I've talked with Nick (the author) on several occasions, he was regular contributor at Microprocessor Forum. He is a really awesome guy.<p>That said, he's also got a lot of scars from the dot com era (many of us do) and I suspect if he rewrote this piece today, he might see it differently (or not). I've been told that it is easier to accumulate a lot of money if you are soulless. That allows you to take advantage of things that cause emotional stress and financial harm to others who are unable or unwilling to prevent you from taking their money in a "perfectly legal"[1] way. So when select randomly from the population of people who are very wealthy, your chance of picking someone who has your interests second to theirs is better than 50/50. It may by 3:1 (if you believe Vinod's comments at TechCrunch). To survive you have to not take it personally, and expect it to occur. Generally even the 'nice' VCs understand that it makes sense to take this position. You always have to compartmentalize dealing with people in "business" and dealing with them "socially."<p>[1] This phrase was often code for taking money from someone that may or may not have wanted to give you that money, and yet did not involve fraud or violating any laws. In the 90's it was "perfectly legal" to create a company and take it public to 'retail investors' where the first round cashes out the founders and VCs to the tune of several million while knowing the people reading the prospectus didn't "get it."
Paul Graham has said that any company that hires you is, economically, acting as a proxy for the customer. The rate at which they value you (salary + equity + bonus) is an attempt to estimate your value to their customers. As an engineer starting your own company, you're appealing their judgement and opting to be valued directly by users.<p>But wait! The venture capitalist that invests in you is also acting as a proxy, only for the limited partners. Can you appeal the venture capitalist's judgement and opt to be valued directly by investors, angels or otherwise?
The article is interesting. More interesting is that it was written 12 years ago and about a period of time starting in 1987. It could have been (and probably a clone was) written this year.<p>Despite pretty much everything about how a startup is financed changing, the dynamic between the founders and funders has not. I think that means that it is more than an educational issue, it must be a structural one.
There is a treasure trove of wisdom in this article for all starry-eyed engineers coming to valley with dreams to eventually start a company someday. I realize that starting a company by itself is a poor goal and slightly narcissistic but I am intentionally using it as I have heard many engineers say, "I want to start a company one day" instead of saying "I want to solve a problem because I am passionate about it, and my solution will solve a real-problem in the world today or make the world a slightly better place or makes it suck less"
<i>It's financial; it's not technical or personal. To the VC, the engineer and the ideas are commodities.</i><p>I believe this is the key. I'm not sure what the alternative might be. If engineers joined forces to raise a venture fund, I don't see why this fund would be any different. The engineer-managers would be subject to the same pressures that other VCs are - pretty soon they would operate just the same. (Why wouldn't they?)
> The VC connects wealthy investors to nerds. There are few alternatives. You can self-fund by consulting and by setting aside money for your venture. That doesn't work.<p>Not to blow the bootstrap whistle, but 2001 was a different time for starting companies. I'm seeing a lot of nerds just making money and self-funding, and I think the costs of starting have come dramatically down. It's an interesting change.
What an amazingly true piece! I speak as one who has been an executive in several startups, and have seen the VC animal up close and personal.<p>I think if you are doing software (web or mobile apps - even enterprise if you do it carefully) today, and are reasonably smart, you have more leverage over the VC than ever before. Take the Google guys or Zuck - or any number of founders who understand how to win at that game. Smart founders take money on their terms, deal with VCs who respect them and stay in control of their destiny. Old school VC firms are falling away (albeit slowly) on Sand Hill, while the new breed (YC, AH, etc.) are dominating deal flow and results. Things have changed for the better.
My impression is that some of this has changed. The VCs I know are either domain experts or ex-engineers. Some are both. There also isn't a dearth of angel funding any more. Many angels are ex-entrepreneurs.<p>This doesn't solve some of the principal-agent problems, but it's not as dire as the dot-bomb bust.
This whole essay is from a pre-incubator era. Going through YC/Angelpad, etc and having the benefit of the structure and demo day dynamics changes the early part of the investor/founder dynamics greatly, where things aren't 'so' bad.
As an engineer, founder and now a VC I can see his side, especially from the lens of 2001. My hope though is that most see that some of the worst things he has to say are just not true anymore in the industry.
Crowdfunding will replace venture capital, and investing itself to a large extent. You don't need investment, you make the case to customers directly and they prepay you.
VCs are like the house in Las Vegas - they try to make lots of bets and take a disproportionate share of equity, so they usually make money (but not always). Most just follow the lead of VCs who do know what they are doing (in picking good companies).
Everyone wanting to start a company should read this book. Then proceed. <a href="http://www.slicingpie.com/" rel="nofollow">http://www.slicingpie.com/</a>
Prospective starlets used to go to Hollywood and get literally screwed. Engineers now go to the Valley and only get metaphorically screwed. I guess that's progress.
in summary, these people are sharks.<p>watch out.<p>if possible, fund yourself. why should anyone else believe in you, if you don't believe in yourself?
That kind of nonsense is why I left VC-istan. Amazing how little has changed (in terms of VC behavior) over the past 12 years.<p>VC is in danger of becoming a second-tier avenue. As soon as a credible, scalable alternative comes in, no one's going to deal with that nonsense. The collusion, aggressive management, age discrimination (in a field where you don't know what you're doing until 10-15 years in at least), insistence on locating in an extremely expensive place, and disproportionate reward for degenerate risk-seeking (with others' money and careers) are going to doom them eventually-- although I have no idea when "eventually" will be.<p>Whatever happened to passive investors who were happy to let smart people work magic? I feel like most of the world is people injecting noise into already-working processes just to have it be <i>their</i> noise.