English: Diagram of venture capital fund structure for Venture capital (Photo credit: Wikipedia)
Just read a report from ReadWriteWeb.com (“Growing Your Business in the Modern Economy: 6 VCs Weigh In”) about what venture capitalists look for in a start-up. I like reading such reports because they remind me why I stopped working for businessmen – I used to watch The Apprentice for reminders but Trump decided to go all political on us. Mainly, communications from capitalists – and nowadays they are all venture capitalists – spell out what is so ultimately FUBAR about their way of doing business.
The paper’s writer makes it clear how VCs see themselves:
One gambles with the expectation of loss, and the delight of having cheated expectations when one wins. Taking risks, on the other hand, comes with the expectation of success. If you fail, it often means that the risk was not properly managed.
In other words, VCs see themselves as different from ordinary gamblers. No Gamblers Anonymous meetings for them! They only put their money down for 100% Guaranteed Winners! This is the mindset of the Bain Capitalist – that frat boy who is gonna turn his daddy’s millions into billions.
In fact, one of the investors the writer consults speaks to that type of greed:
When we spoke to institutional investors, the biggest challenge for their portfolios was growth. Their challenge was getting that 50x to 100x they could get when they bought Symantec or McAfee or Microsoft or Apple.
Ah, the budding Mitt Romney thinks to himself, if only daddy had bought one of those companies. I would already be rich beyond my wildest dreams of avarice!
I like to call people who think like the target audience of this report The Blockheads, the “risk”-taker who has to convince himself that his bet isn’t a bet at all but a Sure Thing – because the imagined rewards are so big. It’s the mindset of the publisher who will only option a book if she thinks it will make her as much money as optioning Stephen King or J. K. Rowling or Stephenie Meyer – had she done so. It’s the mindset of the “fan” who chooses which movie to watch based on its expected box office receipts – and thinks a film is good because it made over $100 million its first weekend. And The Blockhead is the VC’s investor of choice because he’s stupid enough to believe anything providing he’s told he’s not stupid at all. That’s really what he’s investing in – someone to tell him he’s smart and a winner, but if you have to give someone money to tell you that… well, you figure it out.
(Not that I think I’m smarter than they are. No, not at all.)