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Venture Capital - Friday, February 10, 2006

Does Too Much Money Spoil The Venture?

We recently listened to a conference panel at the SIIA summit in NYC where Jason Calacanis rubbed it in a VCs face - Dennis Miller at Spark Capital - saying: 'Why would I take money from VCs when I can get money from billionaires?'

Calacanis With His Billionaire - Mark Cuban

We thought Miller’s measured rejoinder worked well. He explained that he once sat on the board of a company that had more than one billionaire on the board and it was a disaster. The board could not agree on much because reaching consensus among billionaires, or even getting them in the same room, could not be accomplished. And when it came time to think about liquidity, the billionaires' expectations could not be satisfied.

In contrast to billionaires, Miller argues, VCs are more like pragmatic actuaries, logically weighing risks and rewards. They are happy to sell a company at no gain just to get a failing venture off the books, whereas billionaires have pride on the line and demand that liquidity events be cause for celebration.

Even if the investors are going to make a nice profit on a liquidity event, billionaires have a strange perspective that a few million dollars made is not terribly meaningful, so they might push their luck and wait for better offers that may or may not come.

Along the same lines, investor Will Price posts that he sees a new pattern: startups that raise too much, too soon, at valuations that are too high. Price believes this dynamic ultimately lowers the chance of success.

Read - Kiss of Death (Will Price)