What VC Can Learn From Private Equity

It is friday and that usually means a fun friday or a feature friday but I’m stuck on a plane flying back from a week on the west coast and have the time and inclination for a longer post. So we will return to our regularly scheduled friday programming next week.

I spent a week in Europe a few weeks ago with our friend Eric who is a managing partner in a private equity firm. We talked a lot about his business and our business that week and I’ve been ruminating on it since. I’ve also had the pleasure of working on a board of one of our portfolio companies with a private equity investor who is making a few minority investments. I’ve been able to learn a fair bit from watching how he thinks about investments and works on them. Finally, the first venture capital firm I helped start, Flatiron Partners, was backed by and initially housed inside a private equity firm, Chase Capital Partners, and Jerry and I learned a lot from attending their weekly investment meetings and listening to them talk about their business.

Venture Capital and Private Equity are very different investment disciplines. Both are purchasing stock in privately held businesses with the hope that you can sell the stock at higher prices in a merger/sale transaction or a public offering. Both involve investors taking board seats to monitor and manage their investment. That is about where the similarity ends. I’ve seen venture capital firms morph into private equity firms over time so there are clearly some skills that translate from one investment discipline to the other. But even so, I think they are fundamentally different investment disciplines and here are some of the biggest contrasts:

1/ Private equity is control investing. Venture Capital is minority investing.

2/ Private equity can’t afford to lose money on an investment. Venture Capital requires it.

3/ Private equity generates leverage from financial engineering. Venture Capital generates leverage from technology driven disruption and the opportunities that presents.

So what can Venture Capital learn from Private Equity? Here are a few things that have struck me as I’ve thought about it over the past few weeks.

1/ Many venture capitalists and venture capital firms go “along for the ride” with the entrepreneur and don’t do much to change the trajectory of the investment. Some VCs don’t even take board seats on their investments. There is a lot of talk about “value add” from VCs but often that is just for show during the process of winning the deal. The number of VCs who actually add a lot of value to their investments is much smaller than you would think. Private equity, on the other hand, is all about adding value to the business. For one thing, the private equity firm owns the business. If the business gets messed up, it’s on them and nobody else. The buck stops there at the partners desk. This mindset is refreshing for me to witness. The level of care and attentiveness to the business is very high in the private equity business. The firms and partners that are good in private equity are fantastic operators and game changers for the companies they work for/on. After my week with Eric, I made a mental note to do more of that for our companies. It’s powerful.

It is easy to cop out and say “well we don’t control the business. we don’t have the ability to change management if we want to. we don’t want to get sucked into operating the companies we invest in.” And I agree with all of that. But you don’t need to control a business to be able to meaningfully impact its management team, its strategy, and its operations. I believe if you are trusted by management, if you are there for them when they need you (and when they think they don’t), and if you have done the work to truly understand the business, the team, the market, and the opportunity, that you can by force of intellect and will have a very substantial impact on the business. I want to do more of that with my time and energy and I think all VCs should do that.

2/ Private equity firms don’t normally invest in syndicates. A single firm makes the investment and takes responsibility for making it work. This one is not so cut and dried for me as the first observation. Syndicates, when they are functional and small, are quite powerful. But many times syndicates are large, unwieldy, and dysfunctional. And then there is a ton of finger pointing, or worse, abdicating responsibility to another director. For the CEO, there is often a question of who to listen to, what to do with conflicting direction from the investors, and how to manage this unwieldy mess. The beauty of one firm calling all the shots makes me jealous of the private equity world at times. It is helpful for everyone to know who is the boss and who is making the calls. Venture capital syndicates and board often suffer from a lack of that clarity and if you have a weak or inexperienced CEO, it is a really bad combination.

3/ Private equity firms make the call when to sell. In VC, entrepreneurs will make the call when they are in charge or the board will when they are not. In any case, a VC firm is rarely in a position to make the call on when to sell. Marc Andreessen makes the claim in the recent Tad Friend profile of him in The New Yorker that Accel wanted to sell Facebook to Yahoo! for $1bn but Mark Zuckerberg really didn’t want to (and that Marc Andreessen urged him not to). I’m not sure if that is accurate or revisionist history (which the startup sector is full of), but in any case it is sometimes for the best that the VC firm doesn’t make the call on when to sell. A lot of big independent public companies would not exist if VCs made the call on when to sell. However, that is really only true when the investment is a breakout success. There are many venture portfolios (ours included) full of good but not great companies that would be best sold to a consolidator so that everyone, the entrepreneurs, the employees, and the investors can move on to other things. That doesn’t happen as much in VC because no one person can make this call all by themselves.

4/ Private equity firms are great at digging into the business and figuring out what is broken and how to fix it. We don’t do so much of that in the VC business. For one, the CEOs feel that we are being disruptive when we do that. And also, VC firms don’t normally have the armies of associates and junior partners who do that work in private equity firms. I’ve watched a private equity partner engage in a minority growth investment and I am impressed by the insights they can provide the management when allowed to do a deep dive on the business. VCs often lose interest as a company grows and turns into a big operating company, when this kind of “consulting” work is most valuable, whereas private equity gets its juices flowing on these sorts of situations.

I’ve come to realize that I need to be more attentive to this phase of a company’s development because our returns mostly come from the big breakout companies and if we can help make them 2-3x more valuable (as a private equity firm would seek to do), that can drive our returns on these big winners from 50x to 150x. And that’s a huge difference. So while I don’t see myself equipping myself with an army of analysts and consultants and doing deep dives on our biggest companies, I do see myself trying to ask harder questions and force more instrumentation into the businesses so that the boards I am on can add more value.

The main thing I’ve come away with from this several week long rumination on private equity is the value of having very clear lines of responsibility, crisp decision making, clarity of who is calling the shots, and, mostly, a deep feeling of ownership and responsibility for the businesses we invest in. It’s not possible for one VC partner to do this for more than about eight to ten companies, and most VCs take on way more portfolio companies than that in an effort to scale their businesses and get to better economics. But I think we can learn a lot from what works so well in private equity. I think we can borrow some of their tactics to produce better outcomes for the entrepreneurs we back and the companies they create.

#VC & Technology

Comments (Archived):

  1. William Mougayar

    That sounds a bit like what Benchmark/Bill Gurley advocate. I’ve heard him say several times that they roll-up their sleeves and work with the entrepreneurs deep.

    1. fredwilson

      Benchmark is as good as it gets in the VC business

  2. Jordan Thaeler

    All great points. Here are some others worth noting 1) PE has much better returns than VC for much lower risk 2) PE admits it’s PE; they don’t tell entrepreneurs they’re “venture” when only taking PE risk… that’s disingenuous at best. VC is going through another transformative cycle where it’s trying to figure out where it truly belongs, just like the early 90’s were full of investments in brick and mortar service chains. The VCs that earn superior returns do no “pattern matching” and are truly taking risks on what they think the world will look like in 5-10 years. Have to love Andreessen and Suster for the stones.

    1. fredwilson

      The stones?

      1. JLM


      2. Jordan Thaeler


    2. LE

      Well if said stones are so large then they should try to bet that entire ranch and see what happens instead of an amount that isn’t going to break them if they are wrong.Like saying “love that asian guy that has the stones to bet $100,000 per hand at the casino”. If it’s money that he doesn’t have to lose then he is stupid. If he is worth $900,000,000 then it’s simply entertainment, not stones.

      1. Jordan Thaeler

        It’s mostly relative, yes. But compared to other “venture” firms who do not invest in early stage but love to waste founders’ time, they are aggressive. If you REALLY want to find some ballsy people look no further than the original oil barons who would risk everything for an asset-intensive gamble.

  3. Paul Rubillo

    Bit of difference in the approach of how business opportunities are seen. PE tends to use a slash and burn approach in a decent amount of deals they pursue. VCs want to grow all day long. Mindsets couldn’t be more opposite I’m feeling.

  4. Justin Kaufenberg

    I think that this is a flawed argument. PE can be effective being “deep” not because they are a specific sector expert, but because they are broadly a business efficiency expert and with businesses at that scale, you have enough critical mass to find and execute against meaningful inefficiencies in both operations, financial leverage etc…In the VC stage business, the value comes less from operational efficiency and more from sector specific expertise and maneuvering. I don’t see a VC being effective operating like a PE partner specifically due to the subtle, but enormous difference.

    1. Carlos N Velez/Lacerta Bio

      Exactly right. PE and VC are apples and oranges. I’m not convinced your average VC who came through the ranks in the VC world can then turn and become an “operator” via the observation of VC-stage companies.

      1. Twain Twain

        If you’ve never driven or made a car but have sat in the passenger seat, would you be able to drive the car and do production line work?No.

        1. tobias peggs

          I think this is a key point. I love the idea of the VC adding value – startups are hard, and you want all the help you can get! – but i’d much more appreciate the input from someone who has previously been “in my shoes” as an early stage VC-backed operator. True, smart VCs will pattern spot across their portfolio – and that can be incredibly helpful at times. And smarter VCs will ask the right questions that force you to think about the right answer. I love those! But until you’ve chewed glass while staring into the abyss (which is how a friend of mine describes running a startup – and i concur!) I think it’s hard to relate and provide the right advice at the right time, most of the time. Maybe there’s a role for ex-startup CEOs at VC firms… before they jump into being a partner, they can spend a year as a super-mentor to portfolio COs. Think of it like the Techstars mentor model – but as a value-add service to portfolio COs. Comp could be proportional to valuation increase (or some other metric to account for impact). Maybe…?

    2. PhilipSugar

      I would say a huge piece of PE is milking the hidden brand equity of a company. You can take a Home Depot or a Sears and treat your employees and suppliers like shit.Your customers will still keep coming……for a while because you have a good brand.Until you don’t.And rebuilding that after you’ve torn it down is harder than building it up in the first place.

      1. LE

        I think it has that reputation (in popular culture) but I wonder if anyone has actually done an analysis of Pe deals to see the percentage that actually get milked in the way you are describing. Is this merely something where we are aware of some of the ones that fit the mold vs. the reality? Where there is smoke there is fire? My gut bias says that you are right. But then again I made my own comment about the maturity of the people that VC invest in without fully knowing how many David Karps are out there vs. investments in Genentech’s.

        1. PhilipSugar

          Well I think I am counter and considered unpopular at Wharton for this opinion. I will be going to Dr. Hamilton’s retirement lunch this Sunday.Dupont in my home state just fought this back this week.I am not going to argue that non founding management many times milks the company just as bad.But if you are a founder and somebody wants to help run your business that is great.But get paid cash. Then share in the salary and the upside. Sometime I will host a lunch for people that have been burned.Had a great talk with a guy from AZ that has a really unique business that sold out part of his share and is now really hurting, because the PE guys only want money and don’t want to grow the business.I have been there both ways. It’s ok if you took all your cash off the table. If not it really sucks.

          1. Gustavo

            If PE guys “only want money” ( not materially different from VCs who only want to exit ) can’t there be another PE firm willing to buy them out and take over the risk of growing the business at that later stage ?

      2. Joe Cardillo

        As an aside, while I don’t know know much about PE I’d agree….and it seems like one of the problems for big co’s is that they don’t have a formula for understanding relationship between brand equity and operations costs / bottom line. That’s come up a few times lately on AVC under the guise of social good, but it’s also a reflection of the lack of understanding at the top and why it’s taken so long for Fortune 500s to embrace the value of their employees as representatives for that brand equity. How and why you sell the stuff you sell matters and is more visible than it used to be, and that’s either reinforced or negated by how you value employees, vendors etc.

    3. ShanaC

      I’ve seen huge problems with operational inefficiency with tiny startups. It is one of the things that eats them alive, because operational inefficiency becomes a breeding ground of strategic inefficiency.Many times they don’t even know

      1. Twain Twain

        Success is in the smallest details at the micro-level and strategy at the zoom out Big Picture level. Plus an ocean of luck.There’s a misconception that bigcos are inefficient because of “red tape” and tiny startups are hyper-efficient because there aren’t so many people to go through to green light and execute something.The size of the company isn’t the issue. The intelligence and teamwork of the people involved is the key.

        1. ShanaC

          Oh, yes. I wonder where that conception came from in the first place?

  5. Jorge M. Torres

    This is such a contrarian post. The founders I meet in emerging markets or tech hubs that are not as developed as, say, SV, tell me all the time that they wish the VCs in their ecosystems would act less like private equity investors and more like VCs. A common complaint is an investor demanding majority control for making a very early investment in a tech company. Today’s post is interesting because Fred is suggesting that shifting mindset as a company scales could actually help a VC dramatically improve returns. Interesting stuff.

    1. ShanaC

      are you surprised?

      1. Jorge M. Torres

        In a sense, yes, but in a good way.

  6. Jack Sinclair

    Really interesting comparison and post. Makes me ponder that as companies scale, the PE tactics around measurement requirements and strategy can become more useful. But early on, not so much as the problems are so unique to the company. I suspect that every company has a different inflection point when a PE-type assistance can become helpful.

    1. fredwilson

      Yup. Very true

    2. Vasu Prathipati

      Jack! good to see you via AVC comments and great point.In this post, what really resonates w/ me is the belief that VCs should focus way more on helping their existing companies than trying to source new deals.It’s like the best b2b/enterprise companies believe more value can be driven by growing the relationship with their existing customers instead of hunting for new ones. The same goes for VC.

      1. Sam

        How many boards per partner may be a good indicator of how helpful they have the time to be

  7. William Mougayar

    The thing is not every VC can act and be like an effective consultant. Having been one for a long time (and still in that thinking mode), consultants develop an ability to quickly analyze the situation and hone in on the problems. Time is critical. You need to figure out what’s wrong in as little time as possible. Then you present the issues and ways to solve them + implementation, etc.

  8. JLM

    .Most VC investments are made in embryonic “businesses” while most PE investments are made in “going concerns.”Huge differnce.VC and PE skills are driven by this also. Difference between a chef and a cook.Feeding a dinner party? ChefFeeding the masses? CookJLMwww.themusingsofthebigredca…

  9. pe_feeds

    As someone who came from the PE world and is now in VC, it’s refreshing to read a great piece like this. I’ve known and worked with a bunch of PE execs who have worked deeply with their portfolio companies.

  10. Tom Evslin

    I had a hard lesson recently in the difference between private equity and VC firms after naively assuming that PE was just VC with a couple more zeros (which is what I needed to raise)..”What’s the downside risk?” the PE partner asked me. I was amazed even to get the question and dodged somewhat by listing risk factors.”WTF?” I asked our investment bankers afterwards. “The downside risk is that they lose the money they invested; what do they expect?”The banker explained to me how wrong I was. “VCs only need a batting average,” he explained; “PE firms need a fielding average. One wipeout can ruin the return on a whole fund.”Suddenly I realized why PE firms didn’t listen to my exponential growth story. Unlike VCs, they aren’t in a hit business. They can’t afford CEOs who are swinging for the fences; they need singles and the occasional double. That’s their business. To appeal to PE firms, we would need a much more conservative business plan – which we could’ve done but didn’t want to.Fortunately I didn’t have to lower our sights. We got offers from a few strategics who had the added upside of synergy with their own business and a more working-level knowledge of the risks.Board member wise, I hd the good fortune to have Fred on my board in a company that was VC-funded. That made a huge difference but not sure I would generalize that to all VCs.

    1. fredwilson

      Thanks for the compliment Tom. I learned a ton from you. In fact i think i got the better of that trade. I need to get an update from Joanne about your business. Sounds like its going well

    2. Dasher

      This also explains the PEs filling late stage gap left by companies not going publc for a very long time. Perfect for PEs- low downside risk and good rewards.

    3. TxnByBrth

      Great additional insight…thank you. fp

  11. iggyfanlo

    FredI agree with all the things that you say, but I think that you omitted one of the biggest differences; value versus growth.VCs are driven by large addressable markets, sacrificing profits for growth… makes sense when you are looking for 10-100X returns on single investmentPE is driven by obscure, forgotten, less fashionable high cash on cash returns businesses where small operating margin changes and leverage alone can make or break an investment. They generally scarific marignal growth for profits

    1. fredwilson

      Great point. But what lessons can intake away from that one that would be valuable to me?

      1. iggyfanlo

        Great question and like most answers depends:1. Partner expertise/ability/interest. Do you have GPs that want and are strong at cutting costs, financial leverage, PE-like abilities, 2. Partnership size and GP interest in managing larger partnership. If you have a smaller partnership and focus on your strengths of finding great teams and investment theses. If you’re interested in building out larger partnership with more expertise (e.g. Sequoia) and the attendant management structures and size, then different path3. If your core is VC and you want to remain that way, then I think the most valuable lesson is to cut losses; when investments go sideways or run aground, take a very hard look and draw a very hard line… probably best to get out and absorb the loss and not devote the inevitable huge time and resource drain… for all considered… you allude to it in your post..I realize that you need to be human, dependable and fair, but if you set the right expectations early on, I believe it’s possible to honor your commitments and maybe run a larger fund, invest in more great cos, make a greater contribution, but stay the same size.. perhaps that’s pie in the sky:-)

      2. Alex Iskold

        I think you / USV particular already too a huge lesson from PE — capital efficiency. And thank you for drumming this beat, I think NYC tech scene is better for it because of you.

      3. Eric Satz

        Don’t think value v growth matters from a lessons learned perspective because you can never apply the financial engineering and cost cutting to startups that PE firms apply to the cash flow positive companies they LBO.However, VCs should more frequently act like they can’t afford to lose an investment. This doesn’t mean meddle in day-to-day operations. Pay close attention, be involved early, question and support your founders, help (don’t force) them to hire senior team members, guide them away from desperate decision-making and mistakes you’ve seen in earlier movies with bad endings, and keep them focused on the opportunity you invested in, unless it becomes clear to all that you are focused in the wrong area. If there is a problem, by staying close you have a better ability to assess the problem independent of the founder and to act accordingly.

  12. Mohan R

    I think it also speaks to make up of the VC partnership and similar to the musings of Fred and Mark Suster from earlier in the winter. A good VC either has on their roster, or quick access to the Entreprenuer who went from 0-IPO and can talk about the paths to the road, the VC who has seen thousands deals and understands markets and dynamics, and the operator who can dive in on problems and questions. These people can be at a variety of levels and role titles but it the ability to quickly activivate and engage that is unique.

  13. William Mougayar

    3 phases of VC-CEO relationships:1. Seed to A: Mentoring/Light interference.2. A to B: Supporting/Opening doors. 3. C & beyond: Consultative.

    1. Nicholas Osgood

      I would say that Supporting/Opening Doors falls in all rounds… almost even more so in the Seed to A.

    2. Twain Twain

      Funnily enough, I believe it should be this:(1.) Seed to A: Investor should be most hands-on. It’s like our parents are ultra-careful when we’re babies because we can’t walk, talk and take care of ourselves. It’s also instilling values and discipline so we have a secure base to develop from.(2.) A to B: Leveraging networks and securing us partnerships. It’s like when our parents take us into school, the doctors, the dentists etc. and teach us how to trust in the services and advice of others.(3.) C & beyond: Consultative. It’s like when our parents trust that we have the responsibility to go to pajama parties, go traveling and choose what college and career we’d like, and let’s us GET ON WITH IT.Of course, some founders hate the idea of investors being hands-on early.And some investors don’t have the nous to be operational at the most precarious time in the startup’s life.Founder-investor fit that returns ROI factorially N times is one of those arts that the best PE engineering can’t account for — disciplined and deep as their analysis may be.

      1. Donna Brewington White

        I guess (1) depends on the expertise of the investor.But I have often wondered if there weren’t some founders out there who would have been more successful and/or successful sooner with some of the type of support offered in a PE environment, but with the risk appetite of the VC environment.The survival of the fittest argument could be used I suppose but I’m not sure that is always the case in startups where there are other factors such as runway, timing and even luck.

        1. PhilipSugar

          No I really disagree. If you want to run my business buy it. See my other comment. Buy it for CASH. If you want me to stay after you pay me my cash, I take the same salary you do and get the same carry you do, otherwise I am a dope. (and I have been a dope)

          1. Donna Brewington White

            So I will defer to your experience every time. Unless I have a comparable experience to draw from — which I do not. I’m thinking of this from the standpoint of the support aspects of the PE model, not actually taking over/running the business. Am I dreaming that this type of support is possible without taking over?

          2. PhilipSugar

            Once you have the “support” you run the business. Unless you are just saying help with recruiting etc. Which Union Square brand does.Hey no tears but it is like M&A. There is no such thing as M (Merger). Teresa and I really agree on that. There is A (Acquisition) or some sort of screwed up relationship.When a PE person comes in they buy the shareholders out for cash. More cash than what the company was publicly traded, and we can cry about that, but it is what it is.When they say we will let you take a “bite of the apple now and grow the size of it” (cannot tell you how many times I have heard that) I would post my translation, but it is not appropriate.

          3. Yinka!

            True, there really isn’t any such thing as merger; only 1 side gets to hold the whip.

          4. vallenatobog

            the VC do not want to run the business , just to help and give you advice

        2. Twain Twain

          Yes, not all investors are equal. Many are smart but that doesn’t mean they have the relevant domain expertise to help the founder.Some founders wouldn’t want PE analysts / consultants to be back-seat drivers, especially when the analysts / consultants have almost 0 operational experience of startups.They typically went to B-school, got into the training program of a big bank and may be great at THEORETICAL STRATEGY but that’s different from actually designing, making and shipping tech products and having the knowhow to negotiate with strategic partners and scaling the system from a code engineering perspective.

      2. William Mougayar

        I don’t know about hands-on initially. That screws them up. They need to figure things out themselves.

        1. Donna Brewington White

          But do they need to figure out EVERYTHING themselves?

          1. William Mougayar

            It depends, but they learn better from mistakes. Small mistakes are not lethal.

          2. Joe Cardillo

            Yes….there’s no playbook for exactly how to build, and if you don’t make small mistakes you make big mistakes later

          3. vallenatobog

            Many mistakes can be big and lethal. The VC can help a lot

        2. Erin


        3. Twain Twain

          Some investors don’t have the nous to be operational and hands-on at the most precarious time in the startup’s life.There are lots of people who made money in real estate rather than in technology. Some of them become tech investors and they think real estate is exactly the same as internet space and advise founders based on those real estate experiences => screws them up.Meanwhile, some founders are just going to burn through all the cash because they don’t have and were never trained in the tools that can help them figure it out.They’re engineers who’ve never been to a single finance / business / product design class.An investor with the knowhow can intervene appropriately at the earliest stages and change those situations with much more PROACTIVE mentoring.

          1. ShanaC

            Yes. And sometimes they are engineers who managed to get an exit together and are investing, and are passing on bad advice. That seems to happen more often than you’d thinl:/

          2. Twain Twain

            Right. Sometimes they pass on engineering advice that’s 5+ years out of date and based on the startup they exited rather than where the market’s moving.This is why I make it a habit to go to up-to-date code workshops and hackathons and track what gets shared in the developer community.

          3. vallenatobog

            I like the way you think

        4. Eric Satz

          Not if figuring things out means the death of the company. If you aren’t paying attention early, you don’t know if it is a little mistake or a big mistake that is about to be made. Little mistakes you can address after the fact and make it a lesson learned. Big mistakes you have to get in front of, not behind. And given that VCs often participate in syndicates, this goes for making sure an entrepreneur/founder isn’t being bullied by a misguided fellow investor.

          1. William Mougayar

            There are so many different situations and scenarios that it’s difficult to generalize of course. Young entrepreneurs could be highly impressionable, but it’s important not to overstep the direction you can give them. It’s their company. Your job (as a VC) is to make them better, not to do their work.

          2. Eric Satz

            I agree and understanding where the line is comes with experience, for both the VC and the entrepreneur. Where i disagree is that it is “their company.” More times than not it is their idea. What is unknown is whether they can turn it into a company.

          3. William Mougayar

            OK. Well, they have to (turn it into a company).

    3. awaldstein

      I don’t think interference is a good word.Guidance with friction is the definition of a pain in the ass investor in my opinion.We all want investors of two types–those who participate and those how don’t. Both provide capital. You don’t get it that way usually but that is always the goal.

    4. pointsnfigures

      Supportive and opening doors is critical at seed stage. Especially for finding good employees, helping find product market fit, and finding potential sources of revenue.

  14. Guillermo Ramos Venturatis.com

    I think that every one has to stick to what is good at. So if you have been succesful as a VC and have learnt best practices on some of your portfolio cos. then is ok to translate those to your next Fund. In any other case, without that expertise maybe is not such a good idea.

  15. Joseph Burros

    This is a good post! Bravo! Brings up a lot of interesting thoughts. From the founder/CEO side of the table, it would behoove me to be quite aggressive in getting expert advice from my investors. My guess is that CEO’s don’t rely on investors as much as they could and should.Also, what about the idea of having skilled private equity people as advisors to the company? Or even as an independent board member? I would think that some of these people are quite amazing at pointing out the weak spots in a company, thereby helping it to be more successful. I don’t think I have ever heard anyone talking or writing about this idea.

  16. Donna Brewington White

    I love this post. I’ve thought about this a lot and drew similar conclusions but of course not with even close to the same depth of insight.We need both the PE model and VC models because each has its inherent strengths and the situations in which it works best. But in disrupting the alternative investment model (which is bound to happen at some point, right?) couldn’t some combination of PE and VC emerge, maybe skewed one way or the other depending on the firm?I know that some VC firms have incorporated some elements of PE — for instance functional operators and talent acquisition teams supporting the portfolio. Are the results coming from these firms any stronger than the others?

  17. Tom Labus

    PE needs substance and mass to operate. VCs need ideas and concepts. Two different worlds to me.

  18. Donna Brewington White

    One of the reasons I was drawn to AVC is that you were one of the VCs who seemed to embrace some of the best of what I observed in the PE model. It doesn’t surprise me that you’ve been having these thoughts and perhaps want to take it to another level. I will be very eager to see how this continues to play out in your thinking and actions, and how this might influence the VC industry. In the end, this can only benefit the startup ecosystem and produce more successful founders/companies.

  19. Alex Iskold

    PE is basically a fixer upper based on a patter recognition. Its a formula that most often makes money by saving money not by generating new wealth or acceleration. Its a disciplined clean up.VCs greatest returns come from unpredictable, most of the time very new kind of businesses, a real blue oceans. Founders who operate them are not doing it based on formulas but based on gut and magic. Discipline too of course, but mostly vision and drive.It does not seem the same to me.I am very new to this but I realize there is no formula. There are patterns, but each business, like a person, is each own thing. I don’t know if it can work if VCs made more operational business decisions.

  20. PhilipSugar

    I hope you don’t learn too much from PE people. Some of my Wharton classmates who I will see this weekend at our reunion are PE people. I have said they would sell their mother for 100 basis points. I was corrected. The proper amount is $.50So if you think you can increase your returns by getting into the business by 2-3X you are kidding yourself. Buy the business and run it yourself.As a matter of fact I would caution any entrepreneur that way too many VCs think they are PE people, and when they do this you need to make them act like it.If they want to push you out or get in your shorts have them buyout your entire position for cash. Straight cash money. No bullshit, no we bring in this new CEO, and put this to the next level, etc. CASH. and you leave.If you want the keys to the house buy it. Run it do what you want with it.I really disagree with this post.

  21. Richard

    I just done see any evidence that VCs have the discipline to 3x companies in 3 years, after 10xing those same companies in years 1-7.

  22. Twain Twain

    “If you have done the work to truly understand the business, the team, the market, and the opportunity, that you can by force of intellect and will have a very substantial impact on the business.”THIS. I think Fred is already one of the most hands-on VCs out there. Evidence? He actually uses the technology USV invests in (sometimes successfully championing it to AVC community and converting us; sometimes getting total resistance) and goes to events where the “talking head VCs” don’t go — like hackathons of high school kids learning code. That’s already several layers of additional insight, intelligence and potential impact on his investments ahead of other VCs.Diving more deeply (more full-stack) gives ROI in different ways.My manager at UBS decided that as well as Strategic Investments we should do something in Private Equity so he dispatched me to deep-dive secondaries and alternative investments.Fast forward a few years and UBS had the #1 ranked secondaries team in the world because of his force of intellect and will. He was a Mgmt Consultant before he became a banker so PE fits him perfectly.I’ve now done the investor <=> startup cycle twice (hedge fund => data startup (exited) => strategic investments + corp strategy + PE projects, UBS => VC (Series A) => startups) so have some idea about instrumentation and their differences.It’s possible I’ll loop back to investor again since, periodically, hedgies approach me. The most recent one was to create a fund of hedge funds for Art.Every finance person I know thinks I’m “mad”, by the way, for doing grassroots startups when I could do investment (a safe distance from the searing volcanos and torture racks that founders brave every waking second — worse than Elon Musk’s “Being an entrepreneur is like eating glass and staring into the abyss of death.”).Founders, VCs and PEs are operationally different. Even the numbers each one focuses on are different:* Founder = signups, traction, runway, PPC, conversion* VC = dilution, upside, exit value, N times return* PE = any metric that affects a leveraged buyout / management buyout / M&A / riskThat’s before we get onto process disciplines like founders have to understand UX flows and product design as well as (hopefully) be able to code so they can direct engineers to measure and tweak the features.Meanwhile, VC has to understand their own investment criteria and how it invites / excludes founders, how to enable rather than restrict founders and how to cooperate with other investors (up and down the chain: angel => institutional).PEs typically aren’t hand-holding novice founders like VCs are. They focus on capital budgeting (WACC, annuities et al) across all the constituents of a portfolio. Plus comprehensive SWOT of the players in their constituents’ space.Much kudos to Fred for his commitment to continuous learning and enabling us to also learn and improve.

  23. SamuelHavelock

    We often attribute early stage failure to the risks associated with the fast pace of technology and the markets…but what if the idea is all wrong? What if the high failure rate is simply a function of resources misspent and leadership not executed on the learning curve? The reason I say this is because I captured an interesting observation from the MD of Trendlines, an Israeli technology accelerator. He told me: “We are generally not worried about technology risk, the risk is we control for is execution risk” “and that is exactly why we lean in so heavily right from the outset on any and every company we make an investment in.”

    1. Joe Cardillo

      I read something a few months back from one of the YCom partners (I think it was Aaron Harris) about cofounder mgmt. He was basically pointing out (in my opinion) that they work with and fund people with big egos that don’t play well. Obviously some on both VC and entrep side interpret that as the cost of getting people willing to take big risks that could payoff, but there’s a lot of wasted money and resources early stage because of that attitude. I say wasted because when you get down to tacks no one who visits this or other similar blogs will say they can pick billion dollar co’s at angel or seed, or maybe even series A. Even VCs I’ve talked to lament the middle ground where a bunch of good companies get pieced out or fail because it’s not immediately obvious they’ll be worth billions. *queue the AVC long timers to say “that’s how venture capital works and it’s only one way to go”* and they would be right…

    2. Eric Satz

      I think this is spot on. If VCs would pay more attention to actual performance relative to the story they invested in, the VC industry as a whole would experience higher batting averages and the homeruns would still feel as sweet. Key to this approach is making certain those you are investing in know what kind of involvement you will provide in return.

  24. LE

    The “not get involved” is the thing that probably annoys me the most about VC and the thing that I like about private equity.But there is a reason for that “not get involved” (and forgive me since I stopped at your point #1 to make this comment so perhaps you address this later). The reason is because how much can a VC get involved if there are a dozen other investors or VC’s who will share the benefit of the “hard work”? Why should one firm do so much of the heavy lifting to make things better, when they will not get the lions share of that benefit other than a “thanks” from the other investors. Doesn’t appear apparently to be a good use of time. Of course you pullout your rolodex and hook them up when you can. Of course you are on the board and help out. But honestly you aren’t going to be able to really help selflessly like you would if you were the only one to benefit (or if you were a parent). And that makes sense.This is really similar in a way to why a real estate sales (as was mentioned in a book and quite obviously) will work harder to get top dollar for his own house vs. your house. If he gets $100,000 more for his own house he keeps the $100,000. If he sells your house he ends up with between $1500 dollars to $3000 dollars more (roughly approximate depending on other agents, the house and so on).I run into this as well with the condo board that I am on. There are 55 other owners. I put in a great deal of effort mainly because I enjoy doing so. It’s fun. It has to be that way. I could never rationalize all the time that I spend improving things and saving money because that is shared with 55 other owners. I am not a schmuck.VC is about making money. Consequently you can’t rationalize “having fun and enjoying what you do” you have to look at it as a business transaction that has to have a time value benefit and not just even a marketing benefit.

  25. LE

    Also private equity is typically involved with mature adult businesses. Right? Not, quite frankly, young and sometimes inexperienced know it all millennials. It would frustrate me to no end to have to stand back and deal with that attitude. (Not saying that is the case with all VC investments obviously but let’s face it there are more David Karps then there are Genetechs. See: http://www.gene.com/scienti…On a recent Shark Tank Mark Cuban with his investment in a clothing business (was on Beyond the Tank) dealt with this. He told the business not to completely redo their website but to focus on other things. They decided not to heed his advice. He even said “so you are telling me that you know more than I do with 35 years of experience” or something like that. But they were stubborn and decided to go with their gut. To me it doesn’t even matter if they are right and Mark ends up being wrong. It’s simply stupid to not take the advice of someone who knows more than you do unless you can point out the flaws of their argument (which was not the case here). I would have clubbed them like baby seals at that point ….

    1. Twain Twain

      By know it all millennials do you mean Lucas Duplan of Clinkle?* http://techcrunch.com/2015/…I wonder what PE investors could have taught Clinkle’s VCs about downside risk.

  26. Carson Biederman

    Having spent time as a VC but being a private equity investor for most of my career, I think this is a really interesting topic.One other important things that I think that some venture firms can take away from private equity investors is a focus on capital efficiency. Due to the predominant model of a handful of winners driving the performance of venture funds, I think that companies tend to get over-funded to support the potential for achieving scale quickly, creating distance from competition and creating the potential for big winners. In most cases, the break-out growth doesn’t occur and large amounts of invested capital become a major impediment to achieving good outcomes for both investors and employees at modest exit prices ($50 to $250 million), which are much more typical than home runs. This is why I think that the risk / return in the venture asset class as a whole is not good for employees. I have read your perspective previously regarding being efficient with capital as a young company and very much respect it, but think it is unusual among many firms that would be considered to be top tier investors.Thinking about the opposite direction, there are a number of things that I think P/E investors can take from venture investors:- A focus on customer need and source of competitive advantage in evaluating companies . Many P/E firms focus much more on market drivers, financial trends and identifying efficiency opportunities in their evaluation of businesses, believing that because a company is mature and has scale, they must understand their customer or have a competitive differentiation, which can turn out to not be the case- Fostering a culture of testing and acceptance of failure in support of business innovation and improvement- Developing investment theses and pursuing them pro-actively . Partners at private equity firms tend to have industry focus areas but often don’t develop an investment thesis to purse with conviction. I think that there is lost opportunity / inefficiency in spending your time associated with not doing this

    1. Alexey Sidorov

  27. LE

    that you can by force of intellect and will have a very substantial impact on the business.But force of intellect does not overcome inexperience, irrationality, stubbornness, immaturity and human nature. [1] If it did people wouldn’t marry the wrong spouse and men wouldn’t cheat on their wives (and vice versa). This is not to say that you shouldn’t try (I would for sure but I like an uphill battle even if rationally I know it is a waste of time because I have been intermittently reinforced on past uphill battles.)[1] I stopped there but could add more to that list.

    1. Twain Twain

      Force of intellect also doesn’t factor in the personal chemistry between founder-investor which either makes ROI 50x or makes the startup go pear-shaped and in a firesale for a $1.Force of intellect and will power are great utilities, though, when it comes to the strategic and financial engineering of the PE portfolio.

  28. LE

    The main thing I’ve come away with from this several week long rumination on private equityI loved loved loved loved this post.I feel bad for you though because it almost sounds like a mid life crisis as if the engineer/businessman in you wishes that he could do more to get involved and nurture the company, but knows that “this is the life that I have chosen but now I can’t go down that path”.My daughter was telling me this morning how well she did in her first finance class, and now she has an internship in finance this summer in Manhattan. I can now live vicariously through her because even though I went to Wharton I didn’t take advantage of finance (the strongpoint at Wharton) and that is my “midlife crisis”.

  29. pointsnfigures

    However, as a counterpoint. PE levers up buggy whip factories while VC builds the future. I totally agree, VC should add value-especially at earlier stages. It makes for outsize returns. PE guys don’t think like VC guys though. If you’d have shown them Twitter, they would have rather seen a newspaper play.

  30. Matt Zagaja

    In a way isn’t this already occurring but in an open manner? For example all the work the Etsy team does on page speed.

  31. Alexey Sidorov

    An extent of VC’s participation in portfolio companies activity depends on a strategy of a fund. As it was mentioned in the post, the majority of VC firms have too many portfolio companies and partners can’t contribute enough time for a value creation to each of them. The strategy of making “hundreds” of investments consists in extra-return brought by one-two companies, so there is no necessity to dive deeply on each one.PE approach is the other way to reach an “average” return and mostly fits a small VCs making several investments.

  32. stefano zorzi

    I have seen both sides. I didn’t like the absolute objectivity of PE, so ebitda focused that anything intangible (like employee morale) means close to nothing. A lot of culture been wiped out, especially in previously entrepreneur-led businesses, often detrimental for the long term. In venture on the other side there is a tendency of thinking too binary, either it works or it doesn’t, and that can create a certain sloppiness in the details – but they mean so much.

  33. Matt Kruza

    Other major difference: Its plausible to argue VCs add value and are net positive to society (plausible, and marginally true, but not a slam dunk case). At least 90% of private equity is bull shit…aka a drain on the overall size of the economic pie. The only private equity deals that would happen in a fair market would be distressed debt / turnaround situations. And this is what private equity was more of (primarly from what I understand) before the bull shit LBO became standard in the 1980’s. Fred addressed this by calling it “financial engineering”, but that does not do justice to how junk bonds, insane leverage levels (due to implicit / explicit guarantee of the financial system in the US), and deductibility of interest on debt, accounts for majority of alpha (if any alpha really exists) in the PE world. PE is up there with most investment bankers as pure leaches as societies. I have many friends in both worlds and when 27 year olds can make $150-300k I can’t blame them (although you can argue you can because I left those worlds, which I had pretty good paths in and a strong skillset to do what I actually thinks makes a difference in the world), but ultimately the govt. has enabled these and then raiders / bums in private equity (the KKR’s, the mitt romneys, the swartzman’s of blackstone etc.) have piled it up. TLDR: Private equity is CERTAINLY value destructive to society, but someget super rich in the process.

    1. PhilipSugar

      On this you can see we totally agree.

  34. Cesar Mufarej

    That is a very interesting topic and great post. I can definitely see that PEs are more aligned toward finding operational inefficiencies. However, not all PEs really do their job in this field as they say they do. At the same time Fred noted not all VCs add as much value as they say PEs also do this. Of course there are great examples out there, just to note one I know more, look at 3G capital (investors from Brazil) who have done incredible operational turnarounds in companies like Burger King, Anheuser Busch (now part of InBev). What I see here is that the comparison is valid for the few very best. Average PEs seek much more to add value through financial instruments and that is probably where most of the analyst manpower goes.

  35. Stephen Bradley

    Years ago I helped run a small ($125 million) VC fund that had been carved out of a larger PE mezzanine fund backed by Key Bank. We were actually a part of the larger mezz fund, but specifically tasked with a “venture capital” mandate. As you can imagine, it didn’t work well. I always described our mandate as “Let’s explore some of those venture capital returns, but for GOD’S sake… don’t risk the capital!”. It ended up more like a PE fund doing venture-sized deals, and this was DURING the dot-com boom. My own involvement came directly after the bust and the job became very much operational, working with our portfolio of C and D round deals to get them through the difficult period.During my tenure, we did only one new deal… an impossibly early stage start-up I found called “Savage Beast Technologies.” It was in my own domain of interest, and I loved the passion of the founder. For what amounted to a small 6-digit bridge funding, we bought a substantial percentage of the company. It was a real venture deal. And our LPs, and the larger mezz fund, hated it. I think they let me do it both to appease me and because it was very small. But they hated it, and within the year they got out with their 12% interest, never converting to equity. That’s when I left.Savage Beast Technology later changed its name to Pandora and the rest is history. Had we converted and held the equity, even with subsequent dilution, the stake would have been worth hundreds of millions. The mezz fund never looked back and went on to achieve highly successful returns of its own. But it’s a very good proof-point and example for how PE and VC don’t mix so well.

  36. rafer

    Thank you for this. I’ve been trying to explain to many logistics startups why they are PE deals not VC deals. This’ll help a lot.

  37. george

    Point 3 on “leverage really caught my attention! Generally speaking, private equity investors are overly focused on financial leverage and on many levels, often lose sight of valuable intangible assets – people!My take, the management style of VC’s are more missionary and PE’s are very mercenary. Does it make a difference? I guess that depends on your investment motives but I prefer the VC philosophy – resource the founders, help them change the world for better and hopefully, everyone shares in a decent return.

  38. Steven Kane

    one could argue that in PE, the investors and management teams interests are better aligned. to wit, PE investors/business owners do not dilute management by funding the company – instead they set aside a certain amount of equity for management and protect it from dilution, (that is, PE investors dilute themselves.) in exchange PE investors have much more control (as you point out.) if management is not pleasing the owners, management is terminated. but if management if doing well, and the business needs more capital for good happy reasons, then management is not punished with dilution. as you may recall, fred, i tried to pitch this model to VC investors and was met with bafflement. 🙂

    1. fredwilson

      I do recall. I’m not sure it would work in VC as you and I discussed

      1. Eric Satz

        I think Steven’s point needs to be linked with VCs as minority investors and the answer for improving the overall VC batting average (and returns) lies in rethinking valuation and control provisions. The PE world is far more disciplined when it comes to “bidding” because they’ve identified a winning formula based on known risks. In contrast, VCs have more and unknown risks to contend with than the PE guys and, mostly because of the supply of cash on the West Coast, they don’t currently price deals to reflect this risk. And at today’s average seed valuation, just investing in enough companies is not a winning formula for most VCs.

  39. Yinka!

    I see PE vs VC as Squeeze motive vs Slingshot motive.Squeeze = ruthlessly efficiency aim for operations, extract all overlooked value from mature/fully developed companies. Slingshot = catapult aimed at long shot prize among early/growing companies).Habits aren’t necessarily translatable from one to the other. e.g. Digging in deep and squeezing works with mature companies, where all aspects are known. This is not really possible with early/growing startups because some key aspects are still in flux or not fully established and focus is on adapting upwards. The exception may be the very few fully matured portfolio companies (hence, no longer startups) that VC hasn’t exited from.I also wouldn’t characterize the PE investor’s squeezing out every drop of potential profit as necessarily adding value, especially when steps taken run counter to the company’s longterm viability (e.g. taking out profits/cash just before selling it, closing a unit without accounting for value it added via its synergy with other units, etc).

  40. Irish

    Very informative post. Startups will surely learn from this.For startups who want to validate their ideas within 21-days, join our bootcamp now at: JFDI.asia/discover

  41. Zysman

    Fred, if the public&private market would merge (difference would be only in companies’ disclosurs), then so do the private equity and VC might eventually merge too.

  42. Chris Albinson

    Fred great post. We learned a lot at the JPMP table. Playing not lose is very different than playing to win. I think are lessons to be learned from both businesses, but not all of them translate. For example. The time/risk/work investing in the #3 player in the space at a cheap price and trying to fix it may work in PE at scale, but is almost always a disaster in VC.

  43. Rajiv

    Fred, great post. I’ve been a VC and a Founder. I’ve often found a bigger parallel between a VC and a Value Investor (like Berkshire) than a PE firm. I think a VI thinks more like being a custodian of a portfolio company and not necessarily a manager. VI tries to help in areas that the CEO may not be as skilled as the VI – like excess capital allocation – rather than in the core areas of the company. Curious about your thoughts on VI vs PE parallels with VC

  44. JD Carluccio

    “So while I don’t see myself equipping myself with an army of analysts and consultants and doing deep dives on our biggest companies, I do see myself trying to ask harder questions and force more instrumentation into the businesses so that the boards I am on can add more value.”Trying to add my 2cents. I came from a consultant firm, to later become board advisor of my clients, to later make angel investments in the same companies. One lesson I learned, is that you don’t need an “army” of people to “go deep” into the company. The way to simplify the consultant part is to have a constant conversation with the entrepreneurs. Is not only asking the “hard questions” but to also to modify the questions as time passes to see how the answers evolve. I always tell founders that if I need to ask for “investors updates” then I’m doing a bad job. The idea is to have a constant and continuous conversation. The only weak part of moving my consultant skills towards angel investing has been the analytical part. It’s hard to try to understand different sectors and niches. I have been complementing by calling someone that I know are “in the market” and asking them for their opinion. This has a lot of issues (privacy, bias, competition,etc) but so far is the best way I found.

  45. Nick Normile

    What’s interesting is that we’re seeing more and more private equity investors dip into the growth equity space in the past several years. Many PE investors look for “value investments” which are almost nonexistent in today’s market and so they’re realizing that they need to expand their strategy to maintain robust returns (i.e. make earlier stage investments, take less control, make more investments).Nowadays it seems PE guys are taking more after the VCs!Great post, thanks for writing.

  46. Venture Club

    Really interesting post Fred, thanks. I think you make a lot of interesting observations and insights and I thoroughly agree with the underlying sentiment.A couple of points to come back on. Firstly, i think it’s tough for generalist VC’s to provide anything more than general financial advice + capital to businesses that they invest in without being experts in the sector. You can’t learn a trade over night and you can’t therefore expect to be able to make informed trading or operational recommendations to the investee with no prior experience to reference.I believe that those VC’s who specialise in certain fields because they have come from those fields themselves and can demonstrate success there are the most valuable at the venture stage. Sure, solid corporate finance experience is a given but I think the future VC successes will be ex-practitioners and not ex-Wall Street / City Boys. Experienced operators from a given sector know inherently what emerging busineses are likely to succeed in their space because they can ask themselves a simple question, “Would I buy this product/service in my old job?”. If the answer is no, never, then rounds of due dilience and associated costs are saved. If the answer is not at the moment, then a roadmap might be built that the investment would then be contingent to and built into the investment terms. If the answer is, yes absolutely, then it might just be the growth capital and not the seat on an executive board that is required for that investment.Either way, if a VC is willingly investing for a minority share in a business where it knows the CEO to be weak or inexperienced and the terms negotiated contain no provision to replace that individual or significantly influence executive decisions, then that’s probably a bad investment – no matter whether you’re a PE or a VC.Pete

  47. oliviaralston

    I found this post and the comments really interesting, and wanted to chip in with a corporate perspective on it. I do strategy for a traditional media company undergoing transformation and with, nominally, a digital-focused growth strategy. We have internal cultural and strategic tension around these 2 perspectives: the PE outlook and mentality on the legacy business side and the VC outlook and mentality on the digital/growth side. Both completely valid for their businesses but which should prevail? We are part of a public company with quarterly earnings targets that pushes us towards the PE mentality, contrary to our stated strategy.

  48. BostonBizPerson

    Fred before you take your own post to heart, please also compare the PE CEO against the Founder. They are also quite different. If you treat a VC portfolio company more like you are the owner, which is what most of these suggestions entail, you disenfranchise the Founder from ownership. The PE guys don’t care because they only buy companies that have become exercises in execution and so the management is fungible. But nobody can take a blank canvas and paint a Picasso except Picasso. That is why PE guys are number crunchers first and EQ second. VCs are EQ first. The special sauce of what makes a VC great is the ability to have a team working partially for you while still feeling that they are working mostly for themselves.

  49. James Murphy

    Terrific self-reflection

  50. Michael Brady

    I certainly think that there is great value from applying Private Equity practice to the Venture Capital space. So much of the start-up cycle is relearning much is what already is know. As a venture capitalist then you can recommended best practice so that startup firms remain as lean as possible. I think a VC can provide ovesight and advice on topics so as:-Release Management / Customer Support / Software Tools: Industry advice so that young entrepreneur are not making the same mistakes as the people that went before them -Problem Solving: Advice from a VC based on portfolio company experience or previous firm that a VC has worked with

  51. Morgan Brady

    In your talk with Mark Suster on his Both Sides TV you advocated that start ups should focus on product and not focus on revenue – “It’s not about the money”.Conversely, PE firms often financially engineer portfolio companies to maximize for profitability. “It’s all about the money”.You mentioned doing deeper dives into your big breakout portfolio companies in an effort to create more value. Given you new exposure to PE industry tactics, how do you contrast these strategies when applied to later stage VC-backed companies?

    1. fredwilson

      Better product execution leads to more revenue

      1. Morgan Brady

        Thanks Fred. In the same interview you touched on a concept that I have been considering recently. You suggested that people that are good at launching and then growing companies should make a career of doing just that and create a portfolio of 5-10 companies.Over the past 5 years I’ve built up my first company. The business is now 8 figures of reoccurring annual revenue, healthy margins, 50+ people It’s been an amazing experience, but for the past 6 months I have been itching for a new problem to solve!I thought there was something wrong with me but hearing this serial entrepreneur concept from you was a reassuring confirmation that I am headed in the right direction. I have my sights set on a marketplace to provide manufacturing and distribution services to the hardware industry.I just discovered AVC but like the content. Thanks

  52. Saurabh Mandar

    While I agree in principle, there is a very fundamental difference between a VC and a PE firm.Think of the “Value add”, which could be money, operational support etc.. anything that the firms promise to deliver – as the product being offered. Now think of the startup (or its founders) as the customer.Now, the needs of the customer evolve and develop over time. And thus, the product one has to offer has to evolve and differ over time as well. A VC can offer to provide operational expertise, but if the customer (the startup founder) has not evolved his company from his initial vision – you are going to fall on deaf ears (as you correctly mentioned).The whole idea of a fresh startup, from a founders perspective, is that it is a blank canvas for them to paint and create a masterpiece out of. Yes you can come in at a later stage and fix or improve upon the original (the role taken up by PE firms), you really can not and should not stifle the learning process they go through to reach that stage.We can not think of VC as the same as PE, we must not.

  53. Steven Nargizian

    VCs deserve no more or less accountability than any other type of investor. The risk of any investment should be mitigated by the potential reward of the very same investment, and nothing more. Not the rewards from other investments. Warren Buffett still apologies tohis shareholders for losing money on particular investments, he doesn’t claim to have made up for them with his winners. He’s accountable for each and every investment! It’s unconscionable for any fund manager to claim he or she is “required” to lose money on investments. That’s my two cents.

  54. fredwilson

    This is mostly about my personal growth and development. I would hope my partners would do the same but that is up to them