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The case that we've been setting forth is that
accepting an investment also poses serious risk. While the company that accepts
the investment holds the largest share of the risk, customers and suppliers are
easily and quickly impacted by changes in the risk. When we rant on about the
irresponsibility of "monied amateurs", part of our complaint is that
they take no real responsibility for their impact on associated pieces of the
market. The degree to which investors are held accountable for the risk they
cause is, roughly, zero. To be fair, all investors, from the little
passbook saver to the huge pension funds, make the assumption that the recipient
of the investment is in charge of the consequences of the investment. It's human
nature that the hidden damage done by "venture-style" investors is
assumed away in their accounting and accountability. Amateurs (usually mid-level
managers of cash rich enterprises like newspapers and other media companies) who
have no experience in investment management (and little understanding from the
boards who authorize the expenses) simply extend their experience of consumer
investment into their behavior as "wannabe-VCs". They're like the fellow who believes that his
experience sitting in rush hour qualifies him to drive in a NASCAR competition
with no additional training. Part of the difference with this class of big
investor is that they are not looking to increase their personal wealth as a
result of the transaction. Rather, they are looking for the next promotion, a
bigger office or an "atta-boy" from the unreachable head of their
complex organization. With low rent motives like these, it's hardly surprising
that they essentially screw up everything that they touch. Real venture investors have broad experience in
management and a personal stake in the outcome of the transaction. Their job,
far beyond the financial commitment, is to assist the company in which they
invest. Often, this means helping entrepreneurs understand the realities of
business at the cash-flow and capital creation level of the game. Any VC with a
real track record will tell you that this is like being Alice's guide on her
first trip through wonderland. The process requires coaching, auditing,
hollering and focusing. Someone whose only experience involves working for a
boss in a company is unlikely to be able to communicate effectively with the
kind of person who leaves personal security behind to start an enterprise. We are not arguing that VCs should stay away
from the market. Almost all of the damage we're describing has been perpetrated
by incumbent organizations who are trying to adapt to the new market.
Professional investors routinely build the infrastructure and understand the
various dimensions and implications of the risk they create. The incumbent
organizations, looking to defend "their" turf are the usual culprits.
To name a few, CareerSite, Pentawave and CareerCast have all been crippled or
seriously damaged by badly executed investments and failed promises from the
newspaper industry as it tries to protect itself. The state of the capital infrastructure of our
industry ought to be a meaningful concern for players, investors and customers
alike. Unfortunately, almost no one discusses the "elephant in the living
room". As a result, we're going to see a continued stream of last year's
fair haired new entrant turning into next years fire sale.
- John Sumser
Talent is what matters most.
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