VC debate: Does spray and pray work?

AngelPad, August Capital, BullPen, First Round and Shasta at Vator Splash

Technology trends and news by Bambi Francisco Roizen
March 6, 2011 | Comments
Short URL: http://vator.tv/n/17a0

(Note: We apologize for the lighting during the first few minutes of the video)

What do you get when you serve wine to venture capitalits and angel investors for a couple hours and put them onstage at 9:30 pm? You get a feisty bunch. 

At Vator Splash, Thomas Korte (AngelPad), Tod Francis (Shasta Ventures), David Hornik (August Capital), and Rob Hayes (First Round Capital), participated in our first-ever panel on the changing dynamics of the venture industry. Moderating was Duncan Davidson (Bullpen Capital).

There was some great discussion throughout. Check out VatorNews' Ronny Kerr's more comprehensive coverage, titled Angels, bubbles and core tech.

Some highlights include Rob's observation that the only innovation happening in the venture industry is the fees VCs charge. "Biggest innovation in VC over the last 15 years has been raising carried interest from 20% to 30%," he said.

But the most entertaining discourse had to be around 17 minutes in when Thomas and David disagreed about investment strategies. Thomas defended the strategy of investing in a lot of companies at the early stage (often referred to as a spray-and-pray strategy) in order to get a return on investment. "If you invest in 30 companies, you're likely to make your money back," he said.

This statement compelled David to respond with an incredulous, "Really?" 

Thomas: Yah

David: Really?

Thomas: Yah

David: OK. (pause) Really?

Thomas: Yah. Absolutely... Take 43 Y Combinator companies and they'll return that for you.

David: Really? Let’s say you put that money in, but you don’t have capacity to continue investing. So then every future financing dilutes you over some period of time. You’re convinced that if you put money into 40 arbitrary startups, you’ll make money.”

Thomas: “There’s a much higher chance.” 

David: “Oh, there’s a higher chance. I’ve been in the venture business for 10 years, I’ve decided it’s really hard. Things are super risky. Stupid things that end up making it. This idea that you put money into 40 and woof that’s it."

Thomas: There are a lot of exits.

David: Really, really? There are?

Thomas: Do the math...

... and so on.

You'll have to watch the rest to really absorb the drama. Let us know who you agree with.

(See below: Tod holding back David from giving Thomas a friendly bonk) 

Related companies, investors and entrepreneurs

Bio: Thomas Korte is an angel investor and advisor to early-stage internet startups. In 2010 he founded AngelPad, a startup incubator in San F...
Bio: Rob joined First Round Capital in 2006.  Rob came to First Round Capital from Omidyar Network where he was their first venture inves...
David Hornik
General Partner,
August Capital
Bio: For more than a decade, David has worked with technology startups throughout the software sector.  In 2000, David joined August Cap...
Duncan Davidson
Managing Director,
Bullpen Capital
Bio: Duncan is a serial entrepreneur who was a managing director at a major venture fund, VantagePoint Venture Partners, before forming Bullpe...
Tod Francis
Managing Director,
Shasta Ventures
Bio: Tod Francis has 25 years of experience working with consumer driven companies. Since 2004, Tod has been a managing director at Shasta Ven...
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