There is an epic and epically unpleasant debate that taking place for much of the last year about stimulus and austerity. On one side are the born-again Keynesians who believe that our recovery is faltering because we simply haven't spent enough to jolt the economy into recovery. This lot includes the Obama administration and some of its harshest critics. They point to the experience of the 1930s when, after signs of recovering, the economy slipped back into recession.
The venture capital community has been getting slammed recently for moving too slowly. And these accusations, no matter how well founded or not, are beginning to stick. Entrepreneurs loath the idea of fundraising for protracted periods of time, and therefore they are particularly susceptible to this form of VC bashing. But I don't think that the accusations are fair. There are many of us in the venture community who are willing to work hard to get entrepreneurs a quick and definitive answer.
One thing most bad managers have in common is they’re not consciously aware that they’re bad managers. And if they are aware of it on some level, they’re probably not willing to admit it to anyone, least of all themselves. That’s because nobody wants to believe they’re the problem.
It’s a common enough phenomenon that isn’t limited to bosses, but applies to people at all levels: executives, managers, employees too. I’m not a shrink, so I’m not sure why that is. But if I had to guess, I’d say it’s probably got something to do with ego, denial, compartmentalization, self-delusion, lack of perspective, that sort of thing.
One of the most common criticisms of VC investors making seed investments is something that has become known as “the signaling problem.” The explanation of this problem is that VCs create a “negative perception” about a company if they make a seed investment but then don’t follow through and make a next round investment. Another way to say this is that a VC creates a “signaling situation” with their seed investment – if they don’t follow on in the next round they are “sending a signal” that something is wrong with the company (hence the label “signaling problem.”)
Last week I spoke with a partner at a large VC firm whose firm has been around for a long time. They have a new seed program (as of a few years ago) after eschewing seed investments from 2002 to 2008. The partner that I talked to told me that they are doing 30 seed investments out of their newest fund.