Debunking a Small VC Myth by @bryce
There’s a small myth in startupland that goes something like this:
VCs invest other people’s money, Angels invest their own money.
It often surfaces under the auspices that VCs have an emotional or financial distance from their portfolio companies as they are simply managers of other people’s…
Does this mean that you can’t be a partner at a $200M fund unless you have $2M of discretionary cash laying around? Wouldn’t that be a substantial obstacle for the bottom 99% of Americans, some of whom may have the skills to excel in the position but not the cash?
I do not necessarily believe that partners at VC’s necessarily have to put their personal capital into a fund to have success. There are many investment managers that are investing other people’s money, often times substantial amounts, whether they are institutional asset managers, wealth managers, family office managers or financial advisers. However, I have yet to find a good study that correlates rates of return versus capital contribution rates by partners.
That being said, I would it give me pause as an investor if the partners did not have some skin in the game. Furthermore, I would fully expect prior to starting a fund that a VC partner would have had a level of professional accomplishment that translates into having the means to make a financial commitment to a fund he or she managed. Also note that there are very few VC General Partners (GPs) to begin with (I believe there is only about a 1,000 in total in the US).
The more important point however is that the vast majority of VC’s do have skin in the game and are emotionally committed to their portfolio companies. I am glad that Bryce is shedding light on yet another startup meme fallacy.
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