This was good. I especially like the discussion about the personal and career side of this, which I think is often under-discussed a lot. In the last ten years, people seem to be roughly aware of the gaps in the economic incentives (partly, I think, because people in Silicon Valley love nothing more than to say, "you see, it's a power law"). But I don't think people talk much about how VCs aren't strictly economic actors, and actually make a lot of decisions because of status, career ambitions, and, when they're on boards, because of the personal dynamics (and, it seems, often petty differences and insecurities) with other VCs.
Somewhat related, I just finished this book on quitting things. One of the central themes is that we often quit things way too late, especially when we're in the heat of the moment. One of the things VCs seem have done exceptionally well (for them, anyway) is to play that dynamic against founders, such that they persist well beyond their economic interests. In your $150m example, the rational choice for the founder is probably to sell. But if VCs can create a industry culture where selling then like giving up or losing, you can get founders to keep doubling down.
Great read! I have been thinking a lot about the VC model recently. Specifically I have been kind of obsessed with software backed IT service companies. Many have been around years and years - charge more than most SaaS companies could imagine for their software/service combo - and they seem to be doing quite well from a cash flow and EBITDA perspective. AND frankly they aren’t a good fit for venture money because they are often in a niche that limits their size to be never be billion dollar companies. Specially I ran across a company recently that does white glove EDI services. If you don’t know what EDI is... you’re living a good life. But they can charge 80k-150k a year for their software and to setup new connections when you need them on your behalf. Since EDI is terrible to deal with - people happily pay for it. Makes me think I should start a white glove XML/SOAP integration company...
I have a friend who's working on a SaaS tool that's related to Salesforce, and one of the craziest things he discovered when we was researching the idea is that the market for Salesforce consultants is several times larger than the market for Salesforce. If you're willing to slog through that kind of work, it seems like people will pay you a ton for it.
Wow - that’s unbelievable and yet believable… and yes slog is right. I think it’s hard for most people to find something where they get paid a lot and also really enjoy it.
He'll write about it when the guy gets sued and the court filing includes some incredible detail about how the guy had an Asana board for the launch that included the a task called "commit the fraud with the lying."
Benn, great post. You might enjoy this one I wrote a while back that touches on the same issues with a slightly different angle. https://kellblog.com/2011/06/08/interest-misalignments-in-silicon-valley-startups/
This was good. I especially like the discussion about the personal and career side of this, which I think is often under-discussed a lot. In the last ten years, people seem to be roughly aware of the gaps in the economic incentives (partly, I think, because people in Silicon Valley love nothing more than to say, "you see, it's a power law"). But I don't think people talk much about how VCs aren't strictly economic actors, and actually make a lot of decisions because of status, career ambitions, and, when they're on boards, because of the personal dynamics (and, it seems, often petty differences and insecurities) with other VCs.
Somewhat related, I just finished this book on quitting things. One of the central themes is that we often quit things way too late, especially when we're in the heat of the moment. One of the things VCs seem have done exceptionally well (for them, anyway) is to play that dynamic against founders, such that they persist well beyond their economic interests. In your $150m example, the rational choice for the founder is probably to sell. But if VCs can create a industry culture where selling then like giving up or losing, you can get founders to keep doubling down.
https://www.amazon.com/Quit-Power-Knowing-When-Walk/dp/0593422996
Great read! I have been thinking a lot about the VC model recently. Specifically I have been kind of obsessed with software backed IT service companies. Many have been around years and years - charge more than most SaaS companies could imagine for their software/service combo - and they seem to be doing quite well from a cash flow and EBITDA perspective. AND frankly they aren’t a good fit for venture money because they are often in a niche that limits their size to be never be billion dollar companies. Specially I ran across a company recently that does white glove EDI services. If you don’t know what EDI is... you’re living a good life. But they can charge 80k-150k a year for their software and to setup new connections when you need them on your behalf. Since EDI is terrible to deal with - people happily pay for it. Makes me think I should start a white glove XML/SOAP integration company...
I have a friend who's working on a SaaS tool that's related to Salesforce, and one of the craziest things he discovered when we was researching the idea is that the market for Salesforce consultants is several times larger than the market for Salesforce. If you're willing to slog through that kind of work, it seems like people will pay you a ton for it.
Wow - that’s unbelievable and yet believable… and yes slog is right. I think it’s hard for most people to find something where they get paid a lot and also really enjoy it.
And really, one of the two isn't bad.
That’s so true.
I know Cedric and I think his family name is Chin
Proof: https://commoncog.com/author/cedric/
Oh geez, wow, thanks, fixed.
Correction - Cedric Chen is not involved, I guess?
Involved?
It was a joke about the second section of the post, where that person on Twitter issued a "correction" about naval being an investor.
What a piece. So much thoughts resurrected from reading this one. And bookmarked!!
Thanks!
Second section reads a little like Matt Levine
He'll write about it when the guy gets sued and the court filing includes some incredible detail about how the guy had an Asana board for the launch that included the a task called "commit the fraud with the lying."