Original Sin of Venture Capital

I’ve been planning to write about this topic for a long time, since I’m witnessing too many sites burning money endlessly, what’s worse is people feel so good about burning money as if the ultimate goal of a startup is “Get Venture & Burn it”. Hey, where is the revenue, dude?

When I start to sell great online storage service, there will surely be 10 sites offering the same service for free within 30 days. Finally no one of us can make money. The same thing happens to email system, ringtones download, online office suite…We build great products which people really need and want to pay for it, then VCs come and screw up everything. The simplest way is to copy your product and offer it for FREE. If free is not enough, fine, they send you a real check once  you sign up. What the hell is happening here? They spend huge cost on the product but they give it away to everyone for free!

Can you imagine a medicine shop giving away all medicines, or a restaurant offering free foods? Yes, you are right, VCs are supporting DUMPING which is forbidden in traditional business, and trying to kill the whole industry until they live alone. This is the 1st original sin of Ventures.

Yet it’s not easy to kill others in most cases, since there are too many VCs in the world, and every VC wants to build a monopolistic company in some industry, and the result is, at least 2 or 3 monsters are still fighting endlessly, and as long as they are fighting, they have to continue their free model, and in the same time they are claiming how huge traffic they are acquiring and how many millions of dollars they are worth.

But sorry, can I ask a question: are you making money? oh, you are making money by advertisement? huh, great business model ! but can you just show me how much was the ad revenue last month and how much was your bandwidth cost in the same time?

When a company is spending much more cost than revenue, they invented new phrases for company valuation, such as Traffic, User Base, Active Rate, Retention Rate…… Before getting bankrupt, these numbers keep on telling beautiful lies to make people believe this company can make money in the future. The only thing they hide is, the future is endlessly far away. Finally, the real value of the company is buried by numerous VC phrases. VC phrases can change by 1000 times while the real value don’t, for example, when IDG invests 10 millions to my small laundry shop, and sells the stock to Softbank at doubled price after one year.

Wait, suddenly a new laundry funded by Sequoia is opened next door, and starts to offer free laundry service. It nearly kills me while all my customers turn their back on my laundry and go to free service, until Morgan Stanley knocks my door saying:”We can make you a marvelous 1000-page prospectus and turn your laundry into a NASDAQ IPO…” This is the 2nd original sin of Ventures.

The most frequent questions I meet is “How is your next round funding going on? How is the new VC?” I’m so sad no one ask me “How much is your revenue increased this month? Can you live on your own without VC in next 6 months?”  Well, right now it seems ridiculous to talk about revenue in online business. Young enterpreneurs spend most of their time making fancy business plans to kiss the ass of VCs, not for their own belief, what’s worse they consider Burning Money as a necessary step of a company, totally ignoring the best attributes of a great business: Cost Less & Earn More. This is the 3rd original sin of Ventures.

Chinese version of this post: 风投的原罪

关于风投和融资的一些基本术语

关于VC投资的一些术语和概念,陆续更新中,感谢vicky提供的资料和补充

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VC的股份比例:

如果你的公司估值100万美金,那么,假设有VC投你50万美金,那么VC占的股份是:

50/(50+100)=33.3%

其他股东的股份按照(1-33.3%)=66.7%的比例稀释。比如原来你占有30%的股份,现在就只剩下:

30%x66.7%=20%

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VC的权利:

VC是世界上最坏的动物,永远要求更多,首先他们会要求自己的股份是优先股(Preferred Stock) 可转换优先股(Convertible Preferred Share)。主要是因为:

-优先清偿权:在企业破产后对企业资产享有优先索取权,将损失减到最小;

-股份转换权:企业进展顺利时,VC有权将优先股转成普通股,从而实现对企业资产和决策的控制

-决策权:一般优先股并不享受表决权,但VC的股份一般对企业的重大事务,如企业出售,生产安排等享有与所占股份不占比例的表决权,对经理层的决策甚至享有冻结权。

-收益性: 企业能够支付优先股的红利给VC;

-可赎回性:如果企业的发展速度未达到预期,可要求企业购回这些优先股

中国的情况和美国是有很大不同的,因为在中国的《公司法》中是没有“优先股”和“可转换优先股”的概念的。但是近几年在立法上使得VC在对企业投资中,可转换有限股在事实上是可行的

下面具体说明一下VC的优先清偿权和决策权:

优先清偿权(Liquidation Preference):也就是优先获取资产清算的权力,类似于债权人那样

VC投了你50万美金之后,VC的优先清偿额度就是50万美金,如果某一天公司衰落,就不得不被迫变卖(被收购),这里有两种情况:

-如果卖了个低价钱,比如40万美金,那么根据VC会行使“优先清偿权”,将把这40万全数收入口袋里走人,创始人将一无所有。如果卖了60万,那么VC将拿走50万,剩下的10万给创始人来分。

-如果卖了个好价钱,比如600万,那么,VC将行使“股份转换权”,把股份转换为33.3%普通股,兑现走人:

600万x33.3%=200万

远多于当年投资的50万

领售权(Drag Along Right): VC有权力强迫创始人和所有股东出售公司

当VC觉得公司运营出问题,或者VC资金周转不畅,急需抛售一些资产的时候,就有可能强迫出售整家公司,当然,前提是投资协议里有这个领售权条款。邵亦波很久以前就写过关于这个的说明。

TechCrunch曾报道过一家叫FilmLoop的公司的悲惨故事,FilmLoop拿到了来自ComVentures的七百万美金的投资,最后钱没花完,却因为ComVentures单向的业务整顿需求,强行把FilmLoop给低价卖掉,只卖了三百万美金,由于优先清偿权的条款,创始人一夜之间什么都没有了。

VC在这方面的特殊权力,不一定需要与股份成比例。

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VC的退出机制
VC退出投资一般有三种选择:

(1)公开上市即首次公开发行IPO,将不可流通的股份转为上市公司股票,实现盈利性和流动性,而且收益通常也较高

(2)出售;

(3)清算或破产(投资收益非常差的时候)。

为什么很多风险企业都注册在国外?

将中国公司注册在开曼群岛以及英属维京群岛(BVI)是为了第一种退出机制,即公开上市(就像阿里巴巴把公司注册在海外,然后在香港上市这种情况)。因为中国对国内企业上市募集资金的要求非常严格,审批程序非常复杂,所以如果以中国公司的身份去上市募资,不仅困难大,而且受到的限制也非常多。

而如果将公司注册在境外,由境外公司通过收购、股权置换等方式取得境内资产的控制权,然后将境外公司拿到境外交易所上市,就达到了本质上是境内企业上市的目的。由于表面上是一家境外企业上市,所以境内不必改组为股份有限公司、上市公司股份可以全流通、企业再融资能力强、增发新股不受限制、能够实现期权激励机制、有利于引进战略投资者与风险基金。

除了上面这些优点外,如果注册在BVI或者开曼,可以享受低税率、较少的企业规管,还有一些保密性的优势。

从斯坦福学生风投说起 (Stanford student fund to invest campus startups)

一个很让人眼前一亮的消息,在众多知名网络产品的发源地——斯坦福大学,出现了由学生管理和专业投资者参与的风投机构:SSE (Stanford Student Enterprises). SSE掌控着斯坦福里校园内最大规模的一笔投资基金:1300万美金(资金来源包括 The Founders Fund, Charles River Ventures 以及天使投资人Rajeev Motwani ),并已经面向stanford的学生,开始接收第一轮融资项目申请。每个项目的投资规模在5万到10万美金之间。

在北大也有很多带Student和Business字眼的协会: AIESEC, 商业金融学会BFA(Business&Financial Association), 资本市场学会(Capital&Marketing Association), 商业领袖学生圈(Student Leadership Network)……这些名字很酷很商业的学生组织,很多学生都希望有朝一日通过严格的简历筛选和多轮中文+英文的面试而成为其中一员,却没有意识到每一个人进去之后都被同化成完全一样的人:要么进投资银行,要么进咨询公司,大学生活完全按照投行Analyst和咨询师的标准来训练自己,最终被某国际大公司挑走,住五星级酒店,坐头等舱,面对最有钱最有地位的客户,开始了高级的打工生活。事实上,北大官方举办的各项创业大赛也只是一种形式,卖科技专利的有,但真正从那些官方创业大赛里拿到投资并出来自己做的据我所知还没有。

北大有那么多培养高级打工者的组织,却没有一个培养Student Entrepreneur的组织 ,即使是所谓的商业领袖圈,培养的也只是跟风者。没人觉得把一个idea转化成一个business是件令人兴奋的事情,还是安生一点吧,先搞定毕业,要么去投行咨询宝洁四大,要么就出国,不能出国就留在北大读研究生,实在不行去中科院什么所也行啊。。。。。于是,美国最好的学生都去从商,而中国最好的学生呢,都出国去给美国教授打工了。抛弃了全球成本最低的劳动力,抛弃了全球最大的区域市场,抛弃了全球最多的中文网民,全送交给老外和海龟了。

北大有两百多个学生社团,本来这么多社团应该可以催生出很多新的想法,并从这个场所里找到同道的力量去实现这些想法,不过真正做过这些协会的人都清楚,真正运作协会的并不是学生自己,而是一个叫做“团委” 的官僚机构。按照公司的职位来看,团委才是manager,社团成员只是打杂跑腿的,而社团的leader看着风光,本质上只是团委的小秘,什么事情都必 须跟团委打报告,获取书面同意后才敢去做,稍有不慎就会被团委打入地牢,殃及整个协会的生存。在这样的体制下,北大社团一片和谐,除了一些体育类的社团还 有点自主权外,其他社团基本都被团委用各种方式强奸的奄奄一息了。

在里面生活了这么多年,发现这个号称中国最开放最自由的大学里,商业意识却并不得到鼓励和崇拜。这可以解释为什么国内的大学里从来没有出现过一个原创的网络产品,只有抄袭者,以及抄袭老抄袭者的新抄袭者。新浪雅虎百度google校内网Facebook(连UI都抄的一模一样),饭否twitter,还有近200家抄youtube的视频网站,以及几十家抄del.icio.us的书签工具。。。。。而美国仅stanford一个学校,就先后出了Sun,Yahoo!,Google,Facebook等影响整个世界的产品和商业模式。

人家赢的,并不是技术,不是资本,不是人才,而是愿意为一个新生的想法而付出的勇气,以及鼓励和尊重这种勇气的氛围。

To Mika:

Just got the new from techcrunch that stanford student founded a venture fund called SSE (Stanford Student Enterprises), with $13 million in assets. SSE has started the first round of funding, directly to stanford campus startups. Each have a chance to get $50k-100k as seed fund.

In my school, Peking University, the best school in China, there are many student association with the keyword “business”. Such as AIESEC, Business&Financial Association, Capital&Marketing Association, Student Leadership Network…..They have the coolest title, but the sad thing is the members are reformed with the same mold: train yourself and apply investing bank or consulting company. So one day you can be one of the most expensive EMPLOYEE. Travel with first class ticket, stay in 5 star hotel, and serve the most powerful customers. That’s why we have no association to cultivate Student ENTREPRENEURS even in top schools, while we have a thousand associations to train high-class EMPLOYEES.

The best choice for a chinese student is an offer from a US graduate school, or from a top international company (especially investing bank, consulting company, accounting company, and consuming products company like P&G, Uniliver…). As a result, the best chinese students are licking the ass for US professors or US managers, while the best US students are making a business of their own from a garage. We have the cheapest labor force, the largest market, and the biggest net user group, but we just don’t have the guts to make a new business, and we don’t offer a simple respect and encouragement for the potential students with business sense.

We just produce the fastest and best copier in the world.