Deal-Flow : Value-addition :: Silicon-rapids : Organic back-waters

Reacting to the rather weird scenario wherein some VCs are trashing their own brotherhood, Bruce Booth wonders in his latest article if this is an outcome of a Lake Wobegon-like illusion or if it is the Dunning-Kruger effect in action.

In my comment against this post, I offered my own little suggestion for this apparent case self-deprecation (OR is it not) and more....

My comment:

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If I go by what Mahendra Ramsinghani said here on LPs bothering more about deal sourcing capability than value-add by VCs, Khosla’s indictment of ‘95% zero-value add VCs’ shouldn’t really rock the boat more than the supposed shake-up caused by the AngelLists’ & Kickstarters’ of the world – The ‘80% negative-value-add’ rhetoric though is way below the belt & confounding.

Perhaps these intriguing proclamations are a manifestation of nervous energy of the PE biggies that are ‘but-of-course rattled too’ by the progressive warming of the PE globe and thus eager to reaffirm their value-add alternate asset investor status to the larger LP universe.

Can’t help but note again that a lot of the above paradigms, shake-ups, prophesies & reactions are all still relevant mostly to the 'silicon-rapids' (IT et al) and much less to the 'organic-back-waters' (~biotech) – taking a cue from what you said about the CEO, I’d think the loneliest job in the world at present probably is that of a biotech venture capitalist :-)

Isn't 'Syndicate' a worrisome term on an online crowd-funding platform?

A recent article by Lora Kolodny on Venture Capital Dispatch raises some interesting aspects on how VCs perceive the impact of likes of AngelList (online crowd funding platforms) on VCs - all but the potentially most impactful feature of investment 'Syndicates'

Below's my comment on the above article;   

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I was waiting for something on this – a much needed & timely insight.

It’s good to see all four VCs cautiously optimistic & none too worried about the online equity participation platforms impacting the role of a VC – couldn’t agree more!

From what has been said by the VCs, my key takeaways are as follows;

1. Fundamental changes to the proprietary-deal-flow showcase of the VCs ~Rory Eakin, CircleUp

1. The additional costs of investing associated with online platforms ~Annie Kadavy, Charles River Venture

1. ‘Tragedy of the commons’ Risk – to mean the relative disengagement of investors owing to a portfolio comprising of multiple small investments ~Jeremy Liew, Lightspeed Venture Partners

1. The risk of misreading or missing a signal by investors – owing to low signal to noise ratio of all online leads ~Alfred Lin, Sequoia Capital

While all these pose some but varying levels of risk, I feel the evolving ecosystem (of online equity platforms) will soon equalize the same & make the impact minimal.

One aspect that hasn’t been discussed is the potential risk of ‘investment bias’ stemming from the syndicate approach – which may inadvertently shift focus from a few worthy signals that already suffer a low S/N ratio - What say Alfred Lin (& AngelList)?

End of the day it's all about the Benjamins', impressive TVPIs not withstanding!

In a wake-up call of sorts, Super LP Chris Douvos cautions GP universe that end of the day it's 'all about the Benjamins', impressive TVPIs not withstanding!...

'tis the central dogma of investing alright, but still leaves enough scope for a small repartee of my own - here goes;

My comment

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Not sure if it’s a norm, but it’d surely surprise me if the GP takes an investment call in a particular portfolio company without as much as doing a cursory review of its exit potential & potential exit valuation – they probably do too, but don’t necessarily assign a value, given the magnitude of arbitrariness in doing so. It hence is somewhat ironic that the exit valuation in this model is merely a derivative of the overall size/ value of the fund raised by the VC and doesn’t factor-in anything that’d determine the potential of an individual investee enterprise – confounding this  further is the VC having to justify this derived value.

So while the proposed analysis does sound like a non-nonsense approach to assessing the fund performance, that part about “reality checking those putative outcomes” would still remain the single most challenging & expectedly the most contentious aspect even as LP-GP engage with an intent to cracking the funding arithmetic.

Nonetheless, it’s good to be reminded that for all practical reasons the sum of individual valuations of portfolio companies in a particular fund is but an unexciting statistic to the PE Portfolio manager in the LP organization keen on showcasing something akin to the promise of an ‘absolute return’ his hedge-fund counterpart typically presents :-)

We are all just prisoners here, of our own device!

Where does this notion that every mild ache or pain might be the harbinger of something particularly nasty, or even fatal, come from? asks drug baron in a recent post pondering on the Origins of Hypochondria

Since hypochondriacs too are prisoners of their own device**, I wondered in my comment if one can choose a device of well-being than of ill-health...

**Thank you Eagles, for penning such profound lyrics (and of course out-of-the-world music...) one can interpret in a zillion ways & still love.

My Comment

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A brave admission and a sound rationale...

Psychologically speaking…,

I'll try and link the three plausible reasons stated for being a hypochondriac to three personality types using the widely known MBTI system;

Domain Knowledge & (over)Exposure to Information - THE THINKER (INTP)
........applies knowledge & available information to connect the dots and map the domains - and at times create phantoms

(Supreme) Self-Confidence - THE SCIENTIST (INTJ)
.........pragmatic, believes in things that can be explained through well validated scientific rationale - at times negating viable but unsubstantiated dogmas

An Entrepreneurial Spirit - THE DOER (ESTP)
..........the risk-taker who's not always a conformer & who takes things into own hands with an intention of chasing the desired outcome - at times not reaching the goal

Probably being a hypochondriac is an outcome of the incremental edge the SCIENTIST has over the DOER in a quest set-out by the THINKER. What could probably change the equation is spooning-in a dollop of a few other personalities from the 14 others to choose from :-) (MBTI types again)

Physiologically speaking…,

I think though that one needs to believe in things for them to work for them - particularly so in matters of health & well-being! If the SCIENTIST questions how?, I'd try saying that since most disease conditions are manifestations of biochemical & ion-channel imbalances & brain plays a understandably important role, influencing the thought/ brain is perhaps important too as medicine is? Perhaps, there’s some rationale behind why placebo's routinely give new drug candidates a run for their money when it comes to efficacy?

Hippocrates did say... "Men ought to know that from nothing else but the brain come joys, delights, laughter and sports, and sorrows, griefs, despondency, and lamentations”

Just perhaps.... he also meant to include disease?