"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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