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February 13, 2005

"Real startup entrepreneurs don’t raise VC"

Interesting exchange between Jason Calacanis, who created and sold VentureReporter.net to Dow Jones and then created WebLogs Inc., and Flatiron Partners' Fred Wilson on the old debate of "VCs vs Entrepreneurs":

Jason: VCs think their money is more important then you giving up your life.

Fred: Jason's talking about the liquidation preference here. He is saying that VCs think that the equity they buy with cash is more important than the the "sweat equity" that entrepreneurs get. Jason says " I’m a fan of everyone have the same stock, and everyone getting out at the same time." But Jason knows from firsthand experience that an entrepreneur can make money with that deal when the investor loses money. Is that a fair deal Jason? I don't think so.

Jason: What does that mean for the other 99 business in the life of a VC? It means they are just spending time with you until that special 200x investment comes—if it ever does.

Fred: This is so wrong its laughable. The 200x investment requires no time from the VC. The deals that I spend the most time and energy on are the ones that don't work or don't work immediately. The ones that take off like a rocket are the ones the VC pays the least attention to.


Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.