How Much VCs Make | Hacker News Reader

How Much VCs Make

saastr.com

33 pointselsewhen23 comments

I have been an operating partner at an investment firm / VC firm for the past ~1.5 years, and have co-founded a micro-VC firm [0] with two other friends 6 years ago. This is to give you a sense of my limited, but higher-than-zero experience in the field.

It seems to me that VCs gain mostly from informational asymmetry, and from some form of arbitrage. Most VCs are punished or rewarded over the course of several years, that's why reputation and "fame" are still fairly important in the VC world.

Lately I've been thinking about how I would start a new VC firm knowing what I know now, and how I would make it different (better) than any other VC firm out there. It actually is a very, very interesting mental exercise.

I don't have an answer for you (btw, if you'd like to brainstorm this with me, feel free to reach out, contact details are in my HN profile), but I'd probably start by asking several startup founders what they would like in an ideal VC firm. I would then ask several LPs, even though I suspect this aspect boils down to "convince me you're going to make me more money".

Anyway... thoughts? Things I should read? People I should talk to?

[0]: http://m14t.com/

Co-founder in Aus here - keen to chat about the idea -- information asymmetry and deal flow are absolutely key -- but there's no email on your profile. Get in touch if you'd like to set up some time though

My bad - updated profile, email is my HN username at gmail.

It's interesting (in a "responsible conspiracy theorizing" kind of way) to note that there has been very little innovation in this space (with the exception of the very recent emergence of 'rolling funds'.) The VC model that funded Apple in the 80s is afaik pretty much the same to what Lemkin describes in the post for today.

How many different ways of giving people money to start businesses could there be?

There's loans vs equity, structuring the company differently (C corp vs B corp), creating different legal incentives for employees to stay on (letting employees exercise their options more than 90 days after a departure, letting employees exercise their options during a follow-on investment round), the YC SAFE is relatively new if we're going back to the 80's...

There's a ton of ways to make things better, it's just never better for the investor (since the investor wants control).

I don't think it's the same. Apple would have never gotten funded today.

Interesting comment - care to elaborate on why Apple would have never been funded? Also, are you referring to the initial starting capital, or a later stage Apple?

A hardware startup ran by people with minimal experience in shipping hardware.

That doesn't mean much. An angel investor could have still liked the idea.

The thread is talking about VCs though.

have you ever tried raising money from an angel investor for a hardware startup?

because nobody would invest in a hippie with a half-finished hardware product these days

Sure they would. Apple wasn't a particularly special company when they were funded, new computer companies were a dime a dozen.

I disagree. It was a time when there wasn't much around to invest in and computers were "hot" and "new", and something everyone wanted to become a part of.

The Vc partnership structure incentivizes small teams against large AUM. If you’re a team of three, if you bring on those two associates that’ll be $100k less in your pocket every year. May not be the best structure to generate returns for LPs, however the obligatory GP commit by LPs and the financial burden this creates, pretty much guarantees that this won’t change.

It incentivizes small teams, but in the sense that you want the smallest team possible to generate the highest returns. If that one extra associate can help you screen exponentially more deals, they'll still be more than worth it in the long run.

IF you know the associate and trust them and think they will screen the right way - the small team can often be folks who know / trust each other. It can be hard to add someone particularly outside your standard networks.

I can't believe one of the VCs in the video said "Why shouldn't we have manager selection and security selection with algorithms?"

Because algorithms are not destroying our society fast enough... We need to also let them decide how to allocate capital.

Just to play devil's advocate, why shouldn't we in fact allow algorithms to determine how to allocate capital?

Legendary investors like Warren Buffet use "value" investing as a methodology to drive returns. Isn't that an algorithm?

Algorithms lack the creativity to drive innovation. They only make returns by concentrating wealth. This is disastrous and why we have so many problems now.

The problem is that with modern monetary policy, this strategy has worked pretty well in terms of delivering returns on capital by capturing a lot of the newly created credit which is constantly injected into the economy through loans.

The algorithms have just figured out a way to profitably suck the credit out of the economy instead of putting it to work on useful things.

Algorithms (especially those which rely on AI) are well known for exploiting weaknesses in their environment (often with unexpected results). This is exactly what this is and it's totally artificial.

HFT

How do VC salaries compare to salaries in PE? AFAIK VC is a much more 'hot' field with more people seemingly clamoring to get in, but I wonder if they make as much or more in private equity

Reply on news.ycombinator.com