I like almost everything about Joel's latest article, Fixing Venture
- I like his discussion of the different risk/reward
preferences between founders and VCs.
- I like his hockey-stick graphs of company growth, even though most small
ISVs would be delighted if the curve could simply be linear.
- I like his discussion of what happens to a company when things get out of
- I like the way his article characterizes all VCs as ogres, even though not
all of them are really that bad.
- I like the fact that what he's actually doing is setting the bar
really high for the day when he does decide to get a VC involved in
The only thing I don't like about this article is the title. Calling it
"Fixing Venture Capital" gives the impression that the VC industry can be
Seriously, if I were to paraphrase Joel's article down to three
simple imperatives for the VC industry, it looks like this:
Tune your risk/reward expectations to be more
closely fit the goals of the entrepreneurs.
Instead of bonging 99.9% of firms that solicit
you for money, go out and find the good ones that are too busy selling
products to sell stock.
Realize that by screwing the founders you are
simply excluding the smartest founders from your deal flow. Cut it
Obviously if more of the VC world worked this way, it would become a heckuva
lot more appealing to founders. However, we have to remember that the
venture capitalist is a middleman, with founders downline and limited partners
upline. Just like the entrepreneur, the VC has to keep things in
balance. Making founders happier is great, but if doing so makes the
limiteds unhappy, the whole thing will fall apart.
Let's distill Joel's piece down even further to make one single piece of
advice for how the VC world should change:
If you would become a lot more patient about liquidity, you could attract
much better portfolio companies.
And therein lies the problem. Asking a VC to be more patient means he
in turn will have to ask his limited partners upline to be more patient.
The limiteds don't want to do this. They've got $100M to invest and
they're trying to decide which of two VC firms will manage it for them.
One of those firms is asking for patience. The other is singing a catchy
tune about finding The Next Netscape. Which firm gets the bucks?
Bottom line: Joel correctly observes that most VC firms don't
have much to offer people who want to build solid, long-lived companies.
Don't expect this situation to change anytime soon.