Something
Ventured:
October 27th, 2000
By Paul Kedrosky
"My
film is not a movie; it's not about Vietnam. It is
Vietnam. We had access to too much money, too much
equipment, and little by little, we went insane. "–
Francis Ford
Coppola (at the 1975 Cannes press conference launching
Apocalypse Now)
Due
to my inavailability and momentary freedom from a laptop
and Internet connection, this week's column is from a
special guest, Paul Kedrosky. Paul is a well-known
technology writer, having written for National Post,
Industry Standard, Wall Street Jornal and others. He
assures me that this will be his masterpiece. He may, in
fact, retire after this article which will cause me to
put the source up on eBay for immediate auction. - Brent
Brent
is away, so let's talk about him. In case you hadn't
heard, Brent Holliday (the normal occupant of this
space) is a venture capitalist. Contrary to what you
might have heard or read elsewhere, most venture
capitalists are surprisingly nice people. On a
train-ride index of financial type companionability,
they rank somewhere between short-sellers and investment
bankers.
Lest
you think otherwise, that's not bad company. The former
group has pride of place, of course. While the net-long
portfolio managers (people who rarely sell stocks short)
get all the press, they're not very interesting people.
With rare exceptions, they're risk-averse and boring,
glorified accountants who spend bull markets wishing
they could be running their own funds, and bear markets
hiding under their desks.
Short-sellers,
on the other hand, are much more fun. Because their risk
is, more or less, unlimited, they are generally a little
nutty - and more than a little secretive. You would be
too if your success depended on running against the
pack, in trying to find a good reason to disagree with
every smart person that you know. But mavericks are
entertaining, and short-sellers are true mavericks.
But
they have to be smart people. You don't get to gad about
shorting stocks for very long unless you know your
market. Not because there is someone certifying your
ability to run money short; no, the market is merciless
about that. It only takes a few short squeezes to bring
you to your knees, heart pumping, skin clammy, and
wondering whether you should have followed your parents'
advice and gotten into petroleum engineering.
So
slotting venture capitalists like Brent midway between i-bankers
and short-sellers seems appropriate to me. They have the
latter group's obssessiveness, and the former's love of
the deal. And the best among them are honorable people.
They think that starting quality long-lasting companies
is an honorable thing. Do that right, they think, and
they will be rewarded. Good on 'em, I say.
Their
ranks, however, were infiltrated in recent years by
carpetbaggers. All sorts of people have shown up in the
venture capital game who really had no interest in
creating companies. Matter of fact, most of these
newcomers (and Vancouver has its share) probably
wouldn't even bother creating companies at all if it
weren't tricky to sell off their interest in some
high-concept notion without having a company as the
vehicle.
But
the jig is up. Business Week, Fortune, and Forbes have
all taken it on themselves to extend the current round
of demythologizing from dot-coms to venture capitalists.
Without discriminating between carpetbaggers and company
creators, they have let fly with all barrels. The anger
is palpable, the sort of anti-VC vitriol usually sported
by spurned startups.
Fortune
magazine ahistorically points out in its current issue
that somehow venture capitalists got deified, turned
into all-knowing, all-seeing market Svengalis. (Neatly
glossing, of course, Fortune's own role.) Now, however,
Fortune says that reverence is dissipating. Thanks guys.
Why?
Demonstrated fallibility helps. The dot-com bust, the
current frail boomlets in wireless and optical
networking - all of these are providing critics with
evidence that, contrary to what they self-servingly
wrote a few years ago, venture capitalists are just as
clueless as the rest of us. They do their diligence,
place their bets, do their frantic hand-holding, and
then they march on - okay, sometimes they skip the odd
step.
Let
me say it straight out: Funding a company is
meaningless. You can rain capital into a company trying
to change the shape and direction of a market, and it
doesn't matter. What you're doing must make sense, or it
is just pushing rocks uphill. Eventually you'll tire of
the struggle, and, unless you're quick getting out of
the way, the rocks will come right back and crush you -
without so much as a "thanks for the push".
Do
billion-dollar funds, a la Benchmark Capital and its ilk
change the rules? Only temporarily, and only in narrow
geographies. Infinite amounts of capital distort market
forces the way that point masses distort gravitational
fields: it is a highly-localized phenomenon - and a
transient one in the case of ever-perishable capital.
Nevertheless,
the media eagerly built venture capitalists up, and now
they're equally eagerly tearing them down.
Technology-glorifying stories needed a deux ex machina,
a ghost in the machine that could provide dramatic
impetus, and venture capitalists played that role. But
it's time we all grew up, time we shook those
superstitious views. Creating companies that last is
about hard work, motivated people, and great ideas.
Capital runs a distant fourth.
It's
time to stop fantasizing and get back to work. Welcome
back from holidays, Brent.
What Do You Think? Talk
Back To Brent Holliday
Something Ventured is a bi-weekly column designed
to supplement the T-Net British Columbia web site with
some timely, relevant and possibly irreverent insight
into the industry. I hope to share some of the
perspective and trends that I see in my role as a VC.
The column is always followed by feedback (if its
positive or constructive. I'll keep the flames to
myself, thanks).
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