JWZ had some choice words for VCs the other day:
When a VC tells you what’s good for you, check your wallet, then count your fingers.
I did make a bunch of money by winning the Netscape Startup Lottery, it’s true. So did most of the early engineers. But the people who made 100x as much as the engineers did? I can tell you for a fact that none of them slept under their desk.
So if your goal is to enrich the (VCs) of the world while maybe, if you win the lottery, scooping some of the groundscore that they overlooked, then by all means, bust your ass while the bankers and speculators cheer you on.
I don’t know Jamie’s history with VCs, so I won’t speculate. But his post got me thinking about the contrast in perception vs. the reality of VC economics.
The underlying assertion Jamie makes is that VCs stand to make far more money than certain employees when and if a company has a positive liquidity event (acquisition or IPO). So, let’s test that assertion with a simple sample case for today’s market.
Let’s say a company raises $5M in two rounds of funding from 2 VC firms and is acquired for $100M.
Now, let’s say that each of the two VC firms put in $2.5M and owned 20% of the company at the time it was acquired ($5M total investment 40% of equity owned by VCs).
Founders, early employees and executives each own between 10% and 1% of the remaining 60%. The founder who owned 10% comes away with $10M, the Executive who owned 3% comes away with $3M and the early engineer who owned 1% comes away with $1M. Fairly simple math.
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