A venture capitalist (ZT) in the eyes of an engineer)

The meaning of VC suddenly changed from the very beginning. It does not represent the abbreviation of the programming tool Visual C ++, but has become synonymous with venture capital, this interesting change directly reflects the shift between venture capitalists and engineers. Engineers and venture capitalists need to cooperate, but there are also conflicts of interests. This subtle competition shows a tragedy, apple, Netscape, and Yahoo all once used the power of venture capital to make a fortune and take the lead. This is a warm and lovely aspect of VC, however, Wang Zhidong, Wang Juntao, and Zhu Jianqiu were all bruised and bruised by VC, so some people complained about the cruelty and profit-driven nature of VC.

Praise or criticism. VC is still acting in accordance with its established principles, and engineers are still inevitably seeking for help from VC. After all, both parties need each other.

Nick Tredennick, an American engineer, has been dealing with VC for more than a decade ······

My first time dealing with venture capitalists (VC, venturecapitalist) was in 1987. At that time, I was not very impressed with them, however, during my contact with them, I found many general problems exposed by startup companies. Since then, I have been a founder, Consultant, engineer, administrator, and Director of more than 30 companies, it is much more complicated than serving as a "matchmaker" in the past (forming "marriage" for technical engineers and wealthy venture capitalists and "Needle-hitting, I naturally formed some opinions and opinions when I was engaged in this industry.

Now, many books and articles are praising and even praising VC. But here I want to talk about VC from an engineer's perspective. Maybe this article seems a bit embarrassing, but I didn't mean to wear colored glasses to judge them. I just described my feelings objectively, I have not tried to change human nature and want them to change their style and principles.

In fact, engineers belong to the disadvantaged groups. VC knows how to deal with engineers, but engineers do not know how to deal with VC. This is an objective fact, VC is "Bullying" engineers by taking advantage of this advantage. Their goal is to maximize the return of venture capital investors and their own, without considering the interests of engineers. However, engineers also have their own strengths. They are experts in solving technical problems. If they learn more about venture capital on this basis, they will be able to get relatively fair treatment, however, I will not provide detailed solutions here. The content is enough to write a book. In this article, I just want to wake up engineers and let them realize their embarrassing position.

View the essence of VC

VC is a bridge between wealthy investors and technical personnel. Generally, engineers need to ask for help at the early stage of their business-VC, which is the most direct and fast way to attract investment. Other options are also available. For example, you can rely on your original savings, but you may not have that much money. You can also seek funds from friends or family members, but it is at risk of friendship and affection. You can also look for "angel investors", but it may take a long time and the time cost is quite high.

VC is closely related to each other. They have their own communication circles and are relatively closed. In fact, it is difficult for you to be favored by VC without private recommendations or introductions, it is naive and naive to expect VC to look at their ideas from thousands of business plans.

VC will not sign a confidentiality agreement

If you think that VC is very trustworthy and will not disclose any of your secrets, you are a great fool. Tell you that VC will never sign any confidentiality agreement with you, in the process of dealing with you, VC is always in a favorable position. They may like your creativity, but want to help others. At least two of my friends were cheated when they were in contact with VC. After VC talked to them, they took their ideas to fund others.

The first example is obvious plagiarism. A lot of content in the business plan drafted by my friend John was copied to another VC-funded plan, john sued the venture capital company, finally won the lawsuit, and won some compensation and spiritual victories, but completely lost his business, the startup company that had plagiarized John's idea was listed later, and made a lot of money for VC. John's experience is not very bad. In more cases, entrepreneurs simply don't have time and sufficient evidence to sue VC, and they can only watch people make money with their own things. Another friend, Peter, was also pitted by VC. When he was dealing with several venture capital companies, a VC sent experts to Peter's company multiple times to investigate the technical situation, peter obtained an investment from another VC but found that the investment company had their own experts launch the same creative project.

VC likes to follow suit

Nowadays, the electronic technology industry is more and more like fashion and toys. Fashion has become a huge driving force, and various new programming languages and design technologies are emerging one after another, even high-tech companies once made money on their business models. In fact, VC is the most crazy fashion star chaser, And they will catch up with anything hot. If a well-known venture capital fund invests and develops a configurable e-woven machine, other VC will also invest money. VC is fond of leeching. One field can either get a lot of investment or get no investment. If you are good at dancing in fashion, you will have a great opportunity to invest in VC, but if your creativity is too novel and too distinctive, it is very difficult for you to invest.

VC does not understand technology

In general, VC does not understand technology, although some still graduated from Engineering. Having an engineering degree is just a starting point. If you design and manufacture a product, you will become an engineer. If you are engaged in professional work, you can become a manager or venture capitalist. The VC technology background in Silicon Valley is the best. The farther your company is away from the technology industry center, the less investors pay attention to technical content. They are money-centric.

If VC doesn't understand your novel ideas, they will abandon you and focus on the fields they are familiar with, such as marketing strategies and growth expectations that are not technically relevant.

Experts are not specialized

If VC is interested in your idea, they will send at least one "expert" to evaluate your project. Don't think these "experts" are awesome, in fact, they do not understand cutting-edge technical details.

I have been in touch with a startup company that has a very creative idea of designing a firewall: Using Programmable Logic Devices to work at a wire speed. Line speed means no buffering and no data storage. Therefore, there is no need to use a microprocessor or IP address, which is easy to install and manage, however, this is too different from the firewall implementation mechanism that experts have seen before. Even programmable logic device companies do not know how this works. In their view, designing a firewall without a microprocessor or IP address is just as absurd as creating a car without an engine. Obviously, the company was not invested, and the founder had to go back to work in a big company. This result was not good for anyone. The industry was missing an innovation and technological progress was also delayed.

VC is not at risk

VC is translated as "Venture Capital (home)", so most people think that VC has to bear a lot of risks during investment, but in fact they have no risk to bear. VC creates investment funds mainly to manage money for rich people. Due to the basic principle of being responsible to investors, they are also very cautious when making investment decisions, almost timid and conservative, when a large investment fund invests heavily in a project, it must ensure that its creativity is very good and there is a precedent for success. In general, VC pays great attention to previous history records. They like teams or ideas that make a lot of money, just as Hollywood prefers to make sequels of successful films rather than shooting new original movies.

After VC creates an investment fund, it will charge management fees and "shares" for investors who make money, which is generally 20-30% of the investment profits, this determines that VC is engaged in the sale of almost stable profits without compensation. Investment funds generally invest in many companies in different fields, so risks are also dispersed. Sometimes VC is a member of the board of directors of a startup company and can obtain stock options from the invested company, in this case, there is basically no risk for VC.

Wealthy investors have taken some risks. Although reasonable portfolio structure risks can be much lower, they have not completely eliminated yet. The biggest risk is the entrepreneurial engineers who have invested a lot of time, mental work, and even feelings for the company. Once the company succeeds, VC has a big share and failed, after several years of hard work, you will be overwhelmed.

VC is very versatile

If your company needs a lot of money, for example, 0.1 billion US dollars, you will have a larger chance of investment than a company with the same rate of return, which only requires 1 million US dollars, because investment funds that manage billions of dollars prefer large projects, they don't have time and manpower to manage hundreds of thousands of small projects worth $1 million, even 5 million of projects are dedicated. In such an environment, if you only need a few millions of dollars, the investment opportunities will be relatively small.

A Simple VC

For project evaluation and pricing, VC will often share ventilation with each other. They often gather to discuss the investment and pricing of some candidate companies. The pricing mainly involves the total number of shares and prices, these will be indicated in the "clause form" provided by VC to startup companies. VC follows the principle of automatic optimization. They do not invest in six or seven companies in a specific industry. Generally, they only limit the number of investment targets to two or three, on the one hand, we should prevent our own interest groups from competing with each other, and on the other hand, we should ensure the success of individual companies. This certainly has a lot of negative effects. The biggest one is to restrict competition, thus limiting innovation activities and slowing down technological advances.

We know that in nature, a competitive environment can cultivate healthier and more dynamic organisms. For the current high-tech industry, competition is also a very beneficial "genetic mutation ", A reduction in competition will only result in a gloomy situation. For example, in the hard drive field, 41 companies are competing for market share, and hard drive technology has made significant progress. In comparison, the fields of floppy disks that only compete with three major manufacturers are almost stagnant. I did not talk about the market size or market opportunities (compared with the floppy disk business). I am just talking about the relationship between competition and innovation speed.

VC won't explicitly say no

If VC is really interested in you, please rest assured that it will definitely call you and finally give you a check, but if it is not very interested in you, you will not receive a reply. Long silence means rejection. VC is very cunning. They don't say "no" to you clearly, which is equivalent to encouraging you to find money elsewhere. It is naturally not good for VC, what they want most is that you have been hanging on a tree. VC sometimes holds a "wait and see" attitude, because fashion changes frequently and technicians constantly improve their products. Maybe your proposal will be better in the next year. In addition, VC also wants to get more inspiration from you and add innovative ideas to the plans of other startups.

If VC knows that you have other options, they will often cheat you like this: "I really want to make this deal with you, but I need some time to find some partners ." "We need more time to get expert advice ." "We really want to invest in you, but now we are clearing a $0.5 billion fund, which will take up all our time ." "I will call you in a few days ."

Once you have no other options, they will be able to manipulate your dominance.

Pets adopted by VC"

In the eyes of VC, "Pet" is "Executive Management Personnel dispatched to startup companies ". Many venture capital companies reserve a large number of managers, and even if they do not work, they can get $10 thousands or 20 thousands a month. This figure is quite high for General Engineers, but it is enough for people like them to cope with meals in the circle. "Pet" has rich experience in managing startup companies. It is usually used as a consultant. When VC is about to invest in your company, their "Pets" will ask your company's management team's experience in detail, so you don't have to worry about your team being poor, VC will assign you the necessary personnel, and they will assign you a new CEO to replace all your original entrepreneurial buddies.

Your creativity, your work, their company

In general, the CEO sent by VC will get 10% of the shares, and each appointed Board member will have 1% of the shares. The entire company's technical team can only get 15% of the shares at most, the rest are all venture capital companies, and the shares of the company's technical team will be further diluted when additional investments are made in the future. VC controls the board of directors of a startup company. They may visit the company once a month or a quarter, listen to the company's management personnel to make reports, release instructions, and provide suggestions, and take some individual stock options (the only possible exception is CTO and vice president in charge of technology ). In short, VC controls your company, and you and other engineers only have to work.

I once met a company that got an investment with a good valuation a year ago. The company's business grew rapidly that year and developed new products to meet or even exceed expectations, at the same time, all the money was spent as planned. Later, when it needed money, the investment environment had changed. Last year, major investors did not want to "price" the company's shares or "take the lead" in the next round of investment. "Pricing" is to evaluate the stock price and company value. If you think of the company as a pie, it is equivalent to dividing it into many small pieces (stocks ), an investor "takes the lead" to offer a price for a large stake in the next round. Other investors also bid with him. In the end, engineers are just toys in VC's hands. The final result is that in the next round of investment, the company only evaluated 1/3 of the value of last year.

Later, the investors were about to withdraw the funds, so they demanded to re-negotiate the previous round of investment. They said, "In view of the low valuation of this round, we felt that the previous round of valuation was too high, so we hope to get more shares to compensate for the loss of the previous investment." If an entrepreneur is fake, it is reasonable to negotiate a new round of investment, but the problem is that they are doing well, but VC doesn't care about it, they can withdraw their previous commitments when they want to repent.

Think about another situation. If the engineer is in a favorable position, VC will often say, "considering the market development, your idea is obviously more valuable than we expected at the beginning, so we feel we should return half of the shares we got from the previous investment to you."

Unfortunately, this situation does not exist, so we have to accept a cruel reality: entrepreneurs are vulnerable groups.

Engineers are the creators of Value

VC is good at playing capital games, but they do not understand technology. entrepreneurs know technology, but there is no money. Every startup company's technology has its own characteristics. However, capital knowledge applies to all startups. VC does not care about a technology. They capture opportunities only to make money. Therefore, VC often does not focus on valuable technologies when operating capital. For example, A year ago, VC snatched money from Internet companies, but this year they went to another extreme. Even if you could create a Star Wars transport plane, they might not be interested in you.

This is not a technical or personal issue, but a financial issue. In VC's view, engineers and their ideas are just commodities. Venture capital companies can squeeze technical teams because they can, and VC feels that they are fulfilling their responsibilities for creating the maximum benefit for themselves and fund investors.

But in fact, engineers are not commodities. Reducing their shares may be counterproductive: their morale is frustrated, productivity will be compromised, and eventually they leave, and the company is finished.

It must be acknowledged that the electronic industry revolution was created by engineers rather than administrators. VC may not appreciate this. Moore's law and the wisdom of technical talents are the driving force of the electronic revolution. The huge market that requires products has accumulated enough momentum. This force makes it so powerful, so that the decision-making of management personnel cannot influence the pace of the electronic revolution.

In the end, an engineer is the creator of wealth, and VC is the beneficiary.

Solution

Engineers who create the future should be given fair treatment, but they have not yet. to change this situation, I have three suggestions:

First, rich engineers should consider investing in start-up companies so that they can get their shares. You don't have to be as rich as Gates, as long as you have a net capital of more than $1 million or a minimum income, you can become a "qualified investor" and participate in the initial investment of a startup company. Now, the millionaire club has more and more members, and many engineers are crowded.

If you are a qualified investor, it is best to be an angel investor in a startup company to provide them with seed funds or make the first few rounds of investment, but you must grasp your investment strength, if you cannot afford to lose too much money, you should invest less because early investment is highly risky. Start-ups need your money and your valuable suggestions. With ample capital, entrepreneurial companies will increase, technological advances will accelerate, and wealth will increase accordingly. The wealth created is not only about making money, but also about improving the quality and level of life.

Second, engineers should work together to form a risk fund. Start-up companies need a lot of angel investment and a well-organized angel investment fund. I would like to see engineers develop dozens of venture capital funds worth $0.1 billion. They mainly invest in the seeds and next round (A round) to provide original funds and suggestions, guided by professional financial personnel, they will represent a new force that distinguishes them from traditional venture capital companies.

The third suggestion is that I would like to see a public venture capital company run by an engineer who sells shares to the public to raise funds, and then uses the raised money to invest in entrepreneurial enterprises, not necessarily only rich people can make investment. Anyone who buys a stock can invest in a startup company. Such a company knows the needs of technology and engineers better.