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3.3 
3.0 
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3.1 The Giants Have Fallen
TheFunded.com Open Letter
Posted by Anonymous on 2008-07-18
In case you have not noticed, some of the biggest brands in venture capital have had an ugly fall from grace. Kleiner (2.9), Benchmark (2.7), Accel (3.1), and Hummer Windblad (3.1) do not even make the first page of TheFunded ratings, and fundraising CEOs rarely ask for introductions to these firms anymore. No wonder they do bad deals. Even mainstream media is starting to take notice...
http://venturebeat.com/2008/07/16/wha...
Reading some of the messages here, it is clear that these firms have lost touch with reality. Complaints include sharing confidential information, obnoxious personalities, poor treatment, bad terms, irrational governance, and going for personal gain over portfolio success.
I don't want to pull up to a VC office in my old Toyota and park next to a Lamborghini. I don't want to be told that my business is "not big enough" because it can only generate a couple hundred million in revenues.
Since when did the "business of venture capital" become about fast cars, big yachts, egomaniacs, and billion dollar exits? It's about building a business and creating value, not adding another house to your collection of McMansions.
When you care about building a great company is when you get the big exits, and it never happens in the way that you expect. Remember that before making your next investment.
Roll-up your sleeves. Hire people in your fund who have passion for business versus a knack for spreadhseets. If you can't get you head out of the clouds, retire already. You're not adding any value to the world at this point, and it's pretty obvious to those with their feet on the ground.
Hey, Vc, Your Model Is Broken.
TheFunded.com Open Letter
Posted by MrCleanTech on 2008-05-18
It seems terribly ironic that the people who gauge whether to invest in innovative start-up models have a broken model themselves. If anything, it's a probably a sign.
Having read TheFunded, VentureBeat, Venture Hacks, PEHub, and many other venture capital news sources over the last year, it's clear that the venture industry is at an all time low. The industry has poor fund returns coupled with an equally poor liquidity market. An unseasoned crop of new venture capitalists is entering the profession while most senior rainmakers are retiring. Angel groups and private equity firms are attacking the venture market from both sides, all while the cost of starting a large business is dropping. AND... there is a high degree of distrust between entrepreneurs and the funding professionals.
Here are some obvious suggestions that would have a dramatic positive effect on the industry:
1. Implement Oversight: Venture firms, just like the companies that they oversee, should have a board of directors that meets quarterly to evaluate fund decisions, progress, investments, and returns. Allow the portfolio entrepreneurs to complain to the board if their assigned partner is causing problems or destroying value. Give these oversight boards the power to remove underperforming partners. It's hugely hypocritical that venture firms don't practice what they preach with respect to oversight.
2. Focus / Specialize: Pick a geography, an industry, and a stage. Define the kind of terms that you offer, and make all of this public. Nobody knows which fund does what kind of deals because it seems that everyone is willing to make exceptions and chase "the next big thing." The broad investment mandate of most firms creates market confusion that hurts entrepreneurs, innovation, and dealflow.
3. Invest in "Singles and Doubles:" As the losses have mounted across the venture industry, it seems like every single firm is looking for "a billion dollar idea." Great companies either with $50 MM, $100 MM, or $200 MM potential or in an unpopular market segment remain unfunded. Not only is this a major market opportunity, but it has the potential to revolutionize venture capital. Most billion dollar ideas need smaller "foundation technologies" to exist, and some of these smaller opportunities may prove to be a lot larger once executed.
4. Add Systems / Processes: Venture firms have weak systems and bad processes to manage opportunities, especially compared to their portfolio companies, and every fund does things differently. Entrepreneurs have to prepare different diligence packets across different timetables for every firm that they pitch, causing major headaches and inefficiencies. Get your association to implement some standards, hire a project manager, install a CRM system, and do away with businesplan@ email address processed by a secretary. Tell entrepreneurs when you will reply and what to expect. It's 2008!
5. Elicit Feedback: It's about time that venture firms learn and care about what people think. Is your pitch process reasonable? Are you treating entrepreneurs well? Are you adding value to your investments? Read TheFunded, and get people to tell you the truth about what is working and not working. When you hear about a problem, don't dismiss it, but, instead, try to validate and address it.
These changes would certainly make my life better as an entrepreneur, and that's not a bad place to start with venture capital reforms. Feel free to quote this post, and please agree with it as well.
No More Cryptic Responses Please. Get Right To The Point!
TheFunded.com Open Letter
Posted by Anonymous on 2008-05-07
Dear Venture Capitalist,
Please respect our time with a clear response to our direct questions. Sometimes your cryptic responses don't make any sense. A quick yes or no is welcomed by most Entrepreneurs. Get right to the point when we ask you for your opinion. We shouldn't need a decoder-ring to find out your answer.
Just Plain Ugly!
TheFunded.com Open Letter
Posted by jetskier on 2008-05-04
There is an article in the Boston Globe today about the local VC community opting for out of region investments. I have noticed this local trend and find it amazing. This area has some of the most successful and intelligent entrepreneurs in the world. The idea flow is considerable; but, funding is brutal.
Brand Means Little In Vc
TheFunded.com Open Letter
Posted by Anonymous on 2008-04-29
Over the last few months, a number of venture firms have failed, others are fading away, still others are "diversifying," funds are changing names, and partners are jumping around or retiring (IDG is now Flybridge, Pequot is FirstMark, Howard Hartenbaum is with August Capital, and the changes keep rolling in). Meanwhile, take a look at the Series A or Series B terms posted, and valuations are all over the map (Series A at $13 MM, $7.0, $6.8, $6.3, $5.0, and $1.2 pre-money).
So, here is a hypothetical that seems to be happening more and more to my fellow CEOs. You do all of this work to close a "world-class" branded fund, and the partner leaves right after the funds gets a new name… What am I left with? Money? Terms? Unknown Board Members? A disinterested investor?
Why in the world would I accept lesser terms to work with either a hot shot venture capitalist with limited job security or a well-known fund that my end up doing private equity? How much weight does the brand really carry? Yes, we have all heard the stories about how top funds help with recruiting, but so do great investment terms that allow new recruits to actually make money.
The days where brand means something in venture capital are over. Treat my executive team fairly, cut fair investment terms for the opportunity, and wire the money that I need to grow my business. In exchange, your firm gets limited control and a fair amount of equity. If you want to impress me with your brand, prove to me that your firm can support me in 5 years time and back that statement up with my own redemption rights to purchase your inactive preferred stock when you leave or become inactive.
VISIT:
A Lesson From Bessemer
TheFunded.com Open Letter
Posted by jns on 2008-04-23
Bessemer Venture Partners released the 'Anti Portfolio' listing - which are the deals that they did not do but should have. The list can be found at http://www.bvp.com/Portfolio/AntiPort.... I have tremendous respect for Bessemer for rolling this out (not sure exactly when it went live). It is certainly in the 'web 2.0' perspective where information flow can not be stopped - but they took it a step further and named names and made fun of themselves.
Besides Bessemer though, there is a great lesson for entrepreneurs everywhere. The best deals have been turned down by the best VCs. That is a powerful statement and concept. When you are pitching a company and you get turned down - let it roll off your back - more people/VCs will say no then yes. It is the nature of the business.
Not Sure Many V Cs Get This Today...
TheFunded.com Open Letter
Posted by MedTech Expert on 2008-04-22
Management consultant Ralph Sink believes that people, when given real (see advice on "You Don't Own What You Think") ownership and held accountable, will shine.
In the Autumn 2007 issue of strategy+business, Ralph Sink, a consultant on high-performance systems, wrote about his decades of experience implementing the approach as a human resources executive (“My Unfashionable Legacy”). High-performance systems, also known as self-organizing teams and participative management (like ventures?), require employees to take ownership of their jobs, to collaborate with one another to establish control over their work, to be innovative, and to deliver results — to maintain accountability for the business and be treated with corresponding respect (TheFunded highlights the lack of respect shown by many VCs), regardless of their level within the organizational hierarchy. In his essay, Sink lamented the decline of this approach, but expressed a belief that, in the end, it will make a comeback. There a real, but unappreciated, appetite and an aptitude for this type of approach to management today.
Venture Capital Is Off 24% In New England
TheFunded.com Open Letter
Posted by jetskier on 2008-04-19
There is a good article in the Boston Globe regarding the precipitous drop in VC funding in the North East:
http://www.boston.com/business/articl...
It would appear that the VCs are sitting on significant cash positions and reticent to make investments. Based upon what I have seen in the market, this is not based upon a lack of quality opportunities. In the long run, this position will lead to the continued decline of this area in terms of technical and economic leadership. I am a successful entrepreneur, but I found the funding climate untenable. I took a position as the CTO of a West Coast industry leading company. I am finding that the seasoned talent flow out of this area is prevalent and concerning. It is quite sad.
Hey Vc, How Good Are You?
TheFunded.com Open Letter
Posted by Mr. Smith on 2008-04-16
Dear Venture Capitalist,
You have complained that the public ratings are gamed or manipulated or vengeful or inaccurate. You may be right or you may be wrong. You have certainly called me a few times asking for a public review...
Your personal rating was just revealed publicly for the first time yesterday. The only people who have rated you are people that know you, since there is no incentive for users to secretly bash or compliment your performance when nobody was looking. You can actually see if you are any good at what you do.
Your ego may be bruised, but you are not going to get 20 reviews. You probably worked with 20 CEOs in your entire career. You'll be lucky to get 5 reviews, and they are going to be honest. Guess what, if you score below a three, you should be concerned. The mediocre button for partners is number three out of five. So, even if you score a three, this means that people think you are... mediocre.
My guess is that the wheels of manipulation are already starting to turn, as you are asking "who can I call to rate me?" I am going to recommend that you take the feedback to improve your performance, rather than manipulate the outcome to look better. Being better is actually better than looking better. If you are scoring below a two, you're not doing your job well and the people that you work with probably do not like you, either.
You can improve. Here is your chance. Run with it.
Never Pay Up Front!
TheFunded.com Open Letter
Posted by BILLK on 2008-03-31
After a lot of smooth talking and promises, we let an Orlando Firm, Infusion Capital, talk us into a "Consulting fee". Big mistake!!! Even more harmful to us than their lack of ability to produce was the 6 month delay.....valuable time wasted while we were expecting them to produce. One other bit of advice....these "Entrepenuers Seminars", whereby by you pay a big fee to introduce your company to "investors" are mostly a big scam. Mainly the people you get to talk to are "wheeler-dealers" out looking to broker your deal elsewhere, either for an up-front fee, or big commissions.
VISIT:
Dear Investor In A Venture Fund
TheFunded.com Open Letter
Posted by Anonymous on 2008-03-31
I sincerely hope that you are reading The Funded before pumping good money after bad into the mediocre funds that stain the reputation of the once venerable venture capital industry. I also hope that you are not exclusively relying on self-reported fund IRR numbers, especially since these firms have no independent oversight.
Venture capital is of vital service to entrepreneurs. As a limited partner, or investor in a fund, you vote with your money, so pick the good firms that help entrepreneurs. Any fund can roll the dice and score a small piece of a big deal. This may make their returns look great while their behavior makes everyone in the deal, including other venture capitalists, miserable. It is going to get a lot harder for the bad investors to find dealflow, so move your dollars to the good investors sooner rather than later. It will pay off for everyone.
Turning The Tables
TheFunded.com Open Letter
Posted by raul on 2008-03-27
So, for a moment, lets try turning the tables.
Lets say that I decided to start a fund, get a good-looking and practical website, put some good background of myself and a few other partners and start talking to entrepreneurs about their ideas.
Since everybody has a limited amount of time during the day to talk to people, do research, and read proposals, would we get grilled for being unresponsive if we only reply to the opportunities that we are interested in? Think about it, without being a VC, I get at least 100 e-mails per day, if I get 1,000 e-mails per day, would I be considered inpolite and unresponsive if I don't reply to all of them?
I would, of course, only schedule meetings that I believe that I can keep and, unfortunately, more pressing matters would come up that I would try to explain and hopefully you will not mark as a "lame excuse".
After the meetings, once the entrepreneurs are gone and my team and I have time to read and discuss the materials, I would make an effort to give a clear "Yes", "No" or "Maybe later". I would try to avoid a "soft yes" or a "soft no".
After a "Yes", I would make sure that the term sheet is "fair" (whatever that happens to be but clearly leaving a good value in common stock) and that the money gets in the bank as soon as possible.
After a "Maybe later", I would try to set a schedule for follow up.
After a "No", I would give honest feedback and perhaps a recommendation to see somebody else that could be interested.
So, doesn't it sound like a good VC?
Would my firm still be grilled for trying to do the best job possible?
So far, from what I have read in The Funded, very few if any VCs are good VCs...
Thanks for reading.
The Time Is Now
TheFunded.com Open Letter
Posted by Anonymous on 2008-03-19
Dear Venture Capitalist,
There is a lot of uncertainty in the broader markets, but there is one for sure: it is a great time to start a company. Many of the traditional costs of doing business are falling as a global talent pool emerges and new technologies take hold. Companies don't need a phone system or an HR department, and recessionary trends will reduce costs further. Meanwhile, a global marketplace is open for business with easy ways to reach remote areas of the world with both digital and hard goods. Consumption patterns are changing, tastes are changing, and new opportunities have emerged for products and services in all sectors, from entertainment to healthcare.
The savings in cost and new opportunities in revenue have recently been complemented by a strong and smart venture financing climate, where companies are able to raise the capital they need to grow. As more uncertainty takes hold in the broader markets, this healthy financing climate appears at risk. There is already some talk about the slowing pace of venture financings, and a number of large and irrational deals have been done.
It is not too late. In fact, now is the time.
This is a time to seize opportunities, not to hold back. One dollar invested today will go farther with more opportunity than almost any other time in recent history. The companies that get capitalized today will be building their businesses as the broader market sorts itself out, being prepared for strong liquidity opportunities as future unfolds. More money across more companies and across more sectors will generate some of the best returns for venture capital to date. Don't hold back.
Goal Of Vc To Raid Ip Or....?
TheFunded.com Open Letter
Posted by Anonymous on 2008-03-08
As a founder of an early-stage software startup, I was invited to meet with a VC that has a similar company in his portfolio that is "better" managed with a proven CEO but not necessarily a better platform/idea. Does he just want to harvest our ideas/IP or is there also the chance that he's serious about investing in a similar company because he's interested in the space? What should I be thinking here?
On a side note, this VC is a highly reputable/recommended fellow known for being "approachable" and a "great sounding board"
