HowTos and WhyTos of Friendster.

An excerpt from the article “How to Kill a Great Idea“. Experiences as these are what makes the VCs the sharks.

Abrams is not the only one who feels this way. “The basic venture
capital system is structured so that there are built-in conflicts of
interest between the VC and the entrepreneur,” says Joel Spolsky,
founder of Fog Creek, a New York City software company, and writer of
the popular blog Joel on Software. It’s a point that even some
investors are willing to concede. “Most VC firms have adopted a model
where they make 20 investments and have two hits,” says Peter Rip, a
partner with San Francisco-based Crosslink Capital, which has backed
such companies as Good Technology and TiVo (NASDAQ:TIVO). The
traditional VC model works fine for investors, since the returns from
one Google (NASDAQ:GOOG) far outweigh the losses from nine Friendsters.
It’s fine for the VCs themselves, who reap healthy management fees
regardless of the outcome. And it’s fine for the network of
professional managers who bounce from start-up to start-up, earning
well wherever they go.

But it isn’t much good for an entrepreneur who has a promising
idea–and who would prefer odds that are better than 20 to 2. Spolsky
believes that working with a VC imposes a level of risk that someone
prepared to invest his life–not to mention his life savings–in a
single enterprise simply should not tolerate. “An entrepreneur would
rather have a 100 percent chance of owning an $80 million company than
a 10 percent chance of having a $800 million one,” he says.


2 thoughts on “HowTos and WhyTos of Friendster.

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