Re:Sequoia’s Leone: In Venture, Big is the Enemy of Great
by 1123581321 on Monday December 10, 2012 @05:01PM
(#4901749)
“We have co-opted seed funds. You know, Y Combinator, that was completely our money. We have secret handshakes with a whole bunch of people. Very dangerous, because word gets out that so-and-so’s money is Sequoia’s money, that would not be a good thing.
Do I correctly understand that Paul, Jessica et al are investing Sequoia money, or that they are somehow a large partner? Would someone please explain this paragraph from the article?
Re:Sequoia’s Leone: In Venture, Big is the Enemy of Great
by dougleone on Monday December 10, 2012 @08:10PM
(#4902575)
Oops. Co-opt was an incredibly poor choice of words in a live presentation. What I meant to say is that we've been partnering with YC startups since 2005 and between 2009 and 2012 we were the biggest LP in two of their funds. We’ve had a terrific relationship with Paul and Jessica and are thrilled to be associated with them.
My handshakes comment referred to our now well-documented Scouts program. It started out stealthy because it needed time to develop and the scouts didn't want the attention. Scouts regularly disclose our relationship to founders and the wire transfer always comes from Sequoia. These two efforts represent some of our attempts to work with very talented entrepreneurs (like Brian and Drew) as early as possible so that we may help them build enduring companies.
Re:Sequoia’s Leone: In Venture, Big is the Enemy of Great
by jl on Monday December 10, 2012 @05:16PM
(#4901821)
Yes, Sequoia was the biggest LP in the two funds we had in the past, as everyone already knew. Beyond that, I don't have any insights about this article.
Re:Sequoia’s Leone: In Venture, Big is the Enemy of Great
by josh2600 on Monday December 10, 2012 @04:04PM
(#4901479)
Yeah I understand the viewpoint here. I'd argue that the costs of building a startup have been driven down so dramatically that companies that are hard tech organizations need to raise ever-smaller rounds to get started but, quixotically, ever-larger rounds to scale.
Something like LivingSocial costs next to nothing to start, but costs millions to scale. Those kinds of wars can't be fought with 1M Series A rounds, but burning that much cash on a mistake is also quite rough. Now LivingSocial isn't hard tech, but most DB startups don't have massive initial capital expenditures, and with things like KickStarter market validation is much simpler.
Is the incubator approach better? With the exception of YCombinator and MAYBE techstars, I'd say no. It's hard to say.
As always, we'll look back in 10 years and pick the winners and losers by fund growth, but the fact remains, companies can afford to put off raising until much later in their life cycle.
Re:Sequoia’s Leone: In Venture, Big is the Enemy of Great
by jbyers on Monday December 10, 2012 @04:21PM
(#4901568)
I misinterpreted the title of the article and this post. I thought Leone was making this point about startups. He's not.
tl;dr: VC is warfare; venture firms themselves need to be aggressive, nimble, and revolve around small teams to thrive. Don't give up too much equity, beware overcommitted angels, and sometimes high growth companies need tons of funding.
Re:Sequoia’s Leone: In Venture, Big is the Enemy of Great
by gavanwoolery on Monday December 10, 2012 @04:43PM
(#4901681)
"...growing faster than Facebook."
Please stop using growth as a metric -- just say, flat out, how many (legit) user accounts you have. If you grow from 1 user to 2 users in a day, you are growing at 200 percent, way faster than Facebook is...but you only have 2 users. If you grow from 10k to 20k, its only slightly less meaningless. Also, the 10,000 fake user accounts you are seeding your startup with do not count as legitimate growth.
Also, Facebook is probably plateauing. It is unlikely your growth match's Facebook's peak growth rate.
Agreed - then it becomes easy to get worked up about a growth rate "slowing down" and misinterpret that as a plateau, even if the sheer numbers would indicate otherwise.
Re:Sequoia’s Leone: In Venture, Big is the Enemy of Great
by inmygarage on Monday December 10, 2012 @04:18PM
(#4901547)
Leone mentions the angel scouts briefly. Curious:
--how do these angels structure the relationship? is it just that they invest out of an angel fund with a single LP?
--what is the real downside of taking an investment from a scout that is backed by a larger VC? he mentions that people get upset about it, but it's unclear why it's such a negative thing.
Re:Sequoia’s Leone: In Venture, Big is the Enemy of Great
by panabee on Tuesday December 11, 2012 @03:04AM
(#4903609)
the downside comes when you need to raise money from VCs. if the larger VC -- which made a proxy investment via the angel scout -- does not invest in you again, it becomes a red flag for other investors. this grants the larger VC more leverage during negotiations because you effectively need the VC to participate, or else risk scaring away other VCs. this assumes the other VCs know the angel scout is a proxy for the larger VC.
Re:Sequoia’s Leone: In Venture, Big is the Enemy of Great
by dreamdu5t on Monday December 10, 2012 @10:25PM
(#4902883)
Who is the real entrepreneur? The investor who makes a decision to risk his capital to capture a market's demand, or the founder who asks for money but doesn't make the decision? Ultimately it's the investor that evaluates and takes a risk on the model, not the founder.
I associate entrepreneurship with risking your own capital, and with risk in general. Investors seem far more entrepreneurial than founders when evaluated in that context. I think investors should be considered the real entrepreneurs - it's ultimately their decision.
Founders seem more like managers, not entrepreneurs. I'm talking about founders who don't risk their own capital and take investment, of course.
Re:Sequoia’s Leone: In Venture, Big is the Enemy of Great
by heyadayo on Monday December 10, 2012 @10:44PM
(#4902921)
I see, so you really think that the LPs are the true entrepreneurs -- Harvard, Stanford, various state pensions/treasury departments and the like -- the ones who invest money in VC funds.
Risking your life, status, health, happiness, and wealth in order to realize a huge, positive change in the world -- that's what it's about in my book.
Re:Sequoia’s Leone: In Venture, Big is the Enemy of Great
by zupreme on Monday December 10, 2012 @05:50PM
(#4901962)
I think that growth, as a metric for gauging success will soon fall out of favor. Soon stodgy old concepts like "revenue" and "profit" will begin to take hold again.
The assumption that eyeballs will eventually equal dollars has been proven false again and again. Eventually Angel Investors and VC's will have to return to the same types of fundamentals that banks have been following all along (the recent financial...hiccup...aside).
Re:Sequoia’s Leone: In Venture, Big is the Enemy of Great
by rmah on Monday December 10, 2012 @06:20PM
(#4902180)
It's dangerous because it limits your options. Say you take money from an angel that is strongly associated with a single VC fund. Assuming you do well, when you need to raise your series A, if that VC fund declines, then it's less likely another VC will fund you. And they know this. Essentially, you have given them a lot of power over your future financing.
Do I correctly understand that Paul, Jessica et al are investing Sequoia money, or that they are somehow a large partner? Would someone please explain this paragraph from the article?
Update: Is this what he was referring to? http://m.techcrunch.com/2010/05/21/y-combinator-closes-new-8...
I wouldn't exactly call it a "co-opt"; I am still interested in whatever insight someone shares.
My handshakes comment referred to our now well-documented Scouts program. It started out stealthy because it needed time to develop and the scouts didn't want the attention. Scouts regularly disclose our relationship to founders and the wire transfer always comes from Sequoia. These two efforts represent some of our attempts to work with very talented entrepreneurs (like Brian and Drew) as early as possible so that we may help them build enduring companies.
Something like LivingSocial costs next to nothing to start, but costs millions to scale. Those kinds of wars can't be fought with 1M Series A rounds, but burning that much cash on a mistake is also quite rough. Now LivingSocial isn't hard tech, but most DB startups don't have massive initial capital expenditures, and with things like KickStarter market validation is much simpler.
Is the incubator approach better? With the exception of YCombinator and MAYBE techstars, I'd say no. It's hard to say.
As always, we'll look back in 10 years and pick the winners and losers by fund growth, but the fact remains, companies can afford to put off raising until much later in their life cycle.
tl;dr: VC is warfare; venture firms themselves need to be aggressive, nimble, and revolve around small teams to thrive. Don't give up too much equity, beware overcommitted angels, and sometimes high growth companies need tons of funding.
I can think of reasons why you'd want that, but yeah the article wasn't about making that point.
Please stop using growth as a metric -- just say, flat out, how many (legit) user accounts you have. If you grow from 1 user to 2 users in a day, you are growing at 200 percent, way faster than Facebook is...but you only have 2 users. If you grow from 10k to 20k, its only slightly less meaningless. Also, the 10,000 fake user accounts you are seeding your startup with do not count as legitimate growth.
Also, Facebook is probably plateauing. It is unlikely your growth match's Facebook's peak growth rate.
Agreed - then it becomes easy to get worked up about a growth rate "slowing down" and misinterpret that as a plateau, even if the sheer numbers would indicate otherwise.
--how do these angels structure the relationship? is it just that they invest out of an angel fund with a single LP?
--what is the real downside of taking an investment from a scout that is backed by a larger VC? he mentions that people get upset about it, but it's unclear why it's such a negative thing.
I associate entrepreneurship with risking your own capital, and with risk in general. Investors seem far more entrepreneurial than founders when evaluated in that context. I think investors should be considered the real entrepreneurs - it's ultimately their decision.
Founders seem more like managers, not entrepreneurs. I'm talking about founders who don't risk their own capital and take investment, of course.
Risking your life, status, health, happiness, and wealth in order to realize a huge, positive change in the world -- that's what it's about in my book.
Apparently your time is worth zero. It turns out that there are other valuations for people's time.
The assumption that eyeballs will eventually equal dollars has been proven false again and again. Eventually Angel Investors and VC's will have to return to the same types of fundamentals that banks have been following all along (the recent financial...hiccup...aside).