Check out this article in the San Jose Mercury news, entitled Watching Their Words: In A Soft Economy Venture Firms Trying To Avoid Hot Air and Arrogance.
“There’s a lot of hot air and arrogance in the business that we all would be better off without,” Sequoia Capital’s Mike Moritz declared before about 700 colleagues. He wanted to banish “useless pontificating in front of entrepreneurs working harder than we are.”
“At Kleiner, we’re trying to watch our language,” said John Doerr of Kleiner Perkins Caufield & Byers. VCs who constantly speak of “deals” and “projects,” Doerr and Moritz agreed, reveal their self-interest and slight the labor and “dreams” of the entrepreneurs.
I love the “useless pontification” soundbite. In running Mark Logic, a Sequoia-backed company, I’ve met Moritz several times. In my estimation, he’s one of the VCs least guilty of pontification in Silicon Valley. In my experience, his style is listen a lot and then make a few insightful comments, much like the old EF Hutton commercial: when EF Hutton talks, people listen. But I get his point; your typical VC can pontificate with the best of them, and probably shouldn’t.
Not to quibble with one my shareholders, but on the “working harder” issue, from my perception the guys at our investors (Sequoia and Lehman Brothers) work very hard. Particularly for people who have already been, shall we say “quite,” financially successful, I’m often amazed by their work ethic. For your “average” VC, I think there is a certain lifestyle play, but I think the article does a good job at explaining the mentality at the top:
“Both these guys, they love the game. It’s not about making a lot of money. They love the game. That’s a competitive edge. They’re still hungry.”
The article also touches on what I believe is a fairly strong increasing-returns factor in venture capital. Basically, once you get a reputation for being good, you see more business plans, entrepreneurs prefer your money figuring you will provide better advice and connections, and therefore the top VCs see more deals and price them more competitively (i.e., at lower valuations) than lesser firms. Here’s the article’s take on the same issue:
“I think the model’s broken unless you’ve got a brand. And that brand is based on merit,” Pennell said. “If it looks like they’ve got the Midas touch, all the best entrepreneurs are going to go to them. Then they do have the Midas touch.”