Apparently (apparently!), I have said something that hit a nerve.  When I posted my thoughts on the whole issues as to whether or not the VC model was broken, I had no idea that it would be the most popular post I have ever written (and it’s not even noon on day 2).  Crazy.

Predictably, some of my VC friends showed up to the conversation to point out that 1) am angry, and 2) that the “good” VCs don’t have associates.  First, I am not angry.  It’s easy for the VCs and their ilk to cast those aspersions, but the reality is that they have a fantastic business model, and they are going to fight to the death to protect it.  Second, the venture firm that completely blew me up at my last company has no associates.  One day I will tell that story, but even firms with only partners can behave badly.

I certainly don’t want to over-generalize an entire industry, but I can say that the vast majority of VCs are either neutral to the value of your business or in fact do actual harm.  I would go so far as to say that 10% of VCs are net positive, 70% are neutral, and 20% actively destroy value in the firms in which the invest.  As I quipped on Hacker News, partners in VC firms tend to practice what I call seagull management: the fly in, make a lot of noise, crap all over everything, and leave.

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This is the first essay from the first chapter in my community book “The Failing Point” – essays will be published here online first, and I’m looking for feedback from the community.  The permanent site will be live shortly.  Each essay title finished the sentence “Under no circumstances should you…”

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I can’t tell you how many great ideas I have had in the last decade. I am literally a legend in my own mind when it comes to creating awesome products that everyone in the world must buy. It seems like I have a new idea every day. Here are a few examples:

• Spinner rims for baby strollers
• A teddy bear with a beeper network activated voice box
• A book about the Internet for college kids
• A location based dating application for the iPhone
• An SMS based trivia text game
• Fleece gloves which are sleeve length
• Children’s utensils that have cars, trucks, boats built into the utensil

As much as I would love to believe that I am the master of generating million dollar ideas, one look at this list would tell you that I am as much a fool as the next guy. However, being the eternal optimist, when I came up with these ideas I thought they were, in the words of Kenny Bania from Seinfeld, “gold, Jerry, gold!”

In any event, once I have come up with the most awesome product in the world, I come up with the most awesome name, which of course has the proper awesome domain name available, and then of course I figure out how I am going to promote this awesome product via a blog, Facebook, or even Twitter. The romance period of thinking up ideas often involves thinking I am awesome, which I clearly am not. The challenge is that these are all ideas, without any action plan. I never once put in the time, energy and effort to kick start any of these projects.

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There’s an interesting article over that The Funded which discusses the state of affairs in the VC market.  The post itself is a response to the Fred Wilson post about the current state of affairs in the VC market.  Fred’s claim is that the VC model is not broken.  He’s right.  Sort of.  Being broken would imply that it was fixed or working correctly at one point in time.  I would in fact argue that the model was flawed from inception, and was based on the imbalance of supply and demand for risk capital.

I am about to go on a bit of a (LONG) rant here, but my point of view is one of someone who has worked in a private equity firm, sat on boards, invested privately, worked in multiple startups, founded a company, been a CEO, and raised money from angels and VCs, including securing term sheets from some of the most well known names on Sand Hill Road.  I am an entrepreneur first, and someone who has been smacked around by the VC community as a seeker of funds.

Let’s start with the venture funding process.  The Funded rightly points out that the junior folks at these VC firms are all business school guys who have no depth of experience from which to draw on when they are deciding which deals to pursue.  That is mostly correct, though there are a few I have met in my travels who at least had some real operational experience before going to a venture firm.

The trouble isn’t so much that the associates don’t know what actually constitutes a good business, it’s that they believe that they are uniquely qualified to make that determination.  Further, they actually believe that their few years of business school entitles them to an opinion as to whether or not a leadership team is going to get the job done.  This is particularly pronounced and troubling when the management team has 20+ years of experience, but the associate doesn’t think is “cool.”  If the associate doesn’t like you, you don’t get through them as a gate keeper.

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