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The Good News, Linux Fans, is Venture Capital Is Harder to Find

Feb 11, 2009, 00:02 (0 Talkback[s])
(Other stories by Carla Schroder)

"One thing that Mr. Updegrove does not mention is the VC management fees. Way back just before the turn of the century I had a boss who wanted to be a Player, a Mogul, the Go-To Guy. So he got cozy with this venture capital firm, let's call them Moneybags, Inc., who had a real nifty setup. They did not invest their own money, for that would be scary and risky. Instead they courted investors and put their money into a single fund that was used to finance several startups. Moneybags, Inc. then worked with the startups in the traditional venture capitalist fashion. I attended a number of presentations to potential investors, and even though I knew what was coming every time, it still gave me a jolt when they got to the part where they divulged that their management fee was 20% off the top, plus participation in the profits. So the investors were 20% in the hole from the start.

"Maybe this is a typical arrangement, I don't know. All I know is Moneybags, Inc. was guaranteed a fat payday no matter how badly they performed, while everyone else assumed all the risks."

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