It's helpful to know as an entrepreneur that, whatever "A16Z" (heh) thinks about this particular instance, venture capitalists are, allegedly, as a species, way more motivated by fear of stories like this than they are of the fear that their investment in you will come to nothing. When they need to raise money for their next fund, nobody is going to hear about the investments that came to nothing, but the obvious missed opportunities are going to sting.
This helps explain why they'll plow money into shoot-the-moon me-too startups that have no discernable chance of success, but might turn you down even if you have steadily growing revenue.
Articles like these both reflect and perpetuate this problem. I'd don't like the idea of blaming successful people for the opportunities that they declined on principle - I'd rather look at the ones they chose to focus on, and see whether those were well-executed.
But furthermore, I'd rather have the decision to fund actually mean something more than "This is just barely convincing enough that there's a slight chance I might look like an idiot if I don't throw a bit of money at it'.
I'm painting a picture of extremes, but you get the idea. Fine, a16z made X on this investment when they could have made Y, where Y > X. But look at X itself - is that a respectable rate of return? And if not, do they make up for it by getting good returns on the other investments that they've also invested money (and time!) into?
The VC game is about identifying enough companies - not all companies - that will be successful. Errors of the first kind and errors of the second kind are not equally noteworthy, and it seems we're focusing too much on the wrong one. There are valid reasons for turning down a company even if you think it may be successful - if you feel that your limited time/money/effort will be more valuable other companies.
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It's helpful to know as an entrepreneur that, whatever "A16Z" (heh) thinks about this particular instance, venture capitalists are, allegedly, as a species, way more motivated by fear of stories like this than they are of the fear that their investment in you will come to nothing. When they need to raise money for their next fund, nobody is going to hear about the investments that came to nothing, but the obvious missed opportunities are going to sting.
This helps explain why they'll plow money into shoot-the-moon me-too startups that have no discernable chance of success, but might turn you down even if you have steadily growing revenue.
"fear of stories like this".
As a matter of fact, Fred Wilson on his blog the day after the deal was announced was asked this by a commenter:
"I was looking for a lively discussion of the FB/Instagram deal today"
To which Fred replied:
"i'm not interested in that discussion really. somehow that takes energy from me. i am not inspired."
As you said "obvious missed opportunities are going to sting"
http://www.avc.com/a_vc/2012/04/life-liberty-and-blazing-bro...
Articles like these both reflect and perpetuate this problem. I'd don't like the idea of blaming successful people for the opportunities that they declined on principle - I'd rather look at the ones they chose to focus on, and see whether those were well-executed.
But furthermore, I'd rather have the decision to fund actually mean something more than "This is just barely convincing enough that there's a slight chance I might look like an idiot if I don't throw a bit of money at it'.
I'm painting a picture of extremes, but you get the idea. Fine, a16z made X on this investment when they could have made Y, where Y > X. But look at X itself - is that a respectable rate of return? And if not, do they make up for it by getting good returns on the other investments that they've also invested money (and time!) into?
The VC game is about identifying enough companies - not all companies - that will be successful. Errors of the first kind and errors of the second kind are not equally noteworthy, and it seems we're focusing too much on the wrong one. There are valid reasons for turning down a company even if you think it may be successful - if you feel that your limited time/money/effort will be more valuable other companies.