[7Figures2Commas]

I can see it now: a venture firm with the slogan, "Taking the capital out of venture capital."

Back to reality. Any entrepreneur raising capital from a venture firm should recognize that venture capital returns over the past decade lag all of the major domestic stock indexes by a substantial margin. If you look at returns from even the most successful of funds, there's usually not a lot to be impressed by. In some cases, one or two investments account for most of the returns.

Why does this matter? Simple: it strongly suggests that the value-adds so many of the firms try to differentiate themselves with can only do so much to produce real value. If this wasn't the case, you'd expect all that special sauce of the top firms to ultimately be reflected in their returns, which again are generally unimpressive.

There is an excess of capital in venture capital today, and you have lots and lots of firms chasing deals. The wisest entrepreneurs who need funding will take advantage of this to raise capital on the most advantageous terms they can negotiate. Agreeing to less favorable terms based on the pedigree of the source of the funding is unlikely to confer any benefit.

[CyrusL]

If you look at returns from even the most successful of funds, there's usually not a lot to be impressed by.

That's not correct. The top funds have very high IRRs. For example, Foundry Group on slide 5: www.scribd.com/fullscreen/57221228 . I remember Marc Andreessen describing A16Z's first fund as returning >100% IRR. I'm sure SV Angel's is very high as well.

In some cases, one or two investments account for most of the returns.

That's not at odds with a fund being successful. Startup investing is inherently about finding outliers: http://www.paulgraham.com/swan.html . Its alright if the median investment returns nothing as long as an outlier can return the entire fund. You might disagree with an entrepreneur aligning herself with investors that have this sort of thesis, but it's not accurate to say that the top funds perform poorly as a result.

[7Figures2Commas]

> Startup investing is inherently about finding outliers: http://www.paulgraham.com/swan.html . Its alright if the median investment returns nothing as long as an outlier can return the entire fund. You might disagree with an entrepreneur aligning herself with investors that have this sort of thesis, but it's not accurate to say that the top funds perform poorly as a result.

Putting aside whether you believe that, after digging into the details, the performance of some subset of the top funds is impressive or not, you make my point: if the name of the game is trying to find those companies that will be outliers, we should be able to admit that venture firm pedigree and value-adds are unlikely to provide enough value to entrepreneurs to justify raising capital on less favorable terms than might be available elsewhere. After all, if many funds are made by one or a few investments, which is the case, it's clear that pedigree and value-adds aren't game changers.

So in the final analysis, you should agree that if you need venture capital, it's best to focus on the capital and pay as little for it as you can.