My experience with investor-provided talent has been very poor.
Historically, the problem is that VCs tend to send "subject matter expert" type consultants who give advice. Startups need someone to do the work more than they need someone to give the advice. The VC-provided talent usually generated more work than they solved with questionable returns for the company.
Unless Reid Hoffman has cracked the code of sending the right people to get work done, I'm suspicious.
FWIW, I had the exact same experience, and I lost faith in the "operational VC" model. Hiring the right people is hard for everybody, and the chance that a VC can spin up an "agency" style department that somehow has the best people is really small.
The entire model attracts the kind of "consultants who give advice" you describe. After all, people who want to get their hands dirty, i.e. people who are a good fit with startups, are overwhelmingly going to want to work directly for said startups.
We also had this super weird mismatch with perceived value. The operational VC "billed" agency-style, so by the hour, at (to us) outrageous hourly rates. It was like 6x what we'd pay a salaried employee doing the same work. We didn't "feel" it as bad because it cost us equity, not money. But we'd have never hired that agency for that money, if it was cash. The moment we realized that this was the case, we stopped the collaboration. It was a costly distraction and nothing more.
I'm curious if Hoffman found a way around this, but I don't see it in this article.
> ...consultants who give advice. Startups need someone to do the work more than they need someone to give the advice.
I've been on the other side of this with a few startups, and the right answer is almost never to come in and drop a bunch of code as much as founders would like an extra set of hands.
A good SME can come in and have a solid whiteboard session with a team to shave off the first two iterations of development. I've done this before from a security perspective where just making the developers aware of the sharp edges and being available to answer questions was a massive force multiplier.
I could see VC-provided specialists, like a lawyer, CPA, perhaps also specific skills like a data scientist before a startup has enough cash to employ one full-time but I don’t see why this would be any better than the startup employing the contractor themselves with cash.
Elsewhere in this discussion someone said they are finance and operations people.
I think that's moderately useful - doing the work on building financial models or finding operational hacks to solve specific problems can be helpful, and isn't really a thing where it is annoying bringing a person up to speed only for them to leave.
Really even if VCs were utterly rational their model already incentivizes "go big or go home" on a grand scale. You as a founder would be perfectly fine with a "mere" 10% chance of a "just" 10M$ company to early retire, work with independence to be able to walk away at will, or bootstrap depending on ambitions. VCs would win more amortized over all of their funding a 0.01% chance for a $100B company. That fits with the current big money model of trying to pump up a given service with no business model to get user base and then have it collapse after they alienate their users trying to monetize it. It looks utterly stupid and may be a form of economic resource misallocation (both as a matter of opinion and derth of comparable data) but it benefits the VC.
Also, I think VCs pick operational talent on "political" reasons, mainly people they have gotten to know somehow from previous companies they invested in or as founders. These people while might be good, do not necessarily have a good skillset or fit for your company.
The area where I can see a VC's network adding a lot of value is 'person who built sales operation for growth company in related market'. That's not necessarily someone that's easy for a startup to hire, especially pre-Series A. On the other hand anyone if someone's output is aspirational pitch decks and market-scoping, at least one of the founders is already good at that to have got the VC interested, and by the time a startup's challenge is scaling operations the startup has cash to pay for the expertise.
I can see that. In my experience, it works to have a subject matter expect at as a consultant/mentor to a few young and hungry employees. Essentially, the expert can help lead a team through big technical decisions or when there is a roadblock. However, the expert likely doesn’t want to put in the hours or do the necessary grunt work.
I really respect the attempt at trying something new here, but framing it against a traditional VC model might be a bit of a mistake (on the journalist's behalf?).
I'd suggest thinking about this as an innovation on the venture studio model, or later-stage accelerator model (e.g., YC's Series A cohorts). I've spent the last few months toying with the idea of a venture studio and the economics are hard to swallow for some founders and for later-stage VCs... A model like this, where you get an operating, experienced serial entrepreneur to help you and kick your ass... I like that a lot. It's different and worth following, if nothing more.
> framing it against a traditional VC model might be a bit of a mistake
Google Ventures for example has a similar capital services model. Once you took money, you had access to a pool of GV folks who could help you with design, finance, engineering, etc. Having this talent to tap in to helps you avoid spending early money on things that aren't worth a full FTE but need to be solved.
The only thing new here is that they took out the writing of the check first.
Had a VC send me this a while ago. My feedback: these guys are all finance, operations, and management. No actual builders. It would be great to outsource these roles to keep control and save equity, but this seems like the opposite. It’s still a great deal for founders because of the connections that VC brings, but it’s likely a bad deal for the company, which is now run by people abstracted from the vision.
For more info, see: “conjoined triangles of success”.
The best role that VCs have here is in introducing the startup to a network of domain experts that have very specialized skills that a startup needs, but that would be very difficult to find without good contacts. Then, ideally, the VC steps back and lets the startup negotiate their own deal with these domain experts. Doesn't have to be a VC though, back when telecom was a thing, rather than hiring our PBX installer directly, I was able to track down a third party-consultant who knew all the players in the valley (having been doing this sort of thing for 20 years), and we leaned on them to help us track down bids, sort out the competing offers, and do last-and-final negotiation at the table. Saved us around $150K on a PBX install over what our preferred vendor would have charged us. Another great experience was when foundation capital brought in our initial Facilities installer - they took care of everything - second hand furniture, installing new drywall (less than a day), server rooms (back when those were a thing), etc..
But, in both cases, the VCs contribution was in introducing us to great people, who were ready to work.
This approach by Hoffman feels like the situation we had at Netscape, where we had a Business Server division, spun off from main HQ, but they were required to use our IT services, which installed systems/networks that made total sense for Netscape IT, but probably were overkill for a small scrappy startup. The incentives were in conflict.
I'm not suggesting this is why Hoffman et al are going this direction, but this is almost exactly what I would do if I felt that there was an epidemic of portfolio companies not being completely transparent about the state of their companies.
This gives the an amazing amount of "insider information" that, ostensibly a VC would have but I have found in practice VCs don't have the ability to really get from the regular CEO/operator updates and growth boards.
1) Adding a "partner" only helps if he is actually competent. My experience suggests that this is untrue more than the majority of the time.
2) It also means that you are privileging information from your "mole" who may have a different agenda from both the company and the VC.
Every time I have seen a VC put an "insider" into a company my advice has been to consign him to metaphorical Siberia. The companies who didn't follow this advice regretted it terribly.
>>This gives the an amazing amount of "insider information"
Couple this with a proof point that specialized teams like Latacora[1] are proving themselves out so they figure why not also get the inside scoop while turbo-charging their portfolio companies.
Ok, I don't have any startup experience, but this sounds an awful lot like either injecting a spy, or a commissar, depending on how much influence the person has on operations and strategy.
If I were going to try to ramp up an idea, I'd be extremely wary of accepting someone that way, especially if they were expecting to assume any amount of control.
I don't usually cling to the status quo, but I do believe that the CEO must have the ability to set the vision and get the "right people in the right seats." Every management book in the last decade pays homage to this idea put forward in Jim Collins' book Good to Great.
I guess this model presumes that the right people will be supplied by the investor to fill predetermined seats. Does the CEO have a say in that? Is it possible to fill seats without the CEO in the decision making process? If they do have a say prior to investment, then why not raise capital and hire people of that caliber regardless?
If the issue is that some founders with good ideas are simply clueless and a team that knows better must be built around them, it seems conflict between the CEO and the new team will be inevitable.
> Steven D. Levitt noted that some of the companies selected as "great" have since gotten into serious trouble, such as Circuit City and Fannie Mae, while only Nucor had "dramatically outperformed the stock market" and "Abbott Labs and Wells Fargo have done okay". He further states that investing in the portfolio of the 11 companies covered by the book, in the year of 2001, would actually result in underperforming the S&P 500.[6] Levitt concludes that books like this are "mostly backward-looking" and can't offer a guide for the future.
Sure, but there's a question of who you need when.
For example, f you're a non-technical founder doing a startup that's more a business model innovation than a tech innovation, you need a solid early team, but you don't really need the full-time services of a strong CTO to do the hiring and set the initial technical direction. If you end up with product-market fit and need to grow beyond one developer team, only then do you really need somebody with more tech experience to be around full time.
Honestly, a lot of pre-fit startups would be better off filling some roles like this. At one point I talked with some friends about setting up a venture labor firm. Startups are risky as hell, and from the labor side it would be great to get some of the de-risking that comes with a portfolio approach. It would also let you share great don't-need-them-all-the-time people without a lot of shenanigans. E.g., visual designers, ops consulting, user research, security expertise, and other technical specialties.
So yeah, the CEO should still be able to get the right permanent people in right seats once there's a real seat for them. But this way you don't have to do without the skills until you have a seat.
How do you build trust in your own team when an investor installs or pushes people they have a long relationship with into your company? Where will loyalties lie?
This sounds like a very bad idea. I hardly believe any VC has any great builders just sitting around to jump on and off to the next thing. I'd also not feel trusted but more like watched all the time. I'm lucky that all the investors I had in the past always trusted my and the team's ability to build, grow and push things forward without suggesting putting their people in. I might be wrong, but it feels the only people that could think this is a great idea are coming from the venture side :) It just sounds very wrong to me tbh.
Maybe I'm missing something here, but it sounds like they aren't putting any skin in the game. The VC will benefit from all of the upside while literally taking none of the risk.
How could this possibly be good for entrepreneurs?
If someone approached me with this idea to help my startup, I would promptly move that email to my junk folder and stay focused on building a great product. If someone wants to invest money, sure I'd be happy to take it, but the last thing I need is more "advice" from armchair experts.
> The companies pay SEV in common stock shares, the same held by the startups' rank-and-file employees, and SEV's team, in turn, get paid salaries by the firm and also receive part of the firm's carry like a traditional venture model.
The VC pays for employees. The company pays the VC in the form of stock. The risk to the VC is the stock they've received is worthless or worth less than the cash they have paid employees.
> If someone approached me with this idea to help my startup, I would promptly move that email to my junk folder and stay focused on building a great product
I'd advise you to let them give you a quick pitch by email and see if it sounds reasonable.
As a founder, you have so much to learn. Be wise with your time, but don't shut out potential ideas from someone who says they want to help you. It's not every day (or any day, in my experience) that something like that happens.
> Maybe I'm missing something here, but it sounds like they aren't putting any skin in the game. The VC will benefit from all of the upside while literally taking none of the risk.
They funded the company and they could lose their money if the company fails. That's their risk. Now they are trying to help the company build a team and somehow that's a bad thing?
> The VC will benefit from all of the upside while literally taking none of the risk.
VCs provide 100% of the funding, so they're taking the risk, at least for that individual company. I understand VC return is amortized off all their investments. But to say that VCs have no skin in the game isn't entirely accurate.
If you accept stock and a paycheck from a startup, that's VC money.
The investor provided talent could be a good approach to provide more relevant and needed support. In reality on many occasions I have had to question what the hell is going on:
1. I have come across many of the talent, where what they lacked in talent was compensated by strength of personal connection.
2. People just sprouting some inspirational fluff, and whose attitude is I am here, listen to me, do as I say, don’t question, without even getting into the trenches.
3. Then they start talking about the sacrifice and hard-ship, when they have no real comprehension and haven’t walked that path.
4. As for getting paid in equity, that is between startup and whomever, although I personally don’t like it, and won’t do it.
5. You can’t come in and work with early stage startups and charge them what you charge more established startups, and certainly not what you charge VC or family offices.
Drop your rates man, and come correct. There are enough leeches on, and vultures hovering around, startups and founders.
I can't imagine any founder with a few years of experience with VC would want a VC mole in their day to day business. This might work with early startups who don't know any better.
Also will other VCs invested in the same business benefit or lose out from a situation like this.
Most founders will have no interest in this. (1) 90% of VCs add negative or zero value. Okay maybe you have a part time employee but how much equity are you really going to give up for that? (2) Top founders don’t need you. They can attract their own talent at market rates and they don’t want someone running their business. (3) Startups need to pay their people.
This shifts allegiances in interesting ways. Key employees are no longer employees but contractors hired by the VC.
As stated, the contractors are not startup employees but gain any research knowledge are on patents. Do these partners still have non-compete contracts with the start up or can they freely leave with IP?
It seems like this system allows the VC to pull support easily. You can't force someone to continue to work for you. If the partners are time splitting how would you approach that situation? Can you fire them?
This sounds like an acknowledgment of defeat of the "just throw a ton of cash at it" SoftBank approach that is proving to really be a bust. If I'm not mistaken A18Z also has that same philosophy of find the winner-that-you-want and then throw-all-the-money-at-it-until-it-wins approach. Then dump it on the market and hope it can stand on its own.
Whatever happened to invest capital in good founders with good products in good markets and let the founders do their thing, with investors supporting them? Or has that venture approach which seems to have worked from the 1970s through the 1990s (and maybe early 2000s) stopped working well enough?
The 1970s-early 2000s produced some real companies providing real value and are still around for the long haul. I'm not so sure about the post-recession VC-inflated startups that seem to be more about big money and big egos than big value.
The sorts of technical decisions modern startups tend to make primarily make sense if you're looking at the company from an "eat the world" point of view. So if you squint hard enough at their decisions they look good from the POV of that you have barrels full of cash and the only way you're going to succeed is when you have thousands of people working for you so you may as well build for that case from the start.
But if you take away those barrels full of cash those decisions no longer look good. Maybe they can offer technical advice on how not to do this and plan and build their product in waves to optimize each step in growing the company. But in my experience there is a huge lack of people that can accomplish this in the startup ecosystem nowadays.
Worst thing that can happen in a startup is trust issues affecting focus and ability to get stuff done. I see many conflicts that need to be addressed for this model to succeed.
By having their people directly within the organization (potentially at very senior operational levels), there is inherent information asymmetry that favors SEV over founders and other VCs.
Founders will have to figure out how they will protect themselves from SEV insiders screwing them over other startups in SEV portfolio.
I'm very curious to see what would be SEV's pitch to the talented people they hire to deploy in these startups would be and how would the three party contract between this talent, SEV and startup would be setup.
Sending a partner is sending someone who is fully committed to the VC and not fully committed to the startup. If the VC sends money, that money will be fully committed to the startup.
VCs have entrepreneurs in residence, a bankable executive without an idea. Matching an EIR with a startup is midway between sending a partner and sending money. But still, this EIR isn't fully committed. They're committed to both the VC and the startup, two masters.
I actually interviewed at a company recently that brought in an Exec because the company had no direction and the founders were too inexperienced. (This is what the exec told me) It was really interesting to hear his perspective on the company and what needed to be done, compared to what others said during the interview.
But from that experience one person will have a lot of trouble guiding a company if the other execs are not on board with what they are trying to do. I was going to join the company but was really worried about the inexperience of the other team members, but I really liked the guy that the VCs brought in.
That doesn't sound too different to what some VCs already do. E.g. from what I heard about Rocket Internet from some of their portfolio company, they act in a very similar way.
Yes, they also provide cash as part of the funding deal, but they will most likely place one C-level executive in your startup. They'll also happily provide you with more headcount than you probably need and if your numbers aren't where they are supposed to be, you are expected to buy consulting services from them, so in the end a good chunk of the funding amount flows back to them. That's why a lot of their companies are as soulless as they are.
At first blush, this looks like new lipstick on the old pig of the venture studio. The issue with venture studios is the same as with corporate "intrapreneurship" -- lower rewards and lower risks. Savvier founders will be more capable of either hiring the right talent and upselling equity, or having access to enough cash to hire the right talent outright. Consultants won't mind additional free leads, but good ones will do just fine without. So, the unit economics just don't work out as well for savvy founders or consultants, so you end up creating a market for lemons.
The problem with this model is that consultants will want to be paid in liquid cash, companies will want to pay in illiquid equity, and someone would have to step into the middle and establish valuations and liquidity. This is the bigger problem with the increasing illiquidity associated with VC funded startups. Savvier would-be employees or consultants risk adjusting shares even further towards the direction of worthlessness and insisting on cash.
With that said, perhaps the main silver lining I see here is of VCs playing a role in creating some kind of liquidity for shares. By establishing a three party transaction like this pegging exchange rates between hours of labor, shares and dollars, they're setting at least a stated valuation that allows companies to pay with either shares or cash to prospective employees and service providers, with the risk underwritten by the VC.
This scheme disconnects the founders from responsibility for the outcomes.
God the politics that would arise from this would be soul crushing.
Imagine being in a company like this..., who is really the boss? Is the founder in charge, or is the line of reporting to the VC via the injected people?
The sense I getfrom a scheme like this is that the VC knows best and the founders need the brains of the VC to succeed - that dynamic I think might sink the company.
Imagine being a founder with someone injected by your investors constantly second guessing you and telling you how to do it right. Ugh....
[+] [-] PragmaticPulp|6 years ago|reply
Historically, the problem is that VCs tend to send "subject matter expert" type consultants who give advice. Startups need someone to do the work more than they need someone to give the advice. The VC-provided talent usually generated more work than they solved with questionable returns for the company.
Unless Reid Hoffman has cracked the code of sending the right people to get work done, I'm suspicious.
[+] [-] skrebbel|6 years ago|reply
The entire model attracts the kind of "consultants who give advice" you describe. After all, people who want to get their hands dirty, i.e. people who are a good fit with startups, are overwhelmingly going to want to work directly for said startups.
We also had this super weird mismatch with perceived value. The operational VC "billed" agency-style, so by the hour, at (to us) outrageous hourly rates. It was like 6x what we'd pay a salaried employee doing the same work. We didn't "feel" it as bad because it cost us equity, not money. But we'd have never hired that agency for that money, if it was cash. The moment we realized that this was the case, we stopped the collaboration. It was a costly distraction and nothing more.
I'm curious if Hoffman found a way around this, but I don't see it in this article.
[+] [-] mike_d|6 years ago|reply
I've been on the other side of this with a few startups, and the right answer is almost never to come in and drop a bunch of code as much as founders would like an extra set of hands.
A good SME can come in and have a solid whiteboard session with a team to shave off the first two iterations of development. I've done this before from a security perspective where just making the developers aware of the sharp edges and being available to answer questions was a massive force multiplier.
[+] [-] alasdair_|6 years ago|reply
[+] [-] te_chris|6 years ago|reply
[+] [-] nl|6 years ago|reply
I think that's moderately useful - doing the work on building financial models or finding operational hacks to solve specific problems can be helpful, and isn't really a thing where it is annoying bringing a person up to speed only for them to leave.
[+] [-] Nasrudith|6 years ago|reply
[+] [-] enra|6 years ago|reply
[+] [-] notahacker|6 years ago|reply
[+] [-] pmart123|6 years ago|reply
[+] [-] unknown|6 years ago|reply
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[+] [-] cl42|6 years ago|reply
I'd suggest thinking about this as an innovation on the venture studio model, or later-stage accelerator model (e.g., YC's Series A cohorts). I've spent the last few months toying with the idea of a venture studio and the economics are hard to swallow for some founders and for later-stage VCs... A model like this, where you get an operating, experienced serial entrepreneur to help you and kick your ass... I like that a lot. It's different and worth following, if nothing more.
[+] [-] mike_d|6 years ago|reply
Google Ventures for example has a similar capital services model. Once you took money, you had access to a pool of GV folks who could help you with design, finance, engineering, etc. Having this talent to tap in to helps you avoid spending early money on things that aren't worth a full FTE but need to be solved.
The only thing new here is that they took out the writing of the check first.
[+] [-] bjornsing|6 years ago|reply
Me too. :)
> and the economics are hard to swallow for some founders and for later-stage VCs...
Can you elaborate on that a bit? What model are you considering and what constraints do you see?
[+] [-] jl2718|6 years ago|reply
For more info, see: “conjoined triangles of success”.
[+] [-] varjag|6 years ago|reply
[+] [-] boxcardavin|6 years ago|reply
[+] [-] unknown|6 years ago|reply
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[+] [-] ghshephard|6 years ago|reply
But, in both cases, the VCs contribution was in introducing us to great people, who were ready to work.
This approach by Hoffman feels like the situation we had at Netscape, where we had a Business Server division, spun off from main HQ, but they were required to use our IT services, which installed systems/networks that made total sense for Netscape IT, but probably were overkill for a small scrappy startup. The incentives were in conflict.
[+] [-] AndrewKemendo|6 years ago|reply
This gives the an amazing amount of "insider information" that, ostensibly a VC would have but I have found in practice VCs don't have the ability to really get from the regular CEO/operator updates and growth boards.
[+] [-] bsder|6 years ago|reply
2) It also means that you are privileging information from your "mole" who may have a different agenda from both the company and the VC.
Every time I have seen a VC put an "insider" into a company my advice has been to consign him to metaphorical Siberia. The companies who didn't follow this advice regretted it terribly.
[+] [-] otoburb|6 years ago|reply
Couple this with a proof point that specialized teams like Latacora[1] are proving themselves out so they figure why not also get the inside scoop while turbo-charging their portfolio companies.
[1] https://latacora.com/
[+] [-] zentiggr|6 years ago|reply
If I were going to try to ramp up an idea, I'd be extremely wary of accepting someone that way, especially if they were expecting to assume any amount of control.
[+] [-] katzgrau|6 years ago|reply
I guess this model presumes that the right people will be supplied by the investor to fill predetermined seats. Does the CEO have a say in that? Is it possible to fill seats without the CEO in the decision making process? If they do have a say prior to investment, then why not raise capital and hire people of that caliber regardless?
If the issue is that some founders with good ideas are simply clueless and a team that knows better must be built around them, it seems conflict between the CEO and the new team will be inevitable.
[+] [-] barry-cotter|6 years ago|reply
> Steven D. Levitt noted that some of the companies selected as "great" have since gotten into serious trouble, such as Circuit City and Fannie Mae, while only Nucor had "dramatically outperformed the stock market" and "Abbott Labs and Wells Fargo have done okay". He further states that investing in the portfolio of the 11 companies covered by the book, in the year of 2001, would actually result in underperforming the S&P 500.[6] Levitt concludes that books like this are "mostly backward-looking" and can't offer a guide for the future.
[+] [-] wpietri|6 years ago|reply
For example, f you're a non-technical founder doing a startup that's more a business model innovation than a tech innovation, you need a solid early team, but you don't really need the full-time services of a strong CTO to do the hiring and set the initial technical direction. If you end up with product-market fit and need to grow beyond one developer team, only then do you really need somebody with more tech experience to be around full time.
Honestly, a lot of pre-fit startups would be better off filling some roles like this. At one point I talked with some friends about setting up a venture labor firm. Startups are risky as hell, and from the labor side it would be great to get some of the de-risking that comes with a portfolio approach. It would also let you share great don't-need-them-all-the-time people without a lot of shenanigans. E.g., visual designers, ops consulting, user research, security expertise, and other technical specialties.
So yeah, the CEO should still be able to get the right permanent people in right seats once there's a real seat for them. But this way you don't have to do without the skills until you have a seat.
[+] [-] taurath|6 years ago|reply
[+] [-] echelon|6 years ago|reply
How do you perform a proper search while wearing lots of other hats? I suppose it's a never-ending exhausting task?
[+] [-] cheerioty|6 years ago|reply
[+] [-] brenden2|6 years ago|reply
How could this possibly be good for entrepreneurs?
If someone approached me with this idea to help my startup, I would promptly move that email to my junk folder and stay focused on building a great product. If someone wants to invest money, sure I'd be happy to take it, but the last thing I need is more "advice" from armchair experts.
[+] [-] clintonb|6 years ago|reply
The VC pays for employees. The company pays the VC in the form of stock. The risk to the VC is the stock they've received is worthless or worth less than the cash they have paid employees.
[+] [-] katzgrau|6 years ago|reply
I'd advise you to let them give you a quick pitch by email and see if it sounds reasonable.
As a founder, you have so much to learn. Be wise with your time, but don't shut out potential ideas from someone who says they want to help you. It's not every day (or any day, in my experience) that something like that happens.
[+] [-] twblalock|6 years ago|reply
They funded the company and they could lose their money if the company fails. That's their risk. Now they are trying to help the company build a team and somehow that's a bad thing?
[+] [-] jorblumesea|6 years ago|reply
VCs provide 100% of the funding, so they're taking the risk, at least for that individual company. I understand VC return is amortized off all their investments. But to say that VCs have no skin in the game isn't entirely accurate.
If you accept stock and a paycheck from a startup, that's VC money.
[+] [-] Ace__|6 years ago|reply
The investor provided talent could be a good approach to provide more relevant and needed support. In reality on many occasions I have had to question what the hell is going on:
1. I have come across many of the talent, where what they lacked in talent was compensated by strength of personal connection.
2. People just sprouting some inspirational fluff, and whose attitude is I am here, listen to me, do as I say, don’t question, without even getting into the trenches.
3. Then they start talking about the sacrifice and hard-ship, when they have no real comprehension and haven’t walked that path.
4. As for getting paid in equity, that is between startup and whomever, although I personally don’t like it, and won’t do it.
5. You can’t come in and work with early stage startups and charge them what you charge more established startups, and certainly not what you charge VC or family offices.
Drop your rates man, and come correct. There are enough leeches on, and vultures hovering around, startups and founders.
Cheers, Ace.
[+] [-] milofeynman|6 years ago|reply
Also will other VCs invested in the same business benefit or lose out from a situation like this.
[+] [-] rdlecler1|6 years ago|reply
[+] [-] jayd16|6 years ago|reply
As stated, the contractors are not startup employees but gain any research knowledge are on patents. Do these partners still have non-compete contracts with the start up or can they freely leave with IP?
It seems like this system allows the VC to pull support easily. You can't force someone to continue to work for you. If the partners are time splitting how would you approach that situation? Can you fire them?
Seems much more complex than cold, hard cash.
[+] [-] rexreed|6 years ago|reply
Whatever happened to invest capital in good founders with good products in good markets and let the founders do their thing, with investors supporting them? Or has that venture approach which seems to have worked from the 1970s through the 1990s (and maybe early 2000s) stopped working well enough?
The 1970s-early 2000s produced some real companies providing real value and are still around for the long haul. I'm not so sure about the post-recession VC-inflated startups that seem to be more about big money and big egos than big value.
[+] [-] bcrosby95|6 years ago|reply
The sorts of technical decisions modern startups tend to make primarily make sense if you're looking at the company from an "eat the world" point of view. So if you squint hard enough at their decisions they look good from the POV of that you have barrels full of cash and the only way you're going to succeed is when you have thousands of people working for you so you may as well build for that case from the start.
But if you take away those barrels full of cash those decisions no longer look good. Maybe they can offer technical advice on how not to do this and plan and build their product in waves to optimize each step in growing the company. But in my experience there is a huge lack of people that can accomplish this in the startup ecosystem nowadays.
[+] [-] cortesoft|6 years ago|reply
[+] [-] vinay_ys|6 years ago|reply
By having their people directly within the organization (potentially at very senior operational levels), there is inherent information asymmetry that favors SEV over founders and other VCs.
Founders will have to figure out how they will protect themselves from SEV insiders screwing them over other startups in SEV portfolio.
I'm very curious to see what would be SEV's pitch to the talented people they hire to deploy in these startups would be and how would the three party contract between this talent, SEV and startup would be setup.
[+] [-] CalChris|6 years ago|reply
Sending a partner is sending someone who is fully committed to the VC and not fully committed to the startup. If the VC sends money, that money will be fully committed to the startup.
VCs have entrepreneurs in residence, a bankable executive without an idea. Matching an EIR with a startup is midway between sending a partner and sending money. But still, this EIR isn't fully committed. They're committed to both the VC and the startup, two masters.
This is just not a good fit at this time.
[+] [-] jimkri|6 years ago|reply
But from that experience one person will have a lot of trouble guiding a company if the other execs are not on board with what they are trying to do. I was going to join the company but was really worried about the inexperience of the other team members, but I really liked the guy that the VCs brought in.
[+] [-] hobofan|6 years ago|reply
Yes, they also provide cash as part of the funding deal, but they will most likely place one C-level executive in your startup. They'll also happily provide you with more headcount than you probably need and if your numbers aren't where they are supposed to be, you are expected to buy consulting services from them, so in the end a good chunk of the funding amount flows back to them. That's why a lot of their companies are as soulless as they are.
[+] [-] roosterdawn|6 years ago|reply
The problem with this model is that consultants will want to be paid in liquid cash, companies will want to pay in illiquid equity, and someone would have to step into the middle and establish valuations and liquidity. This is the bigger problem with the increasing illiquidity associated with VC funded startups. Savvier would-be employees or consultants risk adjusting shares even further towards the direction of worthlessness and insisting on cash.
With that said, perhaps the main silver lining I see here is of VCs playing a role in creating some kind of liquidity for shares. By establishing a three party transaction like this pegging exchange rates between hours of labor, shares and dollars, they're setting at least a stated valuation that allows companies to pay with either shares or cash to prospective employees and service providers, with the risk underwritten by the VC.
[+] [-] drenginian|6 years ago|reply
God the politics that would arise from this would be soul crushing.
Imagine being in a company like this..., who is really the boss? Is the founder in charge, or is the line of reporting to the VC via the injected people?
The sense I getfrom a scheme like this is that the VC knows best and the founders need the brains of the VC to succeed - that dynamic I think might sink the company.
Imagine being a founder with someone injected by your investors constantly second guessing you and telling you how to do it right. Ugh....