I haven’t subscribed to Fortune for a few years, mostly because I can’t find the time to read it anymore. Still, I’ve long enjoyed the work of columnist and humor writer Stanley Bing (outed several years ago as CBS’s corporate communications head Gil Schwartz).
In fact, it’s because I’m a fan that I was surprised to read his blog post this morning, titled “Forget Ponzi Schemes: Try Venture Capital!”
The piece starts off with some straightforward storytelling, about a party Bing attended in the Bay Area last weekend, where “although you wouldn’t know it from all the good-natured laughter and noise, at least 25 percent of the room [was] now unemployed.” (Unfortunately, it’s a scene that we’ve all become accustomed to over the past year.)
Then Bing lurches into an unconvincing, and surprisingly unfunny, argument about why “venture capitalism may be the greatest scam going.” The model as he describes it, works as follows:
– I have money, which I give to you to pursue your little idea.
– You develop your idea to the point where it can be sold to somebody who has none.
– During that time, I can do whatever I want with you to grow your bulb into a tulip I can sell.
– I then sell your pretty flower, take all my money back and then some. The guys who grew the thing get a little taste, but are for the most part left holding the bag.
– The tiny, wafer-thin notion wilts inside the big hothouse that acquired it, generating the requirement for a massive write-down.
– I’m still rich even though nobody else involved in this is.
To illustrate his point, Bing brings up his entrepreneur friend Matt, who organized the Bay Area party, then spent the night drinking heavily, because Matt is unemployed and apparently didn’t make much off the sale of his startup to an acquirer — unlike his VCs, says Bing.
“I don’t have to tell you the only one who walked away with all the dough from that sad story. Whatever its current difficulties, let it never be said that capitalism is bad business for the guys holding the checkbook,” he writes.
I have the utmost respect for entrepreneurs and I fully agree with Jim Clark’s recent assessment that generally, “VCs take too much ownership for what they bring to [a] business.”
I’m mostly remarking on the post because Bing has historically offered fun and useful insights into the industries about which he writes, and I gathered today that he doesn’t have a great perspective on the venture industry or else he wouldn’t have likened it to a Ponzi scheme.
Plenty of VCs can be vainglorious, greedy, and worse; I don’t think anyone (other than those VCs) would argue with that. Still, there’s no shortage of other investors who add a lot to startups in the way of counsel and connections and other support, and either way, as much as I hate to say it, what happened to Bing’s pal Matt was probably Matt’s own fault. He didn’t have to take venture capital, and unless he gave away his company to his investors (which also wouldn’t be smart), he didn’t have to sell it to that software company, either.