A VC - Latest Comments in Always Treat Money Like It Is Your Own

Re: Always Treat Money Like It Is Your Own

gregorylent — Tue, 06 Jan 2009 12:40:31 -0000

would love to hear your thoughts on the concept of "exit strategy" vs. sustainability ..... is planning for an exit strategy different than the planning for building a long lasting business? .... in the same way that we can say that managing for the next quarter's results is not the best way to run a company or a culture?

Re: Always Treat Money Like It Is Your Own

jstrellner — Tue, 06 Jan 2009 12:23:46 -0000

Out of all of your recent posts, this has to be the one that has hit home the most. Thank you for the incite.

We are looking to raise a small round right now, despite the economy, and this is one of those posts that I think I will keep rereading and thinking about during any purchases, well into the future.

Thanks again.

Re: Always Treat Money Like It Is Your Own

fredwilson — Tue, 06 Jan 2009 11:44:22 -0000

I've been thinking a lot about this

It's worth doing a good post on it

Thanks for the suggestion

Re: Always Treat Money Like It Is Your Own

Chethan Thimmappa — Tue, 06 Jan 2009 08:28:36 -0000

i agree

Re: Always Treat Money Like It Is Your Own

fredwilson — Tue, 06 Jan 2009 07:00:12 -0000

This is a huge issue

Maybe companies shouldn't get so big

Re: Always Treat Money Like It Is Your Own

Taylor Davidson — Tue, 06 Jan 2009 02:09:44 -0000

I'm most interested in seeing how the ideal of "treating money like it is your own" works as companies evolve and grow. Apple and Fox, as examples of well-managed companies, are also examples of companies that are run (micromanaged?) by their founders and figureheads.

Can a diffuse, open, large organization provide the kind of transparency and incentives required to give people the opportunity to "treat money as their own"? What kind of organizational structures do we need to create that kind of culture? I think we've all learned that stock options and "keeping skin in the game" aren't enough on their own.

Re: Always Treat Money Like It Is Your Own

Chris Yeh — Tue, 06 Jan 2009 01:34:43 -0000

Great post, Fred. I added my own corollary:

"If you always treat money like it is your own, other people are more likely to trust you with their money."

People know that I am so cheap that I cannot bear to waste money, even if it isn't my own. And when people invest in one of my startups, they know I'll do my best not to spend their money unless it's absolutely necessary, even if it doesn't always make me the most popular guy in the office.

http://chrisyeh.blogspot.co...

Re: Always Treat Money Like It Is Your Own

Alex Iskold — Tue, 06 Jan 2009 01:30:02 -0000

Fred, to me, this quote:

If you don't have to write any checks and all the money you are investing is other people's money, then it's incredibly tempting to "pour good money after bad."

Sums up exactly why Wall Street gone belly up.

This lack of feedback in combination with arrogance, self-certainty and sense of entitlement is what caused the crisis.
You on the other hand are always humble and appreciative of everything that happens to you.

The way I see it - polar opposites.

Re: Always Treat Money Like It Is Your Own

Blogger — Mon, 05 Jan 2009 22:15:21 -0000

I do agree with you, our company got recently bought over by a bigger firm. Now I understand some of the thought process from the investors point of view - but I guess accountability should not be the sole guiding line. I might be wrong, still learning the ropes of the trade.

Re: Always Treat Money Like It Is Your Own

reiboldt — Mon, 05 Jan 2009 22:05:07 -0000

I think this is a fundamental contributor to our current crisis. Too many fund managers were not judicious with the funds they managed. They treated those assets with reckless risk and as such lost a lot for their investors. I am not just talking about the extreme case of Madoff either. Far too many fund managers have been guilty of this. If I lose one dime of my investors' assets, it eats me up inside. I also put my own money in it, so it actually does hit me at home. Any manager that won't put their own money aside their investors' assets doesn't deserve your money.

Re: Always Treat Money Like It Is Your Own

Steve Kane — Mon, 05 Jan 2009 21:19:33 -0000

I have invested in several LBO and real estate and hedge funds ― and all
actively promoted how much GP capital was in their fund.

And as you clearly point out in your post, “skin in the game” is a big deal
― so one would think if it were true a fund would not hide that fact

So common sense would suggest that the fact that VC funds ― even the ones
you mention -- do not actively (or at all) promote their own “skin in the
game” should make one suspect they do not have any meaningful skin in the
game.

Worst, so many VCs go around berating others to put “skin in the game” when
they themselves do no such thing.

An industry housecleaning may be long overdue.

Re: Always Treat Money Like It Is Your Own

Druce — Mon, 05 Jan 2009 21:12:18 -0000

possibly relevant nitpick - the important number is what percentage of the manager's net worth is in the fund. If a manager pitched an investment in a $200m fund in which he had $5m which was substantially all his net worth, that would be more meaningful than if Warren Buffett offered to let me invest in a $200m fund in which he invested $50m.

then again... a partner of Thierry Magon de la Villehuche invested all his net worth and then borrowed more to invest in their fund of funds, which was invested with Madoff -

http://www.bloomberg.com/ap...

sometimes even when the cook eats his own cooking it's still bad.

Re: Always Treat Money Like It Is Your Own

Scott — Mon, 05 Jan 2009 21:10:54 -0000

"It's really tempting to put more money in because if you don't, you'll get wiped out. But if you do put money in, and the investment still fails, then you've lost even more of your own money and your partners money. The bigger personal check you have to write, the more likely you'll make the right decision. If you don't have to write any checks and all the money you are investing is other people's money, then it's incredibly tempting to "pour good money after bad.""

Fantastic reminder. In fact, that's one lesson I've taken away from B-School and will always remember: Never consider sunk costs in a decision.

Re: Always Treat Money Like It Is Your Own

fredwilson — Mon, 05 Jan 2009 21:07:25 -0000

From what I¹ve been told, benchmark, kleiner, sequoia all have very large %s
of their fund in the hands of the GPs

I have not verified this, nor would I be able to

Re: Always Treat Money Like It Is Your Own

Steve Kane — Mon, 05 Jan 2009 21:00:16 -0000

Did your reply get cut off?

Own what?

Any case, I only know a few firms but I don’t know of any that exceed 2%

Other than USV, can you cite any examples?

Re: Always Treat Money Like It Is Your Own

dfriedman — Mon, 05 Jan 2009 20:56:38 -0000

In retrospect, you are probably correct: I misinterpreted Fred's point. Apologies.

Re: Always Treat Money Like It Is Your Own

fredwilson — Mon, 05 Jan 2009 20:52:17 -0000

Right, there is no cure all for sure

And you are right. It¹s about % of net worth, not actual dollars

Re: Always Treat Money Like It Is Your Own

fredwilson — Mon, 05 Jan 2009 20:49:13 -0000

You are right that they could be better managed

That was one of my wishes for 2009 actually

Re: Always Treat Money Like It Is Your Own

fredwilson — Mon, 05 Jan 2009 20:47:29 -0000

It¹s a big problem steve, but in many of the best firms the partners own

Re: Always Treat Money Like It Is Your Own

fredwilson — Mon, 05 Jan 2009 20:46:10 -0000

Great catch. I¹ll fix it asap. I wish you could have fixed it earlier
today.

Re: Always Treat Money Like It Is Your Own

Banet — Mon, 05 Jan 2009 20:42:55 -0000

Great post, but I'm surprised to hear you characterize Google as one of the "best-managed companies."

Really great products? Well, a few really great products, a few great products and dozens and dozens of mediocre ones.

Wildly profitable? Absolutely. But might it be far more profitable if they showed the slightest bit of focus or fiscal discipline?

Peter
http://www.FlashlightWorthy...

Re: Always Treat Money Like It Is Your Own

fredwilson — Mon, 05 Jan 2009 20:42:20 -0000

Yes it is

Re: Always Treat Money Like It Is Your Own

Andrew Weber — Mon, 05 Jan 2009 20:34:14 -0000

I don't think the point of Fred's post is/was that having your own money at stake is a guarantee of good performance; I believe he's saying that having your own money at stake is likely to make you more thoughtful about the decisions you make....which would tend to lead to better performance.

I lament the fact that we seem to have so many people at companies, funds, etc. who seem to act out of their own self-interest rather than out of the interests of those who have provided the money, the company to run, etc. (as pedalpete suggests below).

Re: Always Treat Money Like It Is Your Own

Steve Kane — Mon, 05 Jan 2009 20:10:26 -0000

hi fred & bijan

i agree with this strongly also

but then... do we lso agree that the VC business is in horrible shape, if for no other rteason then that the avst vast majority of partners have little or no meaningful exposure to their own funds risk of failure?

the typical VC partnership "invests" 2% of the firm's fund, over the entire course of the fund, usually 7-10 years (the other 98% is invested by LPs)

but their management fees provide them 2% of the fund EVERY YEAR.that is, they collect 14-20% of the fund in fees while only being obligated to invest 2%

moreover, almost no VC partners I know invest above and beyond that 2% requirement

so for a large majority of VC prtners, LP's management fees fund their commitments to invest in the fund

so most VCs have zero or near zero real skin in the game

Re: Always Treat Money Like It Is Your Own

ventureblogalist — Mon, 05 Jan 2009 18:00:54 -0000

I agree. No investment bank owned by its employees would have levered itself 35 to 1.