That was the question debated at this morning’s keynote event at the annual HBS VC/PE Conference. It featured Todd Dagres of Spark Capital advocating the "To VC" position, and Howard Anderson, founder of Battery Ventures and now a prof at MIT Sloan taking the "Not to VC" position. Dan Primack, editor at large of PE Week did a bang-up job as moderator — his questions were sufficiently probing while keeping the mood upbeat. The stage was rich with irony. Todd Dagres used to work at Battery and is crediting with making his partners and LPs over a billion dollars (Akamai, et al). Just as he was raising a new fund focused on early stage companies, his former partner, Howard, was leaving the profession having been convinced that the "rationality" of the market meant little prospect of achieving outsized returns over the next 5 year horizon. The speakers did a great job of speaking their positions while weaving in data and anecdotes about the profession coupled with a nice rapport from the great respect they had for the other. It made for a great kickstart to the rest of the day. Mind you, I had the privilege of helping the VC/PE Club in conceiving and planning this keynote event so I’m completely biased!
Some of the more memorable comments (these are paraphrases, not direct quotes):
-VCs are good at lots of things but not market timing. If a space is really hot and you aren’t already in it, you’re too late.
-Early stage VC is a craft, an apprentice business. It takes 5 years to emerge as a VC.
-Most VCs’ first deals fail…better to fail quickly and succeed slowly than the other way around.
-I like bubbles. Bubbles get a bad rap but that’s how you can make money as long as you get in ‘pre-bubble’ and exit in time.
-Software companies are valued at 2.5x sales in public markets and 1.5x sales in M&A deals these days. That’s just not enough to be able to make decent returns. Top quartile or decile firms will still make their LPs money.
-Speaking of making big bets, the pharma companies. They bet hundreds of millions of dollars on a single drug — that it will work and win FDA approval (and knowing that the slightest of mistakes will push them back 2 years).
-Being a General Partner at a VC firm, with the hefty salary (as much as $1 M /yr) and carried interest in profits, is like having sex. When the going is good, it’s absolutely incredible. And even when it’s not so good, well it’s not that bad anyway.
Interestingly, both counseled people to not go immediately into VC, especially if they had little operating experience. Todd said they look for people with operating experience who have more credibility with entrepreneurs. Howard told the crowd to start a company rather than go work for an i-bank or VC.
Congrats to the students at the Club for pulling off a memorable event, and thanks to the speakers for indulging us. The moderator asked people to write down the winner on a biz card and submit it, which I didn’t get to do so my verdict is: Todd did a great job in speaking for his cause but, notwithstanding the few non-PC comments from Howard, he gets the nod.