I am not sure where the term fisking comes from, but I learned it from Jarvis.
Jeff told me that it means the practice of tearing apart a blog post, bit by bit.
Before I fisk Jason, I want to say that you have to love Jason. He lays it all out there, says what he thinks, and has no fear. And he’s a good entrepreneur because he’s not afraid to take risks and he gets the Internet and where its going as well as anyone I know.
But he’s wrong about venture capital and I feel the need to defend the business I’ve worked in for almost 20 years.
So, let’s get on with the fisking.
Jason: Real entrepreneurs don’t raise venture capital.
Fred: I guess that means that Isaak Karaev, Dave Morgan, Mark Pincus, David Bohnett, Tom Evslin, Seth Godin, David Filo and Jerry Yang, and Larry and Sergei are not "real entrepreneurs". Come on Jason. That’s crap and you know it.
Jason: VCs think their money is more important then you giving up your life.
Fred: Jason’s talking about the liquidation preference here. He is saying that VCs think that the equity they buy with cash is more important than the the "sweat equity" that entrepreneurs get. Jason says " I’m a fan of everyone have the same stock, and everyone getting out at the same time." But Jason knows from firsthand experience that an entrepreneur can make money with that deal when the investor loses money. Is that a fair deal Jason? I don’t think so.
Jason: What does that mean for the other 99 business in the life of a VC? It means they are just spending time with you until that special 200x investment comes—if it ever does.
Fred: This is so wrong its laughable. The 200x investment requires no time from the VC. The deals that I spend the most time and energy on are the ones that don’t work or don’t work immediately. The ones that take off like a rocket are the ones the VC pays the least attention to.
Jason: If your company is going to do OK or good a VC isn’t going to waste the bandwidth on you—they can’t—because your slot could go to the next EBAY! An individual VC can only be involved with three to five companies before they are spread so thin that they can’t stay on top of their investments
Fred: A good VC can be involved with six or seven companies before they are spread too thin. And a VC has a fiduciary responsibility to his inevstors to spend time and energy on every deal. The idea that a VC would shut a company down because he has no time for it is absurd. If a company gets shut down, its not for lack of time, its because you can’t put good money after bad.
Now that I am done with the fisking, I want to say that Jason is right about a bunch of things in his post.
He says, "We don’t need the money"
And he’s right. Weblogs Inc is doing great. They don’t need VC money and they shouldn’t take it.
He says, "VCs are betting with OPM 90% of the time"
It’s more like 97-99%. VCs are investing other people’s money. They have some of their money at risk, but not all of it by any means.
He says, "Most entrepreneurs get three swings, most VCs get 30".
I think both numbers are low. Most serial entrepreneurs will get 5-10 swings in a career and most VCs will get 50-100. But the ratio is right. VCs are playing a portfolio, entrepreneurs are betting the farm.
He says, "I meet so many entrepreneurs who are chasing VCs and when I sit down with them to look at their business I realize nine time out of ten that they have not even considered alternate sources of capital, and that many of them don’t even need the money."
This is so true. If you are an entrepreneur, raising capital is something you may need to do. But building a business is something you must do. The focus on the VC fundraising process at the expense of the business is a huge mistake. Don’t let the tail wag the dog.
The bottom line is that the VC/entrepreneur relationship is difficult enough. We don’t need Jason fueling misconceptions about VCs just because he wants to show how tough he is. I know he’s tough. He’s from Brooklyn!