Rachel Metz in an interview with super-blogger-VC Fred Wilson, introduces the interview with this nugget:

Lately VCs haven’t come close to generating the returns on their investments that made them stars in the 1990s. It’s even becoming questionable what value they generate for society. IT companies are finding it cheaper than ever to get going now that they can rent computing resources from providers in the “cloud.” Meanwhile, alternative funding mechanisms are proliferating.

What a great opening salvo, particularly the second sentence about the value of VCs towards society.

Just three questions into the interview she asks Wilson what a “mediocre return” is for a VC, to which he responds:

Anything less than three times your money over a 10-year period.

Correct me if I am wrong, but that’s a 30% return on your money every year for ten years — and anything less than that is considered too bad to want to continue with this?

Armed with that information, and the fast approaching seven year anniversary of Twitter, do you still wonder why Twitter is scrambling to make money?

Personally I don’t mind companies that take VC money, what I do mind is companies that take VC money that:

  1. Don’t have any clue how to repay that money (no business model in place, or planned on);
  2. That eventually allow the VCs to run the entire show.

Twitter is at fault, I believe, of both of those errors.

In case you don’t think it is possible to be VC funded and not let the VCs run the show — even when you don’t have the money stuff figured out — I would look no further than Facebook. Zuckerberg’s most impressive feat, to date, is the fact that he took Facebook through countless VC rounds and an IPO, all while still retaining control of the company. That is simply amazing.

Should be interesting to watch how venture capital changes with the explosive growth of Kickstarter (who is backed by VC money, no less).


Posted by Ben Brooks