactly as the possible outcomes from meeting one particular VC who then turned you down.

Re:Hard truth

[Anonymous Brave Guy]

I was more thinking in terms of understanding the dynamics and peculiarities of the relevant market. Even if you're very familiar with a particular field, and if you're starting a company to scratch your own itch because you understand why enough other people to form a viable market are going to share that itch, that doesn't necessarily mean that a VC will also see the target market as viable.

Of course you'll try to explain, within your very limited up-front time, why a certain type of person is going to share that itch and why you think there are enough of those people out there to support your business model. However, if you're in any sort of niche then sooner or later (probably sooner) it's often going to come down to whether the VC trusts that you know your own market, because they aren't going to become experts on it themselves just to evaluate your pitch. Sometimes, they're not going to have that much faith by the time they make the call and they'll probably err on the side of caution, even if they'd think your business plan was an obvious good bet given longer to become familiar with the idea and the potential market.

Re:Hard truth

[Anonymous Coward]

Yup - information is actionable. Silence is not. Plus, if your skin is so thin that you cannot stand to hear criticism, you're going to fail anyway. Of course, this has to be coupled with the perspective that sometimes the VC's are wrong. So as with everything in life, you have to accept input and then decide how much of it is valid and then act accordingly. But not providing the feedback, be it valid or not, prevents progress.

Re:Hard truth

[Surt]

Staying rich does NOT require above average performance, in fact, the leverage that being rich offers allows you to stay rich with well below average performance.

I'd have no complaint if 1% of the top 1% came from 1% parents. I'd say that was meritocracy in action.

Re:Hard truth

[marcosdumay]

The hard truth:

Sorry, I haven't looked at your application long enough to have any concrete idea about it. At first glance your idea(|team) sucks, but I didn't lose my time looking for the details, so I can't tell them to you. I have only a gut feeling, but it is enough to reject you (the rules for acceptance are more stringent).

I can understand why it would break some people. I can also understand why the VC is afraid the answer would burn bridges. Altough, yes, it is better to know that than any wish whashy excuse.

Re:Hard truth

[Anonymous Coward]

Given the topic it was implied that the meritocracy advocate was speaking with respect to the US. Your argument is a straw man of sorts.

Re:Hard truth

[hairyfeet]

I agree and not only that but I've found honest criticism can help you decide whether or not an opportunity is worth pursuing.

I have gone to auditions where they have said "We love your style but we want you to play like (X)" where X equals some famous player. i know when these words are spoken to simply thank them for their time and pack up because what they want is a mimic, which I find worse than working in a cubicle for sheer clock watching wanting to GTFO out the second the whistle blows drudgery. I have known guys that make a decent living doing nothing but being an ersatz (X) but frankly that is ALL they will ever do or be, simply mimicking everything (X) has ever done. I know I personally would rather be told up front they are looking for an ersatz then waste their time and mine in a role where neither would be happy.

So I personally would rather be told upfront that they didn't like something than play "Guess WTF they are looking for" as that just leads to frustration. I don't know if I want to go the kickstarter way with this new album I'm working on or go fully DIY but I know I'd rather have honest opinions over bullshit any day of the week, one simply doesn't learn from bullshit.

Re:Hard truth

[rhakka]

that's a fantastic fantasy you have there. that's why all those hard working african kids starving to death in the desert deserve what they got, right?

Re:Hard truth

[Anonymous Coward]

A few years back, my gf reviewed hundreds of resumes submitted for an assistant/secretarial position. The job posting requested excellent writing skills. Most of the resumes had blatant grammatical errors or typos, which immediately ruled them out. Making her first cut would have been easy if they had a friend or relative proof their resume.

She thought it might be helpful to add a note in the rejection letters, explaining that they were rejected because of the error(s). You would not believe the vitriol and hate mail that came back, essentially none of the applicants were interested in honest feedback. Only one person thanked her for being honest...and he was not the applicant. He was a volunteer who wrote resumes to help partially disabled people find positions and was interested in improving his effectiveness--and she was happy to work with him.

Re:Hard truth

[MaskedSlacker]

I remember when I didn't know how to count to four. Then I turned 4.

Re:Hard truth

[Anonymous Coward]

Not only that, a lot of VCs require a payment to even hear the offer, one would assume so they only get serious inquiries (or at least people who THINK they have serious inquiries). If the answer is no, you might as well find out why. After all, you paid for that advice.

-Restil

Re:Hard truth

[MaskedSlacker]

Horseshit. He clearly said

Life is a meritocracy

Which is not a statement of limited scope. Even if it were his claim would still be bullshit. Life is unfair, not a meritocracy. Whether it should be made fair is another question, but it is undoubtedly not fair and not a meritocracy.

Re:Hard truth

[datavirtue]

Man, there are a shit-ton of people who couldn't program their way out of a wet paper bag, with no business experience, and no working product who are trying to get VC funding. Most of the ideas are simplistic or just plain stupid. Even the better ones make you want to wince. These VC incubators get the advantage of a bunch of people working FOR THEM--coming up with ideas and testing them out. The ones they think have a chance they give some money to for a stake.

Re:Hard truth

[iamhassi]

Am I the only one that thinks article is incredibly obvious?

"you lack experience and leadership skills and your team is weak" = Thx Captain Obvious, think every startup is started by the guy with 20+ yrs experience and a terrific team willing to work for ZERO pay?

Then just buy the idea. Facebook would have survived without zuckerberg and all the other great startups out there probably didn't need the person that originally started it. Once the ball is rolling you just need people with the experience and a great team to keep it going.

Re:Hard truth

[Anonymous Coward]

That's true in many places. But the social contact is very weak in America, and the best way to get the education you need to be rich is to be born rich. The class mobility in America is among the lowest in the western world.

Re:Hard truth

[interkin3tic]

... I feel dumb for asking this, but what's so profitable about lossless compression?

Re:Hard truth

[SomePgmr]

You probably already know this but in case you haven't, I read that Indiegogo.com is good for that sort of thing. I imagine KS has a bigger audience though.

Re:Hard truth

[Casandro]

Well since universal lossless compression could even compress its output, (if it existed) you can suddenly store infinite amounts of data on finite amounts of space for a finite budget. There are many institutions which have to store a lot of data. They could get rid of racks of tapes or harddisks and just use some tiny little storage device for their archive.

However as pointed out before, something like that is logically impossible. That however doesn't keep stupid people from trying anyhow.
The current crop of algorithms like bzip2 are already so close to the maximum possible that putting in more effort is futile.

Re:Hard truth

[Casandro]

Actually patent attorneys are fairly useless.
What you need to do is to follow the procedures accurately, even down to stupid things like font sizes and such. Then when it gets rejected, you address the points made in the rejection and re-submit it. It usually simply passes then. If not, the examiner will have raised valid points you need to address again.

Note that patents usually are worthless. Unless they are illegally broad, it's trivial to work around them. If they are not worked around, they typically are useless. The patents that do generate money are the ones referenced in standards or the ones so trivial people stumble across them.

Re:Hard truth

[Fjandr]

I definitely agree that life is neither fair nor a meritocracy.

Creating fairness first comes with defining what "fairness" actually means. Much of the total effort spent on fairness has been on trying (and usually failing) to hash out what exactly the word should mean.

Re:Hard truth

[slew]

I think you may be overestimating the amount of business plans for novel markets a typical VC will see. Smart people often think alike and see the same potentials and come up with very similar markets to attack. Of course each business plan of attack on a market is often not the same, and therein lies the rub. Just because you think there are enough customers to support your business model doesn't mean you were the only one to see it nor does it mean you have the best way to attack it.

As someone once said, "all plans of war go out the window once the first shot is fired".

VCs aren't islands, they are really a network, they don't mind giving referrals (as many VCs don't like to jump in alone, they may see part of the action even if they aren't the lead). If a VC doesn't happen to have expertise in the market you are aiming for and they don't think you are a total bozo, they often refer you to another VC that does, and those VCs probably see many business plans that attack your market.

As a result, the VC that is likely to fund you really isn't looking so much at your specific plan of attack in a market as they are looking to see if they think you can win the war in that market. Many times that comes down to if they feel the principals are inexperienced and/or overcommitted to a certain attack plan. That is usually the ticket out of the door. Even if the VC hasn't seen this market angle before, they either think (or in many cases, they know) that some other smart person probably has and that your company will be going up against that other company. Nobody wants to get into a gun fight when thier champion is armed with a spoon. Ideas are often a dime a dozen, execution wins the war...

Re:Hard truth

[Anonymous Coward]

I remember when I thought things could be boiled down to a meaningless three-word sentence... then I made it onto the board of directors.

Re:Hard truth

[Galestar]

I think you missed the point of the quote.

Re:Hard truth

[Anonymous Coward]

I'm not sure how you have convinced yourself of this delusion, but that is not reality. Believe me, I would love for it to be so - that merit and hard work actually determined success, but unfortunately that is not the case.

Re:Hard truth

[phantomfive]

Tell them to get a master's degree. Or find extra training somewhere else. It's rarely a problem of intelligence, more of willing to put the time in to open their mind the way it needs to be for programming.

Re:Hard truth

[phantomfive]

If you are intelligent and think intelligence = ability, then you've just found your blindspot. There's a lot more to success than intelligence.

Re:Hard truth

[Skapare]

DISAGREE! If you need to be told what's wrong, you were already a loser before.

Re:Hard truth

[Anonymous Coward]

Prove it.

Intelligence is more often defined as 'mental things that bring success*', because outside of pure test scores measuring it is difficult.

if I may quote wikipedia:

IQ and g (discussed in the next section) are correlated with many important social outcomes--individuals with low IQs are more likely to be divorced, have a child out of marriage, be incarcerated, and need long-term welfare support, while individuals with high IQs are associated with more years of education, higher status jobs and higher income. Intelligence is significantly correlated with successful training and performance outcomes, and IQ/g is the single best predictor of successful job performance.

Now, if what you're saying is that your parents' social status is also an important predictor, you're not wrong. If your position is that "ability" rises to the top, you're [1] going to have to define your use of the term ability (you sophist jackass), and [2] almost certainly wrong within the bounds of this conversation. Not to let you wiggle out of context, we are discussing the "1%" and more broadly the lack of social mobility in the USA. I believe you were on the side of the capitalist apologists, but if not do be sure to clarify. Also, in regards to [1] and the quotation, the argument that IQ tests don't measure "ability" or "intelligence" would be a red herring: whatever is measured correlates with positive social outcomes.

Flame on.

*variously defined.

Re:Hard truth

[Alioth]

That's not entirely true. A lot of it is what opportunity you started with. Let's do a thought experiment: had Bill Gates been born in grinding poverty in a favela in Rio de Janiero, instead of born already a millionaire in the United States, would he still be now a multibillionaire? Probably not, he'd probably be still in that favela.

Now given two people of equal background where one ends up a deadbeat and the other a billionaire, you can say that - but there is a huge variance of opportunity that people are born in. Merely being born in the west is hitting the lottery in terms of opportunity. 80% of the world's population lose that particular one.

Re:Hard truth

[ghostdoc]

"you lack experience and leadership skills and your team is weak" = Thx Captain Obvious, think every startup is started by the guy with 20+ yrs experience and a terrific team willing to work for ZERO pay?

But hang on... a startup goes to a VC and says 'can I have a lot of your money please?'. The VC has to make a decision not about whether the founding team are nice people or whether they 'deserve' a break. The team has to have enough experience and the necessary skills to carry off the idea, if they don't then they're a bad investment and the VC should save their money for a team that does have the experience.
You can get the experience by working for startups and small businesses. Bonus: it's fun too.

Then just buy the idea. Facebook would have survived without zuckerberg and all the other great startups out there probably didn't need the person that originally started it. Once the ball is rolling you just need people with the experience and a great team to keep it going.

But VC's aren't there to buy ideas and build teams. Remember, the startup came to them and said 'we've got this great idea and the team to make it work, can we have a chunk of your money to make this happen, please?' There was no option for 'we've got this great idea but we're pretty clueless about how to make it work, so do you want to do all the hard work and provide all the funding and we'll just have some money?'.

The value in a startup is not the idea. Ideas are cheap and abundant. Making an idea (any idea) into a profitable business takes skill, hard work and luck. All the value is in the implementation.

Re:Hard truth

[Anonymous Coward]

Yes, but OTOH, how many projects out there would never have been started let alone completed to which those criticisms were applicable? Granted I'm guessing not many, but if you were on one of those projects doing the imprudent thing would be the correct move.

Re:Hard truth

[ghostdoc]

Is it the hard truth though? Or just somebody's snap judgment? It's possible that the perception of one VC is way off.

It's the VC's money. If you don't like how they decide the invest their money, that's your problem.

This isn't some 'fairness award' where the people who deserve it the most get the funding. This is someone making an investment decision with their money based on the facts of the pitch and their experience. If their perception is way off, then that's their problem and they'll deal with the consequences.

Re:Hard truth

[ghostdoc]

Also, as well as referring a startup team to another VC, I've seen pitches accepted by VC's on the third or fourth attempt (over a few years). The VC basically saying that the team has matured and their understanding of the business and market has improved to the point where they're worth investing in.

And yes, the first casualty of every startup is the business plan ;) I think it was Napoleon who first said something like that...

Re:Hard truth

[ghostdoc]

you probably need to rethink that 'loser' mentality a bit.

Every successful entrepreneur made lots and lots of mistakes. The trick is not to get everything right first time, but to accept when you're doing something wrong and work out how to get it right before it kills the business.

So hearing how you're doing it wrong from a VC is good feedback. Presuming you already know what you're doing wrong is really really stupid.

Re:Hard truth

[hairyfeet]

Actually I didn't, this is my first time trying to DIY instead of going to a studio, thanks. The real bitch I'm finding is mixing, trying to get a good clean recording with a 16 track isn't hard but sitting for hours in audacity trying to figure out what works and what doesn't IS. I'm used to the old school stomp box and rack mounts and doing everything in software is a royal bitch, but the local studios have frankly gotten crazy priced and most of the clubs are booked up over a year in advance now so i can't just grab some club gigs to pay for it like I did the last one. That was why i was thinking something like kickstarter, i have the tracks, just maybe a couple of hours in a studio for clean ups and a decent engineer would probably be all I need to get this done.

Anyway thanks for the link, I'll be sure to check it out. I have a few rough two tracks posted on our FB page so just shoot me an email if you want to check them out but I warn you they were straight off the board with a little digital tascam 2 track. by the time the 16 track came in the drummer had fallen off the wagon so we've been doing it just the two of us and like I said still working on the mix, luckily he also plays drums while i play some keyboard. Its been slow going but I think its better to DIY than to try to find new guys and bring them up to speed at this point. hopefully once we get it out there we can maybe get some indie label to give us a club tour like I had with my last group.

Re:Hard truth

[Anonymous Coward]

Moving forward i think that "funding" (note i said funding and not vc's) is going to be most successful when i comes in the form of a "lab" where basically the "team" supporting you brings more than just money to the table.

If the vc isn't up to it...no problem we can train and bring their skills levels up to speed.

No one popped out of the womb and said shazam motherfer's here is a Model T with a revolutionary new product line building methodology

Re:Hard truth

[TapeCutter]

Bingo,we have a winner. Life is indeed a crap shoot.

Re:Hard truth

[TapeCutter]

Like a horse and cart it didn't really need a road, those tall wheels made it an excellent off roader.

Re:Hard truth

[Kjella]

There's no idea so good it can't be torpedoed by incompetent management. Facebook could have died a million ways from expanding the wrong way, spamming their customers, monetizing their customers, intrusive ads, turning their interface into something ugly or annoying or buggy, high downtime, simply being too slow to expand and getting leapfrogged or whatever. One bad apple is always replaceable but if you feel the team they've put together isn't up to the task, if you don't have confidence in the decisions they've taken so far how are you going to have confidence in them going forwards? How can you know that they haven't already hired a bunch of people that are going to be sand in the machinery? It's foolish to think you can pop in a new CEO or even CxOs and fix everything.

Re:Hard truth

[Maritz]

You think there's an equality of opportunity in "life"? Life certainly should be a meritocracy, ideally, though it patently is not.

Re:Hard truth

[Maritz]

Dude c'mon that's not the party line. American dream, land of opportunity bla bla bla.... ;) If you're not rich it's your own damn fault. Oh and I'm sure the Bushes had two generations in the Oval Office *entirely* on merit.

Re:Hard truth

[Maritz]

I think a government with genuine aims of making a meritocratic society would begin by trying to level out equality of opportunity. The fact that this basically doesn't happen at all in many places belies their true intentions in my opinion - keeping the cash and power with those who already have it, and their spawn.

Re:Hard truth

[phantomfive]

Doesn't matter how intelligent you are if you can't motivate yourself to stop watching TV and get off your couch and go do something.

Having a correlation with 'many important social outcomes' in no way means that it's all you need to be successful.

Re:Hard truth

[Larryish]

The replies to my last post are reminiscent of the song "Give Up" by The Postal Service.

If you truly believe that being born rich is the only way to get rich, you will never be rich.

I have a question for you:

If you were not born rich, should you spend a lot of time worrying about the imagined successes of those who were born into wealth?

Does that line of thinking ever benefit you? Has that line of thinking ever benefited you?

I think not.

That sort of defeatist complaining crap keeps you and others like you wallowing in despair for your entire lives.

Life is not "a crap shoot". Life is more like a game of draw poker. When you play a hand of 5-card draw, do you whine loudly if you don't get a royal flush on the deal?

Quit your fucking whining. The world does not care.

Life is not fair.

Big fucking deal. GET SOME!

Success is the ability to go from one failure to another with no loss of enthusiasm.
--Sir Winston Churchill

Re:Hard truth

[Larryish]

If you go into a VC meeting with that attitude, you will fail.

Re:Hard truth

[Pfhorrest]

Yes, this exactly. There is a meritocracy only where opportunity is equal. And we can quite easily prove that opportunity is not equal, and likely never has been at any point in history.

Outcome is the product of ability and opportunity.

Ability, of any sort, including things like discipline and motivation on top of intelligence and strength etc -- basically any human quality -- is distributed normally, i.e. on a gaussian curve.

If opportunity was equal, outcome would be distributed normally, along a gaussian curve, and most people would be middle-class, with diminishing amounts of rich and poor.

Instead, outcome is distributed more logarithmically, with diminishing amounts of rich and swelling numbers of poor.

Therefore opportunity is not equal. QED.

Re:Hard truth

[Surt]

Nah, understanding how the world really works, and using that to manipulate people is a recipe for success.

Re:Hard truth

[Intrepid imaginaut]

VCs aren't particularly interested in long term investments either. They want in, pump, IPO, and out. That's how they make their money, and how they earned the sobriquet "vulture capitalists". Something to bear in mind when considering the comments in the article.

Re:Hard truth

[Anonymous Coward]

BUt ... but ... I can google it or look it up on wikipedia!!!! I'll just search under 'weak team, don't know squat' and see if I'm listed there!

Re:Hard truth

[Anonymous Coward]

No. You must be new to the planet. Some people are great workers and very capable of doing great things, but never get anywhere as they aren't sales people. They fail to sell themselves or their merits. As such others who are less capable often get further up the chain than they do. Not because they are great at what they do, but because they are great at selling themselves as the better product over the person who is great.

If life were a merticocracy, then the need to sell oneself must be the biggest asset one can posses.

I know a heap of people who are in the positions they are in because of who they know, and not what they know. Some bosses like to surround themselves with 'yes' people. They end up with a mediocre team, but it is a team they can rely on to say, 'yes' regardless of how stupid the ideas are.

I've been to interviews where the people doing the interview have made comments like, 'regardless of how good you are, I'd prefer to put one of my friend in this position.' Which lead me to wonder why I was even being interviewed ... but it was always some reason like, 'We have to interview at least 5 people before making a decision as it's company policy.'

I've also been handed stupid reasoning for all sorts of things from management, like when they ordered me to drop out of my University degree under the grounds that I was 'too short' and as such management didn't think I deserved a degree. That sort of stuff is hardly 'merit' as much as prejudice holding people back.

Re:Hard truth

[iamhassi]

The value in a startup is not the idea. Ideas are cheap and abundant.

of course it's the idea, think VCs are handing out millions to kids because "hey, your idea blows, but i like you, here's a few million"

Re:Hard truth

[Larryish]

Merit is relative.

Re:Hard truth

[Anonymous Coward]

The replies to my last post are reminiscent of the song "Give Up" by The Postal Service.

Dumb ass. There is no song called "Give Up" by The Postal Service. Album, yes. Song title, no.

Re:Hard truth

[Gibbs-Duhem]

Yes, absolutely. I'm a startup founder (not a web startup, which actually seems to make it much harder to find VC's nowadays, by the by).

I've got tons of impressive credentials, but if my startup idea sucks, or I've got serious issues with my team ability to implement it, of course I would want to know! I can't fix a problem I am too inexperienced to understand. If the solution is a search for a new co-founder who has more experience, then heck yes I want to know that so that I can do it! I want my startup to succeed, not flounder forever.

Even more, if it's got serious fatal flaws then it's worth me seriously thinking about whether or not I should be doing it. I can make an extremely nice salary at a regular job, even a job at another startup to learn really useful stuff at in terms of doing my own. Why would I want to waste tons of my time and spirit on a project that makes no sense, or won't work for team reasons?

I have gotten far more negative feedback than positive feedback from potential funders. I have never taken offense; the criticism isn't about me as a person, it is about me in the context of my startup. If the feedback I got was about how my religion or gender or sexual orientation or race was wrong or something ridiculous like that it would be one thing (although I am easy going enough that frankly I probably still wouldn't take offense). But if it's practical concerns about my skills with leadership, or my team's lack of expertise, or whatever that's incredibly valuable to know! Anyone that gets offended by free advice is doing it wrong. Yeah, the VC may be wrong, but you get what you pay for.

Re:Hard truth

[Gibbs-Duhem]

This is true about patents in some areas, but not others.

I say this as someone who has easily worked around patents before, and nonetheless has heard repeatedly from investors that *some* IP is critical for self-defense and protection of core technologies.

Re:Hard truth

[Larryish]

Oops, my bad.

I was thinking of the song about how the singer plans to "sleep in".

Thanks for the correction.

Re:Hard truth

[Anonymous Coward]

People born rich often lose it. Staying rich requires above average performance.

I've been reading /. since it was Chips and Dips. You are to be congratulated, for I am fairly certain that is the stupidest thing I have ever seen on this site. Well done.

Re:Hard truth

[CAIMLAS]

corrupt lottery.

But you repeat yourself.

The reality is closer to betting on horses. You've got your odds, which are as likely to be wrong as they are right. Some big money is involved, but usually it's just a series of small to medium wagers. Sometimes people make out big, sometimes they lose out big, but mostly it's just back and forth with a small select making out repeatedly due to knowing a guy, or being really good with numbers and subtle with their bets so the big guys don't catch on too quickly.

Re:Hard truth

[Setsquare]

My friend who goes by the alias of paperhorse has had a universal lossless compression algorithm up on Stackoverflow for over two years and it hasn't even received an up vote. They're incredibly easy to make and understand. Just make sure you write down how many times you compress your file, otherwise you won't be able to reinflate all your zero byte avi's back up to their normal size.

Re:Hard truth

[ghostdoc]

The value in a startup is not the idea. Ideas are cheap and abundant.

of course it's the idea, think VCs are handing out millions to kids because "hey, your idea blows, but i like you, here's a few million"

nope, it's not.

VC's will hand out millions to people they respect without even seeing an idea.
VC's won't invest in a great idea if they don't like/respect the team. See $any_successful_VC-funded_company's list of funding rejections for details.

Re:Hard truth

[Quirkz]

Life is a meritocracy.

Your benefit is the result of your action.

It's cute that you think that. Perhaps it *should* be one, but it most definitely isn't. Some of my greatest rewards have come from minimal effort, while some of my greatest efforts have gotten me minimal reward.

Re:Hard truth

[Larryish]

Does that mean that the world is "unfair", or does it mean that your expectations were unrealistic?

"I performed A, and so I should have gotten A1 result. However, as I instead received B result, the world is unfair."

Wrong.

You are should-ing all over yourself, living life swimming through a great big pile of should.

Question your preconceptions.

Re:Hard truth

[Quirkz]

Sounds sort of mystical, but kind of confusing to me. The only should in my statement was a concession to your claim that life is a meritocracy. I don't think it is one, but it might be nice if it was.

And I'm definitely not talking about fairness on any level. Mostly I'm talking about predictability or sensibility of the outcome of an action. It's cliche to say "you reap what you sow," and maybe in some tautological sense it's also common to claim "if you got it, that must have been what you were asking for," but in my experience the actual result of an action is too unpredictable to make "your benefit is the result of your action" a useful guideline in any way.

Re:Hard truth

[Surt]

IMO a lottery isn't corrupt by definition. It's a form of gambling, which can be a fair, legitimate entertainment. By corrupt I specifically meant that you can have an unfair lottery in which the lottery operators are picking their friends to be winners, rather than choosing the winners randomly.

Re:Hard truth

[Larryish]

Fair enough.

Re:Hard truth

[Pfhorrest]

The replies to my last post are reminiscent of the song "Give Up" by The Postal Service.

You clarify below that you meant the song "Sleeping In" specifically. What does that have to do with any of this?

More to the point, nobody is disputing that hard work is a factor in success, and thus that all else being equal, trying harder is generally better advice than just giving up. Nobody is saying "life is unfair, so don't bother trying". We're saying that not all failings are attributable to lack of effort or skill (nor all successes to skill and effort), because those are only partial factors in success.

To use your own analogy, it's hardly from a lack of effort or skill that you didn't get a royal flush on the deal; that's just the luck of the draw. You still have to play the hand you're dealt as best you can, but that doesn't make your crummy hand the fault of crummy playing. Poker is not a meritocracy any more than life; the best players don't always win, and the losers aren't always bad players, some people just get lucky, or unlucky. You can gauge how good a player is by how well they play a variety of hands dealt over a number of games; good players will win more often than not, when the luck of the draw is diluted over many games. But if the hand you're dealt is an analogy for the circumstances you're born into, then good luck comparing people's successes across a number of lives.

And more to the original point: if you admit that life is not fair, that flies in the face of your claim that life is a meritocracy. A meritocracy is by definition fair: nobody gets any advantages, either systemic or random, everybody starts on the same footing, and their score reflects only their skill. If life is not fair, which everybody agrees it isn't, then that is not true, and you don't have a meritocracy.

Re:Hard truth

[Pfhorrest]

I specifically said "aptitude" to include all factors which make someone good at something, not limited to just intelligence; including things like discipline.

And I was explicitly making the point that there is evidently more to success than aptitude; if there wasn't, we would have a meritocracy.

Re:Hard truth

[phantomfive]

Well, thanks for clarifying.

Oh, but aptitude tests are even more inaccurate than IQ tests. So find a good way to measure aptitude, and then we can discuss how much it matters.

Re:Hard truth

[TranquilVoid]

Getting off-topic, and I'm an amateur, but I'd think you should be using old-school stomp pedals to record, not after (unless you're talking about reverb etc.). To incorporate pedals/rack effects after recording you could try re-amping - record clean to get the performance then replay your performance as many times as you want, experimenting with different non-digital effects.

Also, wouldn't digital effects be easier in a proper DAW like Reaper or even Ardour, rather than Audacity?

Re:Hard truth

[Pfhorrest]

Even without a way to concretely and accurately measure overall aptitude, we can still say meaningful things about it in the context of meritocracy.

As I wrote in another post up in this thread, pretty much any test of any kind of ability, anything that might be a factor in overall aptitude, tends to find people distributed normally, i.e. on a gaussian curve. So regardless of the validity of any one particular test, it stands to reason that if the trend for all factors of aptitude is a normal distribution, then aptitude itself should follow a normal distribution (even if we can't test that directly). There should thus be a bulge of alright but mediocre people, and smaller and smaller amounts of really capable and really incompetent people off to either side.

If we had a meritocracy then, if opportunities were uniformly distributed, the product of such a normal distribution of ability and a uniform distribution of opportunity should be a normal distribution of outcomes; we should see a big bulge of middle-class people with smaller and smaller numbers of filthy rich and piss poor people on either side of that curve. We don't see that, rather the numbers swell the poorer you get in an almost logarithmic skew of the curve. So either ability is not normally distributed or opportunity is not evenly distributed. Since we observe many individual factors of ability to be normally distributed, it stands to reason that the likely culprit is that opportunity is not evenly distributed -- that we do not, in fact, have a meritocracy.

Re:Hard truth

[phantomfive]

I'm not sure that's a valid way of looking at it. Consider a field that is for most purposes a meritocracy, American Football. Teams all try to find the best players, they ones that don't lose. So they are for the most part looking for football ability.

And yet it football success is not a normal distribution, there are a few people who do very well, and most of us do very poorly. Personally I did fine in Junior High but lost out in High School. Oh well.

Re:Hard truth

[Rich0]

True enough.

I think the fact is that if you wanted an algorithm for predicting the success of a start-up you could implement it as this:

1. Input business case. Direct to /dev/null.
2. Output "Start-up will fail."

It would be right 99.999% of the time. That doesn't change the fact that people get rich from start-ups all the time. The key is not perfect prediction, but good enough so that on the whole you get a return.

Re:Hard truth

[Pfhorrest]

Are you sure that success at football is not a normal distribution? Certainly, the majority of people are not the exceptional players that get hired for the big leagues. But do you find larger and larger numbers of people as you look at lower and lower skill levels, or do the numbers swell around a mediocre but passable level, and then diminish as you get down into truly physically incapable people? I'd wager that most people are at least capable of playing a decent game of football; I personally despise professional sports, never played team sports after elementary school, do not make a special effort to be in good physical shape (and would consider myself in sub-par physical shape), and I'm told be people who play football casually that I'm not bad at it. (I'll play with friends if invited, despite not caring for sports). I'm certainly not going to go up against a pro any time soon, but neither am I utterly incapable of running or throwing a ball at all. And I'd wager that the number of people *that* bad at football is similar to the number of people who are exceptionally good at it.

Similarly with intelligence. Most people are not geniuses. But most people are not morons either (as inclined as I may be to claim otherwise sometimes). Most people are average. Most people can't calculate a derivative in their heads (if they even know what that means), but neither are most people incapable of adding a couple of numbers together. Exceedingly few people are capable of independently discovering what a derivative is and how to calculate one, but then exceedingly few people are completely incapable of grasping the concept of addition, too. And so on.

Re:Hard truth

[phantomfive]

Hmmm, you could be right. Instead of going out and doing a study, I'll accept that you are roughly right.

I was thinking about this today at lunch, and actually, I think income is distributed on a roughly normal distribution. Look at this graph of world income. It looks similar for the US, with a bulge around $40k.

Re:Hard truth

[Pfhorrest]

You might note that that graph has its x-axis logarithmic. That means that if you were to convert it to a linear graph, you'd have a sudden rise to $300/yr on the left, and then an exponential decrease extending far out to the right. It's not strictly a logarithmic curve, but it's such a heavily skewed bell curve that most of it resembles a logarithmic curve. If it was an un-skewed normal distribution, you would expect the peak to be about halfway down the range on the x-axis, not way off to the left.

This graph of US income distribution in 2011 (first relevant result off Google Image Search) looks pretty similar too. If it was a normal distribution, you would have as slow a buildup to the peak as you do a decline from it; discounting the >$250K outliers (if they can really be considered outliers, it looks like there's a good number of them), you should see the peak at around $125K, not way down in the $15K range. And likewise the median would be there, too, not in the $50K range.

In fact, that's a good way of looking at it: most people make below an average income; if you were to divide the GDP by the population, you'd have a significantly bigger number than what significantly more than half the population makes. (Nine folks have $1 each and another has $91 each; they all have $10 each on average, but 90% of them only have a tenth of that average, and the other 10% have over nine times the average). That's not possible in a normal distribution, where the mean, median, and mode are all roughly equal.

Re:Hard truth

[phantomfive]

You analysis isn't convincing. It's not strictly a normal distribution, but it is not extremely far off.

It is true that most people make below the average income, but would it really surprise you if, when you made your test to measure ability, you found that most people are less capable than the average person?

Re:Hard truth

[iamhassi]

See $any_successful_VC-funded_company's list of funding rejections for details.

great point, most lists of companies that have been funded by VCs are complete crap ideas, which makes one wonder "why did they give millions to those people working hard on that really bad idea?"

can't wait to have millions so I can fund bad ideas too!

Re:Hard truth

[Dachannien]

Having seen numerous apps drafted and filed by various entities - including pro se applicants, US-based patent attorneys, and foreign-based patent attorneys (through a US-based attorney who acts as a glorified courier) - I can tell you that hiring a registered US-based patent attorney is a smart move unless you already have significant experience with patent prosecution. Most of the pro se applicants who look like they know what they're doing actually have an attorney on the payroll for drafting purposes, but choose to file everything themselves.

Isn't that called Dragon's Den??

[Anonymous Coward]

Where Mr Wonderful drops truth bombs on the various yahoos that come on the show?

Old business doesn't want new business

[GeneralTurgidson]

The business climate in the US is: old, entrenched businesses fight other old, entrenched businesses in a race for the cheapest shit. New businesses either make no money or bring something to the table that will eventually be bought by the old business. VC money is better spent on patent trolls and companies they can sell for a quick profit.

Re:Old business doesn't want new business

[TheRealMindChild]

Capitalism at work

Re:Old business doesn't want new business

[Anonymous Coward]

If you've ever seen the Family Guy with Lois and Mayor West fighting over the undecided voters, that's basically what it is. Tech people are going to end up wasting a lot of tech time on them, when VCs really just want to be hugged and kissed and build relationships and see pretty things.

Really, outside investors are the last thing you want to plan on when starting a business. Build a business first, they'll come to you then. If you need millions of dollars, start instead with something that'll sell for a few dollars, and add a few years to your business plan before thinking about hitting millions of dollars.

Also, don't make a business plan. Just do your thing, make money by selling shit, however small it is, and work your way up. You'll get the "experience and leadership" aspect within a few years by the time you get to your first VC meeting.

Re:Old business doesn't want new business

[Grishnakh]

Crony capitalism at work

FTFY

Re:Old business doesn't want new business

[turbidostato]

"Crony capitalism at work"

As if there were any other.

A good old guy going to business with another good old guy he is confident of.

Wouldn't you do exactly the same?

(Yes, it's an aporia: you either answer "yes", making my point, or you answer no, and then I'd say "that's why you are not a millionarie in the position of becoming a VC").

Re:Old business doesn't want new business

[Anne Thwacks]

VCs really just want to be strangled

FTFY

Re:Old business doesn't want new business

[Anonymous Brave Guy]

The business climate in the US is: old, entrenched businesses fight other old, entrenched businesses in a race for the cheapest shit.

Which is, of course, why young/rejuvenated companies like Apple, Google and Facebook have never made any money and are just looking to get bought out by older and more entrenched players like Microsoft, Yahoo and IBM.

Re:Old business doesn't want new business

[noh8rz3]

wow you've never run a business have you. i bet you'd never make blueprints for a new house. just start by building a room, then work your way up.

Re:Old business doesn't want new business

[Grishnakh]

I don't think that quite fits. A VC isn't going to fund "another good old guy"; the other "good old guys" already are running big companies, and don't need VC funding. The whole point of VC is to fund risky start-ups, which are usually being run by younger guys, not anyone established; that's why they're risky, but also why they have big potential.

Here's an article for you to read about crony capitalism. It's not about established businesses at all; it's about businesses getting special favors from government, which tilts the "playing field" in their favor against smaller competitors that aren't getting special treatment by the government.

Re:Old business doesn't want new business

[MaskedSlacker]

It's not about established businesses at all; it's about businesses getting special favors from government, which tilts the "playing field" in their favor against smaller competitors that aren't getting special treatment by the government.

Except you're making a false distinction between "government" and "other established businessmen." Do you know who all those Representatives, Senators, and assorted top-level appointed bureaucrats are? The same people running the companies. Saying they're getting special favors from the government, while true, obscures the reality: they're getting special favors from each other, masked by the false legitimacy of government. OP was spot on.

Re:Old business doesn't want new business

[Fjandr]

I believe the point actually being contended originally was the assertion that there is no form of capitalistic business apart from crony capitalism.

There most certainly are, they are usually just limited to being in small players in big markets or big players in small markets. Once you reach a certain level it requires having gobs of money in order to maintain independence from crony networks, making it much more rare. Yes, you can make gobs of money without being close friends with your local mafia officials, it just tends to be a lot harder than sticking close by them. One that comes to mind as a potential example (I'm not saying it actually is, but based on my general impression of the company) is Bose. On a smaller scale, I could name several dozen companies making good (but not ungodly) amounts of money, none of which most people here have likely ever heard of on account of their regional nature. They exist because they serve markets well and don't incur the notice of those involved in crony capitalism.

By percentage of world GDP though, I'd guess a pretty massive percentage of the world's output is derived from companies engaged in crony capitalism though.

Re:Old business doesn't want new business

[gangien]

A good old guy going to business with another good old guy he is confident of.

First off, that's not crony capitalism, that's capitalism. Crony Capitalism is where businesses depend on the government, rather than competing in the free market. There is plenty of this in the US right now.

So when the OP said:

VC money is better spent on patent trolls and companies they can sell for a quick profit.

Patent trolls are indeed a function of crony capitalism.

As if there were any other.

While you can perhaps argue that there has never been a pure capitalist state, you can eliminate things like the bailouts and the possibility for patent trolls, to go a long ways towards that pure capitalism.

Re:Old business doesn't want new business

[Pecisk]

Apple and Google aren't young companies by any standard. Facebook - made some money, but soon will fade away.

Still haven't seen anything truly innovative in Facebook offers.

Re:Old business doesn't want new business

[Tenebrousedge]

The phrase was invented (recently) to serve the capitalists. "Capitalism doesn't concentrate wealth. Wealth isn't a guarantee of influence. That's, uh...that's bad capitalism." If true, then good capitalism involves social constraints, and I'll leave it to you to determine if there's a form of that which you won't call socialist.

The proper term, however, for "crony" capitalism is fascism.

Re:Old business doesn't want new business

[stretch0611]

The business climate in the US is: old, entrenched businesses fight other old, entrenched businesses in a race for the cheapest shit.

Yo are right, but you did forget one point. They also speak with government (local, state, and fed) to get laws passed in order to limit competition and prevent new companies from growing.

Re:Old business doesn't want new business

[Grishnakh]

Yes, of course I'll agree that good capitalism involves constraints; this is obviously where I and libertarians would part ways sharply. IMO, you need government to ensure a "level playing field" and make sure no companies become "too big to fail". Some social constraints are good too, like not totally fucking up the environment and the air that we all have to breathe. This form of capitalism seems to work well in Europe (sharing a currency among very disparate countries, OTOH, seems to be very problematic).

And yes, crony capitalism basically equals fascism. It's just that people wanted a different term since the F-term invokes images of brownshirts and concentration camps.

Re:Old business doesn't want new business

[KZigurs]

Apple might be not, Google certainly is. Google is only what - 30% older than Facebook? (as opposed to 1000% when compared to likes of GE)

If you don't see where Facebook has provided innovation - well, sucks to be you. Innovation not always is outright algorithms, but also how you put them together and present to the world - which is where facebook won over myspace and is going strong.

Comment removed

[account_deleted]

Comment removed based on user account deletion

Not surprised.

[johnny cashed]

If the reason is lack of leadership skills/experience and a weak team. If they had those qualities, they might not need to go seeking a VC for help. On the other hand, sounds like a catch all for VC rejection.

Re:Not surprised.

[whisper_jeff]

If they had those qualities, they might not need to go seeking a VC for help.

Just because you have the skills to run a business and create something profitable doesn't mean you have the money to start it up. Perhaps you've heard of this company called Google - started with a $25 million investment from Kleiner Perkins Caufield & Byers and Sequoia Capital.

Re:Not surprised.

[ShanghaiBill]

Perhaps you've heard of this company called Google - started with a $25 million investment from Kleiner Perkins Caufield & Byers and Sequoia Capital.

No. Google had been around for years, and had a solid track record by the time VCs got interested. They did get angel funding of $100K earlier, but even that was after they had been up and running for over a year.

Re:Not surprised.

[whisper_jeff]

They still got venture capital funding. The point remains the same.

Re:Not surprised.

[Missing.Matter]

A venture capitalist is typically distinct from an angel investor. Angels typically are individuals who invest in very early companies and take on very high risk. VCs are typically institutional investors who invest at later stages at higher capital levels. They also take on risk but not ask much as an angel investor.

Re:Not surprised.

[turbidostato]

"Just because you have the skills to run a business and create something profitable doesn't mean you have the money to start it up."

Just because you have the skills to run a business and create something profitable doesn't mean you have the curriculum to show it up to a VC.

The point is: I value very positively this guy being honest but the message is clear: if you are not already one of us, you won't get the money to become one of us.

Re:Not surprised.

[makomk]

Sounds like a vague reason for VC rejection that can encompass all sorts of prejudices. For instance, I wonder how often it really means "he doesn't have the right skin colour for leadership" or "she doesn't have the right gender for leadership" - and the VCs wouldn't even necessarily realise that was the reason, because pretty much everyone is awful at spotting their own cognitive biases. This is especially true when there are so many convenient ways to rationalize their decisions.

Re:Not surprised.

[AuMatar]

Doesn't matter for the GP's point. They still needed outside money, because despite having the ideas and skill to implement it, they didn't have the capital needed to do so. Most business starters don't, if they need to hire any employees at all. Salaries are expensive.

Re:Not surprised.

[Anonymous Coward]

No shit, sherlock. He has a pattern that works. The pattern is to have a strong management teAm. If you don't have one, you're going to learn a lot of things the hard way.

Re:Not surprised.

[Anonymous Coward]

this. I've been just one on the other side of the trenche, and running a small three man shop with wages and costs just for a one year small project is serious money.

Re:Not surprised.

[theRunicBard]

True, but didn't they have no idea what to do with their algorithm for a good chuck of their first year? While they were successfull by the time the VC's came around, their angel investors must have been pretty optimistic. I do think it's interesting though that Google at its heart is run by people who do software, not business (Larry Page, Sergey, even ES, who majored in Electrical Engineering). Maybe more companies would be successful if they weren't run by people who don't know what a computer is?

Re:Not surprised.

[Hentes]

Exactly, this is true to almost all startups.

Re:Not surprised.

[swillden]

Perhaps you've heard of this company called Google - started with a $25 million investment from Kleiner Perkins Caufield & Byers and Sequoia Capital.

No. Google had been around for years, and had a solid track record by the time VCs got interested. They did get angel funding of $100K earlier, but even that was after they had been up and running for over a year.

Not really relevant, but interesting, IMO: Google had an even earlier investor -- Stanford University. Their biggest early operating expense would have been their Internet connection, but they used Stanford's. They also used their university contacts to scrounge a lot of hardware, and put it all in Sergey's dorm room. Google search actually got big enough that it was straining Stanford's network and Stanford's IT department was already fielding complaints from businesses who were unhappy about their search rank placement when they finally got the $100K and used it to move off campus (and into a proper garage).

Re:Not surprised.

[swillden]

I recently read a book about the history of Google, and based on what I read, I don't think there was ever a time they didn't know what to do with their algorithm.

There were a couple of years during which they weren't certain how to monetize it, though. Larry and Sergey completely rejected advertising for a long time, and it wasn't until they compromised by agreeing to do unobtrusive, relevant, text-only ads rather paid search placement (what most potential investors wanted them to do) or obnoxious banner ads (what nearly all Internet advertising of the day was). Even then the business model didn't really come together until they adopted a competitor's (I forget who) innovation of a real-time advertising auction. They added some refinements to the auction algorithm and then the money started rolling in.

Re:Not surprised.

[Intrepid imaginaut]

VCs are in no way institutional investors.

Toughen Up

[whisper_jeff]

Would you rather hear the hard truth about why your startup didn't get funded or some vague dismissal?

If you can't handle hearing the cold, hard truth then you are in the wrong line of business. Period.

Re:Toughen Up

[theRunicBard]

True. A polite lie isn't going to help anyone improve.

Re:Toughen Up

[omz13]

If you can't handle hearing the cold, hard truth then you are in the wrong line of business. Period.

Whilst that may be true, I've found these days people are so wrapped in cotton wool, that when you tell them the truth (your idea sucks, you screwed up, etc), they just can't accept being told it...

Re:Toughen Up

[mattiaza]

Not at all. A polite lie always helps the person telling the lie.

Telling the cold hard truth may sometimes help the receiver, if it is actually truth and not just opinion. But far more often, it will just piss the other person off, and ruin the potential for later relationships between them, even if it is truth. Telling a polite lie:

• Keeps the investor from wasting time in arguments or fights, if the founder gets emotional and really wants to tell his comebacks.
• Keeps the investor from bad PR, if the founder decides to publish the "hard truth".
• If the investor turns out to be mistaken, keeps the options open to invest later because "now you have enough traction".
• If the investor turns out to be mistaken, keeps them from having really bad PR of telling the next Brin, Page or Zukerberg that they aren't fit to be a CEO in their early days.

It is absolutely rational to tell polite lies. If people want to hear the truth, they should first somehow show that they are the rare 10% who can take it as constructive advice, not get upset and angry like most people.

Re:Toughen Up

[MaskedSlacker]

If the investor turns out to be mistaken, keeps them from having really bad PR of telling the next Brin, Page or Zukerberg that they aren't fit to be a CEO in their early days.

Except that Brin and Page were told EXACTLY that by the guy who did fund them. Hence the arrival of Eric Schmidt.

Ideas are worthless

[Schezar]

Ideas are worthless. We have great ideas all the time (or at least, ideas we think are great). The value of a business proposal isn't in the idea, it's in the execution of the idea.

The most important things to a serious VC when it comes to a startup have almost nothing to do with the idea itself. You don't have to convince them of the idea: they've probably heard it before already. You're trying to convince them that YOU are the one to EXECUTE that idea, and that you can do it better than anyone else. If you can't, then the'll fund that other person instead.

When you approach a VC, the only thing you bring to the table is your ability to execute the plan you've proposed.

Re:Ideas are worthless

[turbidostato]

"When you approach a VC, the only thing you bring to the table is your ability to execute the plan you've proposed."

Maybe, but that's not what this news is about.

Is about "when you approach a VC, the only thing you bring to the table is your past record".

No wonder how high a percentage of founded start ups come from previous board of directors members (and how, in fact, so many previous board of directors members parasite new enterprises -so you can reach the VCs).

Re:Ideas are worthless

[Anonymous Brave Guy]

Ideas are worthless.

Nonsense. That's just Silicon Valley start-up wishful thinking, usually parroted by people who haven't had a really good big idea yet and think that because they are awesomely elite hackers and greedy they will make millions from the next mobile social networking gimmick that is slightly different from the last mobile social networking gimmick. These are the same kind of people who think "I've started three failed companies!" is a badge of honour.

Of course the execution matters. No-one is disputing that. A good idea with poor execution is unlikely to be a great success.

And of course learning from failures is valuable. But the value is in the success you hopefully have later, not in the failed company or any failed idea behind it.

Apple didn't rise from irrelevance to become the giant they are today just because they had a good technical team or smart marketing. They also had a series of great ideas, some of which were a bit like ideas a few other people had had but better. Just as importantly, they also wasted very little time and money on ideas that weren't great, allowing them to concentrate on the good ideas.

Google didn't become the dominant search engine because they tweaked what Yahoo and Altavista did, they did it because they had a new idea for how to generate search results that was much better than what went before. And they didn't become filthy rich just because of all their technical wizardry, they also had the brilliant insight that they could hit people with targeted advertising right at the time those people were looking for something.

When you approach a VC, the only thing you bring to the table is your ability to execute the plan you've proposed.

Well, no, you bring the plan as well. And as anyone who follows sites filled with entrepreneurial buzz can see, a lot of people's plans suck right from the concept onwards, and a lot of start-up failures were, unfortunately, all too predictable to an impartial outside observer. When you approach a VC, they're trying to spot those kinds of failures, not just the team with a great idea who won't execute it effectively.

Then it's not VC

[donaggie03]

If you want a strong experienced team with great leadership, then you aren't a venture capitalist. You're an investor.

Re:Then it's not VC

[Anubis IV]

You've created a false dichotomy where there is none. Venture capital is a form of investment, it merely tends to be higher risk and higher reward than the general case. Just because they're willing to accept higher risk does not mean that they're fools interested in squandering their money on worthless endeavors that have no hope. It's still an investment, and they still want to see a return on it.

While "venture capitalist" wasn't the correct term, we do have a term for people who don't insist on strong leadership before investing: fool. And you know what they say about fools and their money...

Re:Then it's not VC

[AlexOsadzinski]

Exactly right. As a VC, you don't just throw money against the wall and hope to get lucky; you try to make your own luck.

The experience of the team is important, but that varies by space. If the company wants to build, say, a new power-management semiconductor, you should have someone on the team who's done something like that before, and someone who has connections to possible customers. If, however, you're building a social networking web site, like Facebook, all that matters is the drive, vision and smarts of the CEO and the team that (s)he assembles. You also need a lot of luck, but smart people have a way of making their own luck.

A lot of focus is on the CEO. If (s)he can attract, hire, motivate and lead strong people, that's most of the battle. I worked at Sun in the early days. Scott McNealy was not an experienced leader: he was a manufacturing manager at a Unix box company, and then came to Sun. We were all in our 20s. But Scott did one thing above all others that made the company successful: he hired the best people into key roles like R&D, Sales, Marketing, Manufacturing. He was a first-time CEO. Others that come to mind are Ken Olsen (DEC), Steve Jobs (Apple), Larry Ellison (Oracle), Mark Zuckerberg (Facebook), Reid Hoffman (LinkedIn).....the list goes on. They all hired great people onto their teams.

Re:Then it's not VC

[thetoadwarrior]

Those first time CEOs were a success because they were natural talents at that job which is rare and something most start-ups don't have which the article is kindly pointing out.

Because your idea sucks

[alen]

In the 90's people were getting funded to build a website and a forum

Today it's the same thing except its called social media. Seems like every other idea I read about is a Facebook/pinterest/instagram clone

Unless you have a cool idea that solves some kind of problem like square or one of the other payment startups go back and think up of something new

Re:Because your idea sucks

[Anonymous Coward]

Seems like every other idea I read about is a Facebook/pinterest/instagram clone

Unless you have a cool idea that solves some kind of problem like square or one of the other payment startups go back and think up of something new

There is a demonstrated audience for Facebook/pinterest/instagram type sites, whereas something truly original often turns out to have never been done before because of lack of demand, not supply.

You could just have easily said that Facebook was redundant because of Myspace, or Instagram was redundant because people will just post photos on Facebook, or Google was redundant because of AltaVista...

Re:Because your idea sucks

[dcollins]

For what it's worth, the VC in TFA seems to say the opposite. The quality of the idea is not discussed; it's whether you're fidgeting in your chair when you present it.

Re:Because your idea sucks

[DogDude]

I was with you until you started praising payment startups. Those are truly moronic. They're aimed at people who don't know how the credit card system works, and are too dumb to do anything that doesn't have an "app". Square? Really? How is forking over an extra 1-1.5% of gross to a company that adds no value, "solving a problem"?

Re:Because your idea sucks

[Savantissimo]

Fidgeting in your chair should be a pretty strong positive signal. Michael Dell came to my Austin boarding school for career night back when he was only worth about $20M. The man simply could not sit still. He fidgeted like a whole third grade class. (He also gave a presentation on managing growth that was not all that useful to anybody there. We need to know how to have some growth before we can manage it.) Steven Weinberg's talk the same night wasn't all that much more helpful, something about how the math in superstring theory was threatening to break his brain. He looked like the results of thirty years of all-nighters. The twelve or so of us who showed up were impressed, but it didn't really help with the career thing. I doubt a VC would have shelled out money to either of them based on that night's performance though.

Where Dell really shone was in salesmanship. My family visited him back when he was selling refurbished computers out of a 2nd floor apartment (not a dorm room). Most people don't know he sold Apple gear in the early days. He had an Apple III there which was apparently just so he could advise people against getting one. This obviously raised the trust level (and if the customer wouldn't take the advice, well, at least Dell could unload the POS.) I think we ended up getting our 2nd hand Lisa from his company later, but it might have been CompuAdd.

I don't think Dell ever needed VC money - he was profitable from day one, and when he had cash flow issues, his loans mostly came from unwitting suppliers, or so I have heard. There's no doubt that he could have gotten VC money, he was just too smart to accept the loss of equity and control he would have had to take.

Re:Because your idea sucks

[dcollins]

Great anecdote, thanks for that.

You got that right.

[Anonymous Coward]

When you approach a VC, the only thing you bring to the table is your ability to execute the plan you've proposed.

And for the majority of us techies, that means we are not qualified.

Ted Turner was told by his father that he needed to go to business school so that he could take over the family billboard business. Ted didn't want to be a manager. He wanted to be a leader. So he studied Classics.

Yep, CLASSICS!

Why? Because that's where he could learn about people like Alexander the Great - real leaders. Leaders so great they convinced folks to fight to the death for them.

It's a hard pill to swallow, but technical people are relatively easy to come by. Leaders that can build something great are a one in a million.

Re:You got that right.

[Anonymous Coward]

Well, if the main thing getting you there is classics, I think I know why that is.

So...

[Greyfox]

If I beat this Klingon in a fight, THEN will you give me ten million dollars?

Re:So...

[Anne Thwacks]

No. VCs invest in virtual crap because no one can tell how much can be sold to suckers, and therefore the hype can claim the market is infinite. Real crap has only got a limited market, no matter how big the market, even a fool can see there is a limit.

VCs are looking for something they can hype to the stratosphere and then sell through brokers on a percentage who need plausible deniability to protect their asses when the shit hits the fan.

This is the nature of Ponzi land.

Re:So...

[Greyfox]

I was thinking more from the perspective of "You and your team are weak!" Which seems very much like something a Klingon would say...

Startups are made of engineers

[Missing.Matter]

Slashdot loves making fun of management, marketers, financial people, MBAs, and pretty much every business unit that is not R&D and engineering, but these people are essential to making a business successful. Startups are generally comprised entirely of engineer types who may have amazing technical know-how, but they don't know how to sell their product, they don't know how to manage money, they don't know how how to manage a company and personnel, and they don't have any business experience.

Anyone whose ever managed a business will tell you it takes much more than a good idea to make a business successful: it's 10% idea, 90% execution. Thus, if you go to a VC with nothing but a good idea, you're falling 90% short.

Re:Startups are made of engineers

[Anonymous Coward]

A buddy of mine worked at PlayFirst. The VCs slowly took over the company and have been driving it into the ground with all of the 'experienced management' they've hired.

Re:Startups are made of engineers

[shutdown -p now]

Slashdot loves making fun of management, marketers, financial people, MBAs, and pretty much every business unit that is not R&D and engineering, but these people are essential to making a business successful.

Good management and good marketing is essential to making a business successful, absolutely. The problem is that the average manager or marketing person in the industry is anything but good.

You can point out that the average programmer isn't all that good, either, and you'll be right. There is an important difference, though. Where engineers run the show, it tends to be a pretty hardcore meritocracy - a lot of character flaws can be forgiven, but not technical incompetency. So the people who rise to the top are those who are actually good at doing their job. For MBAs, on the other hand, it seems that the opposite is true - the worse you are at actually doing something useful, and the more time you spend kissing asses, the more stellar your career will be.

Re:Startups are made of engineers

[DogDude]

You're right. I've been reading these train wreck Kickstarter ideas with people throwing hundreds of thousands of dollars down the drain on people with ideas who don't know how to execute (and largely, dont).

Re:Startups are made of engineers

[Savantissimo]

From what I have seen the funded Kickstarter project success rate is way higher than VCs, with much less money.

Re:Startups are made of engineers

[DogDude]

I don't know. If by "success" you mean " funded", then yeah, there are lots of those. But I'm talking about the company actually doing something after being funded. From my poking around, it seems like a lot of these fully funded companies went on to do nothing at all. (Meaning that did not do the thing that they intended to do in real-life, not VC/funding world).

Re:Startups are made of engineers

[ub3r n3u7r4l1st]

That's probably called "embezzlement".

Re:Startups are made of engineers

[Anonymous Coward]

The industry.

Depends.

[aepervius]

It could be that your startup is about graphology, phrenology, astrology, or even homeopathy. In which case the "cold hard truth" would be the wrong line ;).

Just kidding.

duh?

[sociocapitalist]

"Would you rather hear the hard truth about why your startup didn't get funded or some vague dismissal?"

Only a complete idiot would prefer a vague dismissal. If you know what's wrong you can fix it and move ahead. If you hear that the idea is great but the team is wrong, you can fix the team.

Five VCs show up at a Bodege..

[Invisible Now]

... In East San Jose. The night before the humble owner of the place had bought a ticket on his own Ca Lottery machine. He won $34 million. The VCs each say "Take my deal. Here's millions of dollars... You're our guy... Your're EXPERIENCED!"

Reminds me of Hollywood.

[Anonymous Coward]

They say: "Harry, you killed us in that audition, you're a natural for the part of Boss, and maybe for the part of Sonny as well. We love your acting, like what you did in 'Bad Dreams Part II'. We're definitely gonna figure out how to get you in this movie."

They mean: "Don't call us...."

Real Value Approach

[NEDHead]

To be really useful, VCs should respond with a decision tree:

Like/don't like concept
        If don't like, done
            If like
Like/don't like balance of package
        If like, here is an offer
              If don't like, here are areas of deficiency
Areas of deficiency overwhelming, done
          Areas of deficiency require remediation as follows: xxx
                  Conditional offer based on fixing xxx by ddyy date to our satisfaction.

Real truth is that VCs are not reliably better at picking winners than the average monkey with a dart board. They just have enough of other people's money to play the game. Like any other random distribution, a few of them have lucky streaks. Doesn't make them smarter than their peers, just lucky.

Re:Real Value Approach

[DontScotty]

Your decision tree, dear poster - is BROKEN!

What MONTH is ddyy which they need to have the fix submitted?

"Conditional offer based on fixing xxx by ddyy date to our satisfaction." ;-)

Re:Real Value Approach

[NEDHead]

Really? This is what you comment on? Had sad to be you.

Re:Real Value Approach

[DontScotty]

What's really sad is that you give me that much free rent in your head based on a simple comment.

Ignore venture capitalists

[Anonymous Coward]

Don't start businesses that require large amounts of startup capital. Use ideas that scale, so you can start them as a project on the side of your day job, and then scale it up when you know that it actually works. By the time you're at the point that you need outside investments, you'll already have solid proof that your idea is good and you can convince normal investors to buy shares.

Of course, patents fuck this way of starting businesses in the technology world. Which is probably why large corporations like them.

Really appreciated

[slazzy]

I really appreciated his feedback on my recent venture idea pitched to them: Step 1: Gather underpants
Step 2: ...
Step 3: Profit!
Apparently I need to figure out step 2...

fundraiser

[Anonymous Coward]

how to start a fundraiser? it is safe to say that most of us donate to these causes to either get the kid off the doorstep or simply out of the goodness or our hearts;

I'd prefer the truth

[Todd Knarr]

If I don't know what's wrong, I can't fix it. A vague dismissal doesn't help me improve things. And I'd posit that it doesn't help the VC either. VCs don't themselves come up with startup ideas, or they'd be doing that startup instead of looking for startups to fund. Where do they think the startups they can fund will come from? The more marginal ones take the feedback and use it to improve their plan, the more good opportunities the VCs will have to choose from.

Re:I'd prefer the truth

[ultranova]

VCs don't themselves come up with startup ideas, or they'd be doing that startup instead of looking for startups to fund.

No, because funding startups means you can try several in parallel while starting them yourself limits you to one at a time. Most startups fail, so you need to go through a lot of them to get a succesful one.

And of course working yourself is a lot harder than just investing.

Re:I'd prefer the truth

[Anonymous Coward]

You're missing the point. The VC isn't there to help you "fix it". Despite what has been said by VC's, they are capitalists who are looking to make millions, or billions, from cheap local labor. In this case, the high tech industry, the VC's have loads of technically rich people who tend to be business poor [inexperience/funding] mostly due to their age.

They are exploitable.

The linked article is an example of a VC who is lying to entrepeneur's to prove his point, which is that it is all a populatity contest, i.e. "It's about whether we like or dislike the founder."

Re:I'd prefer the truth

[Anne Thwacks]

Most startups fail

and, of course it has nothing to do with the fact that VCs skill at selecting startups is less than would be achieved by tossing a coin?

When I worked in an incubator, huge numbers of projects were funded that were as daft as a brush, while good ones were rejected because they depended on actual engineering, which is way beyond the understanding of VCs, who would not want to ask an engineer for advice because that would put their ignorance on display.

VCs belong to a different culture , where everything is superficial (Think The Kardasians). It important to arrive in a flash car, and wear expensive designer clothes. Having a good idea counts for zilch.

I'm applying for a position as CEO at Wal-Mart.

[MyFirstNameIsPaul]

My only experience is running a small town convenient store.

I've long been under the impression that someone needs to take the Moneyball approach to venture capitalists, because what they seem to sell as a model they are looking for doesn't jive with the success stories that I'm familiar with (e.g. Wal-Mart, HP, Apple, Microsoft, etc.).

Re:I'm applying for a position as CEO at Wal-Mart.

[Tony Isaac]

You are so right. I've been in management at more than one company that was looking for VC money. In some cases, we were successful. The thing is, the VC's aren't looking for a way to build the next great company, they typically just want to flip properties. Pump money into a troubled company, make it look better, then sell for a profit. That strategy isn't going to change the world, it's just going to move money around.

That's a good point

[Anonymous Coward]

The biggest issue with startups is that they good idea (vision), but poor execution (leadership). You need translate the idea into a business, which means to make it solid the way that it works from the procedures and hierarchy, as the processes and so on is not enough. You need products and without them you cant be named as "startup" but rather a "seed".
This means, that at some point, the company must change its ways from being inventive to being actually a product oriented working business. If you dont do this, you cannot guarantee that you will ever go past this point, because many people will think that the idea is all what they need, and pursue their "creative" ways instead of making a place for an INDEPENDENT leadership.

How bout No.

[Anonymous Coward]

How bout No.

What more needs to be said? The fact is that, most startups fail. Most VC funded startups fail.

If you can't go it on your own and you can't get VC funding, you're done. The reason is irrelevant. Even if the lack of funding is due to your lack of "leadership", hiring a charismatic CEO to get the funding will still likely result in failure. The reason is that most startups fail.

If you can't stand the hard truth, then ...

[DontScotty]

1) If you can't stand the hard truth, then it's probably better that you were stopped before you got your feelings hurt in the world of business.

2) You cannot fix what you don't know is wrong. (c) Scott Summers - Motto.

If you are told "Denied, due to weak team leadership" - guess what?

You can BRING IN QUALITY LEADERSHIP, and not only strengthen your bid, but increase your chances for success in business. Yes, it might hurt your ego a bit - however what is more important? Ego, or making your dream into the next Microsoft+Google+Facebook (oh, bad example on that last one ;-) ) ??

Re:If you can't stand the hard truth, then ...

[Anonymous Coward]

Most people want their business idea to lead them to riches, which won't happen (not to them anyway) if they let some other guy run the show. Ego doesn't even have to come into it.

VC's reject startups?

[DogDude]

What VC's reject startups? An absurd number of startups have an even absurd amount of money thrown at them every day. All I read about is stupid VC's throwing stupid money at stupid ideas.

Re:VC's reject startups?

[Skapare]

And stupid CEOs are wooing stupid VCs.

how to explain it

[epine]

1) If your universal lossless compression doesn't actually work, we want no part of it; if it does work, you already have enough funding in your personal checking account to succeed beyond your wildest dreams. What would you do if someone showed up asking you to invest in a 50lb bar of 28 carat gold? It's either fake, or the person bearing it is too stupid to live.

2) Your idea is great, but you simply showed up at the wrong address, not having done your basic due diligence to determine that we're too all dumb around here to recognize brilliance even if it bites us in the ass. If you also invent the cure for stupidity, come around again and give us another shot.

Communication is THE problem

[GodfatherofSoul]

The VCs never want to tell you what they're looking for because, just like the banks used to do with secret credit ratings, they're afraid you might tailor your message to woo them. Back in the DotCom days when my boss was trying to expand the company, he could never get funding to expand in spite of owning a very profitable business. What he'd hear by milking the underlings, off to the side of meetings, was that something about his pitch made them think he was merely trying to sell the company.

I don't think he ever figured out what it was, but there are apparently flags VCs are looking for (and in our case it was false).

Re:So did Steve Jobs

[slew]

You may not believe this, but Steve Jobs's wasn't the first or even the second CEO of apple computer.

In fact, the man behind the initial venture capital foray of Apple was Mike Markkula (who served as the CEO). He was an initial angel investor who was referred to Mr Jobs by a few other VCs. Mike provided the "adult" supervision to Jobs and Wozniak during the fund raising part of company's existance. Initally, Mike hired Michael Scott (from either national semiconductor or fairchild, I forgot which one) as the first CEO. It was only later after some turmoil that Mike took over the CEO position and then yielded the CEO position to Jobs (and later supported Sculley which led to Jobs' departure, and then helped lure Jobs back).

So even Mr Job's didn't just walk into VC offices and get funded as the CEO of the company. But, Jobs was smart enough and passionate enough about doing the work that was able to put his ego enough in check to know that in order to get the money they needed to get it done. I believe that the Google story is very similar with Eric Schmidt performing the "adult" supervison...

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[account_deleted]

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Let me ask my astrologer first

[caffemacchiavelli]

I don't want to downplay the effort it takes to get funding, but based on the experience I had talking to VCs, as well as the experience of colleagues and friends who got VCs for horribly structured deals, I find it very hard not to lose respect for some part of the community.

If I invest in something, I'm not looking for vague, emotional attributes like "leadership DNA" or "burning desire" (I've seen Amway conventions), I'm looking for meaningful, tested models, facts, tactics - like the "Moneyball" approach, even if the founder is a bit goofy and I have to ask a couple of times before I get the right response.

Sadly, that's not the approach I'm seeing, and it very rarely is the approach I see other people having success with. I can enter a room, present a marketing plan that has made me money for years and after a while people will go to the bathroom and not come back, or I'll get complaints about how boring those numbers are. On the other hand, if I get an expensive executive board, make a lot of interesting although meaningless claims and choose a hyped-up market, somebody will pay for my shitty deal. Sure, the reaction is understandable - we're hard wired to react more strongly to new or potentially life-changing information and the best approach would consist of the best of both worlds. Still, given the choice, I'd expect people handling serious amounts of money to train themselves to look behind the hype and focus on the data, not "Hey I like that guy I want him to succeed", if only because of all the cash that has been burned by interesting people on crappy business ideas.

Now, to hedge some of what I'm saying: There are lots of great VCs who understand their field much better than I ever could, and if you're looking for capital, there's no excuse for making a boring presentation. But, and this is just my PoV, some VCs display a lot of overconfidence when it comes to judging personalities and a distaste for dealing with the - sometimes boring - data points that are more useful in deciding whether a business is feasible or not.

Aptitude is one thing. Ability to deliver another.

[perpenso]

Life is a meritocracy.

Tell that to everyone who scores in the 1% across the board on aptitude tests but isn't in the 1% economically.

Aptitude is one thing. Being able to follow through and deliver a working product is something entirely different. Not everyone possesses both qualities. More importantly many of the 1% in aptitude are not actively working towards getting into the 1% economic demographic. So not getting into that demographic is hardly a meaningful statistic. But most important of all. For those who do get into that demographic, not all of them get into it on their first attempt. Rejection is not a permanent state. Failure is part of the learning curve.

Zip is lossless compession

[Anonymous Coward]

Zip is lossless compression! What you mean is lossless compression of RANDOM noise can't be done. But signals (which is all useful data) repeat and repetition is compressible losslessly.

I think it's important to give proper feedback. Sorry you're not the right person to be a VC, too close minded.

Re:Zip is lossless compession

[AlexOsadzinski]

I may be close minded, and even may have a small mind, but I DID say in my post "arbitrary data sets". One of the tests of crazy versus not crazy lossless compression types is that the crazy ones claim lossless compression of all arbitrary data sets. The reductio ad absurdum argument is then that, of course, you can keep applying it until you end up with one bit representing all possible expanded data sets.

Not one of them ever took me up on the challenge of me giving them a 100MB file of arbitrary data (a Truecrypt container is a good example) and compressing and decompressing it on different non-networked machines (carrying the compressed file between the machines using sneakernet). Not surprising.

There are GREAT compression schemes for non-random data. ZIP and FLAC, for example. If you restrict the problem to, say, English text, the possible lossless compression factor is impressive.

I got to see a lot of these compression companies because I invested in LOSSY compression for video. Now that's really interesting stuff: you can throw away almost all of the data (more than 99%) and still end up with something that is visually lossless to most people. Even in this space, there are crazies and charlatans. I saw quite a few companies claiming "HD quality" (whatever the heck that is) at well under 1Mbps data rates.

Dunning Kruger

[Casandro]

Yes, it seems to be a valid idea that companies having the Dunning Kruger effect won't make it. Unfortunately since capitalism is more like a lottery than a way of rewarding effort and tallent, some of those companies actually make it. I have seen companies now celebrating their 15th aniversary which were founded on a patent for a perpetuum mobile. It is now even profitable.

Still I admire your dedication to try to weed out such companies, as in the long run having such companies around is bad for a society. However I do not think it matters from a business or profit perspective.

what? are you stupid?

[Anonymous Coward]

Honest feedback like this is FUCKING GOLD!
Compared to delusions of grandeur? Absofuckinglutely.

Re:what? are you stupid?

[Skapare]

Someone in a CEO roles should not need this feedback. If they can't see what they are doing wrong, they need to start over.

Who compresses the compressors?

[TiggertheMad]

universal lossless compression could even compress its output, (if it existed) you can suddenly store infinite amounts of data on finite amounts of space for a finite budget.

Strictly speaking, this is probably not accurate, since there would likely be some metadata generated that would add to the size of the data stored. At some point, you would get each iteration adding n bits on to whatever the maximum compressed data set is, and you would either start to increase the size of the data set or be unable to compress it further.

You can see something similar happen if you alternately .zip and .rar a file about 10 or 15 times, like idiots used to do back in the early 90s when bandwidth was at a premium.

Re:Who compresses the compressors?

[Casandro]

Well there are people who claim that they can compress _everything_ by a factor of X. And those are the people we are talking about.

Re:Who compresses the compressors?

[AlexOsadzinski]

Those are indeed the people I meant in my post. I will never forget a meeting (before my VC days, at a tech startup) with a particularly aggressive lossless compression guy, who went as far as to say that you can keep using the compressor to further reduce compressed data. His particular compressor provided 10,000:1 lossless compression. So I asked him "you mean I can give you a 600MB CD with arbitrary data on it, you can run your compressor twice, and give me 6 bytes? Then you can run your decompressor twice and give me back the 600MB of arbitrary data?". He looked me in the eye and said "yes, that's right".

The really amazing thing is that the company showed up on Slashdot about 10 years later, having raised a bunch of money, including some government grants. Sigh.

Re:Who compresses the compressors?

[Casandro]

Yes, like I said it's sad. If you can speak German you can look up "Kryptochef".
http://kryptochef.net/indexh2e.htm

Man it would be great if someone could do some "krypto" analysis on his product. That would be a fun story.

Disagree with Disagree

[TiggertheMad]

DISAGREE! If you need to be told what's wrong, you were already a loser before.

While it is wise to look at your own plan and identify weaknesses, it is arrogant to assume that you can see all potential flaws and miss-steps. Also, why does there have to be something wrong for a VC to turn down an offer? Perhaps he/she has outside factors influencing the decision.

This is not the main reason

[angel'o'sphere]

The author of the linked story is not telling the main reasons.

The most important point to realize is: if you are asking for less then $25 million, or in other cases less than $100 million your not interesting for a VC investor.

The reason is very simple (and yes, I know that first hand as friends of mine exactly did that mistake).

A typical medium sized VC company has an anual budget of about 4 billion dollars to invest. this is 40 times $100 million. A team of 5 to 10 "investors" (guys that interview you and check your business idea and your business plan) are administrating that pool. That means it is about $500 million to $1000 million per "investor" (sorry cant find a more suitable name for this "job").

How long do you think such a investor is working together with the entrepreneur until he decides to invest or not? One month? Two months?
How many entrepreneurs are handled simultaneously? Three or four? So how many can he judge and finally invest into during a year? Perhaps ten? Voila, he is about to invest about a billion per year, and has only time to check/judge about 10 entrepreneurs.

The time to judge an idea and to decide weather to invest is nearly unrelated to the amount of money you need.

So for an investor it is much smarter to check 10 guys who want $100M each, instead of checking 40 guys who want $25M each.

(Exactly the same thing is going on in the music industries, hence only very few bands get promoted, hence we all suffer from "no good music")

The story above was more or less word by word told to a friend of mine who wanted EUR 2M - EUR 4M, the investor only even agreed to a meeting because he found the idea interesting. Afterwards he told them: you don't think big enough, and you are calculating to conservative (regarding costs etc.) in the attempt to convince me. It would be much more convincing if you would ask for EUR 8M and adjust your business plan accordingly (going for more and bigger markets). But, I'm only investing in at least EUR 25M ... and preferabel not below EUR 100M

Who says the VC's are the smart guys?

[Tony Isaac]

I've been in management of a couple of different companies that obtained VC funding. In those cases, the VC's didn't really want to build a great company, to change the world. They just wanted to flip properties: buy into a troubled company, pump it up to look better, sell for a profit.

If you're a CEO of a startup, and you're just looking for an exit strategy, then by all means go to the VC's--you're playing the same game they are. But if you want to change the world, it would be better to find a way to make it work all by yourself. It's usually slower that way, but nobody--not even a VC--cares about your idea like YOU do.