Lawsuit Could Expose Whether Top VC Firms Are Actually Good Investments 90
curtwoodward writes "Venture capitalists like to project the image of wise kingmaker, financial alchemists who have a unique gift for spotting the Next Big Thing. They do not like having anyone see data about their performance, which has been generally lackluster over the past decade. This can be a problem, however, when VCs cash big checks from investors at public pension funds — taking taxpayer money sometimes comes with public disclosure. That's the crux of a court fight happening in California, where the state's massive university system is resisting attempts by the Reuters news organization to decode a complex shell game intended to hide the return data of two giants of Silicon Valley: Kleiner Perkins Caufield & Byers and Sequoia Capital."
VC's are morons, just read techcrunch (Score:5, Insightful)
every day they are hyping some tiny startup that is a copy cat. a year or two ago it was a new social media start up every week. then after square became popular there were payment startups every other day.
figures i've read before are 7/10 VC investments lose money. 2 return the investment value. and one is a facebook or google returning many times its original investments
That's not how they work (Score:5, Insightful)
Venture capitalists ...financial alchemists who have a unique gift for spotting the Next Big Thing
No, they don't. What they do is invest in many different things that they think may have potential - they spread their bets. Couple that with deals where they get paid first at the ROI they demand (+40%), screwing over the initial founders in the process.
AND they use other people's money while making sure they get a big cut in fees and whatnot because of their "expertise" while giving their investors returns that don't quite warrant the risk they are taking.They, the VCs, can't lose - the founders and the investors take most if not all the risk.
The only thing these guys have is connections to money and a lucky hit or two.
This just in (Score:4, Insightful)
Investment Analysis (Score:5, Insightful)
Whether or not the returns from private equity are better than the public markets has been controversial for a long time.
However it is well known that other aspects of these markets are undesirable for investors. Lack of disclosure, poor liquidity and negative scaling are some of these.
http://www.economist.com/blogs/freeexchange/2012/09/private-equity [economist.com]
Given the lack of clear benefits and the well-known problems with these funds it's pretty obvious that pension funds should not be invested in these instruments.
Re:This just in (Score:3, Insightful)
People who gamble others' money loathe to disclose depth and depravity of their addiction.
Nonsense. They just don't want the marks warned off.
Audits are overrated (Score:5, Insightful)
On the other side, startups tend not to have audited financial statements, so it takes a lot of leg work for the due diligence.
Audited financials are somewhat overrated. See Enron. It's not terribly hard to make financial statements too confusing to interpret. I defy anyone reading this to look at the financial reports of any large bank and tell me how much risk they are exposed to or what their investment portfolio looks like. A VC will still have to do a ton of legwork for any company they plan to invest in.
Disclosure: I'm am a certified accountant.
Public Pension Funds (Score:4, Insightful)
Being involved with some VC myself, one of the things that we value highly is the proprietary nature of our operations. If we advertise our strategies, others will try to get in on the deals. This will drive prices up and dilute the potential return on our investment. In a market where survival means making a 60% return on one out of three startups and seeing the other two go bust, that would kill the VC business.
The alternative (which we practice) is to tell people with a duty to publicly disclose to kindly go f*k themselves when they try to buy in. There's plenty of money around and my heart wouldn't be broken if us wealthy people made 20% returns per year while the teachers union pension makes 0.1%
Re:Outrageous Union Pensions Are Unsustainable (Score:5, Insightful)
Given the presence of Hollywood, Silicon Valley, defense contractors and farming economies like the Imperial Valley, implying that public employees and their union are omnipotent is laughable.
Your economy isn't faltering. Some areas were gutted by industry itself (manufacturing), some have tech-related disruptive challenges (movies/music), and farm revenue and silicon valley revenue are booming. Your tax rate above 200k income remains at record lows, percentagewise. Your tax rate overall is slim compared to years ago. Even CalPERS has trimmed down administrative costs steadily in the last 5 years (http://www.calpers.ca.gov/eip-docs/about/facts/general.pdf)
Individual corruption is a red herring, too. Shine some light into those dark areas, root it out (corporate / private or public), and we'll... oh, wait, that's already being done.
The problem in Cali is the same as everywhere else: mere working stiffs not seeing any of 40 years of prosperity vs. corporate and 1%er's taxes plunging. Add in your state's epic damage from Prop 13 and similar right-wing nuttery, and you've created this economic pinch. Stop blaming the last bastion of union/pensioned people: when most of them got their jobs, they took lower pay in trade for stability and a pension. The problem isn't them, it's that you've screwed so many other middle-class people in the state and propped up banksters and billionaires with the proceeds until public employees' situation looks enviable enough to the rest of the citizenry to assault.