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VentureHacks: Peeking Inside The Blackbox Of Venture Capital

Posted by Dharmesh Shah on May 7, 2007 in venture capital funding vc 5 Comments

For those of you that are regular readers, you know that as a policy, I don't often do site reviews of other startup-related websites -- let alone pour gushing praise on a single one.  But, every know and then, I feel compelled to make an exception.
 
If you're a startup entrepreneur, head on over to Venture Hacks, read their content and subscribe to their RSS feed.  You'll be glad you did.
 
Disclaimer:  I don't know Nivi and Naval (the guys behind the site) and I have no personal bias or conflict.  I simply love the content on the site.
 
The reason I like the site so much is that it provides a rare glimpse into the black box of venture capital (and venture capitalists).  For the most part, the industry is pretty closed and very few (except insiders) really get a glimpse into the details of the process.  The reason is simple:  For those that know enough to write about it, there' s rarely an incentive to do so.  For those that don't know the innards of the business, you're not going to learn much that you couldn't pick up on your own through other sources.  VentureHacks is the rare case where the authors know what they're talking about and are brave enough to actually do it.  As an added bonus, they're witty and edgy too.
 
5 Reasons to Read VentureHacks
 
1.  VC Negotiation Is An Art Form:  As an entrepreneur, there are few things more "nuanced" that you'll deal with than raising institutional capital.  Even if you decide not to raise venture capital, a lot of these skills and deal-terms will likely show up in other dealings you have (strategic partners, M&A transactions, etc.). 
 
2.  The Devil's In The Details:  Most entrepreneurs focus too much energy on the "obvious" things like valuation.  Fact is, there are other, non-valuation terms in the VC deal (vesting, stock option pool, liquidity preferences, etc.) that have a significant impact on the economics of your deal.  It's easy to lure yourself into thinking you should solve for the highest valuation.  But, in most cases, that's sub-optimal.
 
3.  Great Advice Is Hard To Find:  As it turns out, good advice in the VC business is hard to find.  I would define good advice as a combination of competency (i.e. well informed) and objective (i.e. non-conflicted).  You can get close sometimes (via lawyers, adivsors, etc.) but it's really hard to find great advice.
 
4.  It's Not Enough To Be Smart: It's importat to remember that regardless of how smart you are, VC negotiation is not just a matter of raw intelligence.  Sure, it helps t have a few brain cells to understand the dynamics of a deal, but a lot is hidden away in the dark corners that you only ever learn by doing it.  It's also important to remember that the VCs do this for a living.  Hopefully, you don't (you're building businessees for a living).  You may be twice as smart as they are, but you're still at a disadvantage.  Try to even the playing field as much as you can.
 
5.  It's Intellectually Fascinating:  Even if you're not planning on raising funding yourself, I think you might find the whole VC game intellectually interesting.  Further, by getting yourself educated, you can perhaps help someone else that's a total newbie navigate the waters (See #3).
 
In short, go read VentureHacks.  It's worth the trip.  Nivi/Naval:  If one of you stumbles into this blog article somehow, drop me a line.  As a small token of appreciation, dinner's on me.