[sharkweek]

Two differing thoughts:

I'm not sure I would think the LPs would be all that concerned with this. After all, a VC firm is going to live and die by its performance reputation, so if their funds fail to return gains, it will haunt their firm for a long time.

What I do buy though is Kevin's other point in the conflict of interest of potential entrepreneurs walking into VC offices and pitching a great product (editing out the word "idea" for clarity) that gets rejected. At that point you've given up a lot of information with little recourse, and having a partner at a firm run with the idea themselves, with strong funding and a powerful network, would pretty much be a death sentence.

I have never seen this happen myself (although I do confess Seattle can be pretty far removed from the daily dealings in VC world), and I do choose to believe that most VCs operate with a moral compass, but it's still a terrifying thought.

[mblevin]

The edge case of a VC launching a company themselves is so rare that we're talking about a single instance of when it happened.

Let's not forget every day some entrepreneur goes in to pitch an idea, and a VC picks up the phone and calls a portfolio company and says "hey I have an idea for you."

"VCs will steal your idea and launch it themselves" is not a real risk, especially relative to existing risks.

The issue of VCs launching their own ideas is purely between them and their LPs - if CALPERS is ok with it, then there's no issue.

[eridius]

To nitpick: the blog post was triggered by a single instance of it happening, but while he doesn't go into specifics, he says that all the top tier firms are doing it, which obviously means there's a bunch of instances of this. And one of the common criticisms he got was "everybody's doing it", which suggests it's even more widespread than that.

[Kalium]

It shouldn't be frightening. It should tell us all what we already know - ideas are worth exactly nothing and execution is worth everything.

[notahacker]

Some companies pitching to Andreessen Horowitz et al. are a bit more than an "idea". None of them are likely to be labouring under the delusion that everything they say in that room is an absolute secret, but there's a big difference between some general idea of the direction of your growth filtering down to that VC's portfolio companies in the same space on the one hand, and on the other, a partner peppering you with questions about your business plan and then opting to found and fund their own "stealth" startup in that space instead...

[Kalium]

It's absolutely a dick move, but as a founder you need to be better equipped than the VC to execute. If you can't make that case convincingly, you shouldn't be pitching.

[bjt]

The VC has access to a lot more than the "idea" from a pitching company. A lot of time and effort goes into researching a market opportunity and iterating on the idea to refine it. You learn which aspects of the idea, though they sounded sexy, turn out to be dead ends. Getting that information for free could give the VC's company a significant head start.

[Kalium]

Yup. This is why you need to have execution, instead of just an idea. You need to bring to the pitch something that indicates that you are better-suited to pursue this opportunity than the VC is.

[trhway]

> ideas are worth exactly nothing and execution is worth everything.

there is 3rd component - money. You may have good idea and be executing it well. The VC has money, has your idea and in this situation hey have choice - your execution or to implement their own. Due to money asymmetry, even having somewhat worse execution, they may still do better than you.

[Kalium]

Part of your pitch is making the case that you can do better than them, even when they have a money advantage.

[jamiesonbecker]

This is a myth, although it has some root in reality.

The best ideas are often borne out of the conviction of the founders and their ability to spot an untapped need.

Because of this, founders (and progenitors of the original idea) are often true believers... and they will execute harder and with more conviction (even if less effectively at first), because it was their idea in the first place.

They'll often have better reactions and can better see where the market is going, because it was their idea in the first place.

Depending on their personality, they may also be better able to conceive of and implement improvements, because it was their idea in the first place.

Execution is critically important, but one cannot exist without the other.

[sharkweek]

Generally I agree, but an entrepreneur who walks into a VC pitch with execution at least partially accomplished should feel confident they're not going to get their idea stolen.

[Kalium]

If you don't have enough execution under your belt that you have to worry about your idea being stolen, you aren't in a good position to be pitching VCs. That worry is a sign you should bootstrap more.

Your value proposition as a founder should never be as minimal as "It's my idea".

[coderzach]

Why does it matter? If you actually have something valuable done, it's doubtful you transferred its value to them in a 15 minute keynote.

[CPLX]

> ideas are worth exactly nothing and execution is worth everything

Unless you make an SMS based concierge service and call it Magic

[Kalium]

Well-executed marketing is still execution.

...even if the rest of us think it's a tad silly.

[jacquesm]

VCs with execution capability are rare and word would get around if someone pulled a stunt like this.

[tptacek]

Big VC firms are populated with people on the bubble between permanent partner-track involvement with the fund or an operating role (often CEO) of a future portfolio company; they're called EIRs. The underlying concern here --- which I agree is overblown in this thread --- is almost universal, isn't it?

[jacquesm]

The underlying concern is one that applies to people not represented here in numbers that are significant enough to determine whether or not the problem exists in the first place. If a VC wishes to fund a company by someone they're already associated with that's entirely within their right and their responsibilities are not where the OP wishes them to be. That's why I really don't think this is relevant, regardless of whether or not such conflicts of interest exist. If they exist it is the duty of the providers of capital to insist on proper resolution procedures, for the rest of the world it is much simpler: don't engage in relationships with VCs that you feel are not ethical.

There's this myth that VCs are evil and out to devour young and fragile start-ups. Maybe it's due to the nature of my work (and quite possibly due to who pays me so there's my conflict of interest) but I've seen more start-ups and later stage companies trying to scam VCs than that I've seen VCs trying to scam/rip off (potential) port-folio companies (0).

Maybe this is a local affair and the EU VC scene is different in this respect, there is some confusion in this thread about angel investors being mixed up with VCs but in general VCs tend to be fairly honorable people. To balance that a bit more: there are VCs that have a bad reputation, typically these are smaller funds that are non-transparent wrt the source and destination of their capital, those are probably best avoided but I don't think they're representative of the segment as a whole.

The example given here - as far as I'm concerned - is a fairly typical affair given that capital providers will part with their money more easily when there is a basis of trust between them and the person or entity receiving the capital. Whether that's an optimal allocation strategy or not is debatable but it does not in any way require the measures advocated for in the article.

[sharkweek]

I agree, and I choose to believe this fear is irrational, but it's still a thought that might creep around in the back of my mind. I do think the key thing once again touches on my first point, that a VC firm's reputation needs to be positive for both LPs and entrepreneurs to want to do business with them.

[jacquesm]

Even those in the 'backroom' (like me) are typically under some fairly agressive non-disclosures with the VC themselves to avoid leakage of company info. That won't stop jerks from trying to pump people for information but I have yet to see someone get any mileage out of that. I have seen a reputation or two being destroyed that way (of the person trying to get information in such a back-handed manner).

VCs are very image conscious, if they lost their influx of potentials because their reputation took a hit because of a real or perceived hi-jack of someone else's idea then they would suffer immensely so they are very protective of this channel.

I'm not sure if it would be an existential issue but I'm definitely sure that it would hurt badly to be known as 'the VC that you can't pitch to because they'll rip your idea'.