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March 03, 2009


Peter Cranstone

Well stated. Pies not free even for the VC's. The double/triple dip is well known for the big guys, however for the smaller funds it's not there. Sarbanes killed the IPO which means that it's either M&A or profitability or Zombie status. That means a longer cycle - so VC's are in effect working for a paycheck (like the entrepreneurs) which is great because now everyone is in alignment.



Brad Feld

Thanks for the call out - your statement "I believe if everybody can be kept on the same page, value will continue to be generated, with minimal friction. When one player in the ecosystem is out of step, however, you have an implosion." is right on the money.

There are many subtle aspects in fund dynamics that are sometimes hard to explain, but if the VC really understands them, believes them, and has an investor (LP) base that supports the construct, it works out nicely. For example, our goal is to always investment 100% of the fund. This means that we have to "recycle" our management fee - earn it from returns from our companies and then reinvest it. As a result, our LPs get 100% of their money invested, vs. 100% - the cumulative management fee. While the management fee pays the bills in the short term, this creates much better long term alignment since we are really playing for the profits on our investments.

This just reinforces your view of the importance of alignment throughout the chain of the investment (from LP to VC to entrepreneur).

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