Actually, it is your Dad’s Venture Industry
The Mercury News published a story this week featuring GoAhead Ventures and their 20-something General Partners. Under the banner of “Venture capitalists fresh out of college are changing the rules: Not your dad’s industry anymore” the article lauds two baby-faced Stanford graduates managing $55M of other people’s money with “little more than college credits, internships or a few years of work experience under their belts.”
Excuse me one minute while I upchuck my breakfast. Seriously.
Let me start by saying I applaud anyone who wants to get more money investing into startups. I’ve long said that we need far more entrepreneurs trying their hand at growing job creating companies (everywhere!), and capital is a critical ingredient. Clancey Stahr and Phil Brady are stepping out and working hard, and I look forward to seeing them succeed. Also, after doing some digging of my own, I kind of love their thesis — people who understand students working with students to help them succeed. Great idea!
What makes me roll my eyes like Anderson Cooper is how the reporter has woven the story and that she expects us to believe the narrative.
Let’s start with some fundamentals. Typically, investors want to know that a fund’s General Partners have some skin in the game, which is why most investors require that the GP entity hold a small percentage of the limited partner interests in a fund. This is typically in the 1–5 percent range which, at first blush, doesn’t sound like so much. But, for a $50 million fund, a 2 percent capital commitment equals $1 million.
That’s $1 million that two 20-somethings with “nothing more than college credits and internships” have to come up with as the fund makes investments.
Now I’m no math whiz, but something is not adding up.
This fund is located in the Bay Area, one of the most expensive cities in the world where the median cost of a 2-bedroom apartment is $4,550 (that’s $27,300 per person per year just for rent!). The average starting salary of a college graduate is about $50,000 before taxes. 75% of kids graduate with student loan debt (85% of Stanford students receive financial aid), with an average monthly repayment over $350. And all but 8% of the under-25 set have more than $10,000 saved.
Where will the money come from to fund the GP commitment?
We have three options.
First, the highly unlikely scenario that there is no GP commitment. We don’t get any insight into this from the piece because the reporter neglects to do any digging here. But, we know from experience that investors like GP’s to have a minimum GP commit of 1%. Savvy investors will require more. The Kauffman Foundation studied 20 years of investing in nearly 100 funds and concluded that funds where the GP’s commit at least 5% of capital perform best. So, it’s hard to believe the fund doesn’t have any sort of GP commitment.
Second, perhaps the GP commitment is being paid by another partner. Here, the reporter does the reader a disservice. It turns out, with a quick look at the GoVentures website, there is a 3rd Partner in the fund. Takeshi “TK” Mori, described as “young at heart,” is 53 years old and he has raised most of the fund’s $55 million. Yet, not a peep or picture about TK in the Mercury News piece. Perhaps TK is making some or all of the GP commit? One would think a reporter would include at least a mention of this guy.
Third, and more likely, the GP commitment is being paid with someone else’s money. Let’s think for a minute about who might be motivated to loan 20-somethings enough money to fulfill their hefty GP commitment. Some quick digging on the ole Internet and, easy enough, one finds that these boys don’t exactly come from the wrong side of the tracks. And, beyond money, their familes have connections to other monied families, which is invaluable to a venture capitalist.
Now, there is no shame in being blessed with parents that care and have the resources to help out. Good for them. I know when my time comes to help my son, I will happily do so if I’m able. But, the reporter not only ignores this line of curiousity, she touts the opposite in the headline — “not your dad’s industry anymore.” Um…if mom and dad are funding the GP commitment and opening their exclusive connections to their kids, then technically it is.
So much more I could say about the piece…I won’t even get to the other optics of the story — yet another venture fund with no women or minority partners, yet another story about privledged young dudes in Silicon Valley...
I’m sure this reporter had well meaning intentions for the article. But the details don’t actually fit the story the reporter wants to tell. And therein lies the root of why most Americans no longer trust the media.
In this case, the idea that any 20-something can throw caution to the wind and raise $55 million to start funding startups is just not true. Most college graduates can’t launch venture funds no matter how much they want to because they lack the money and connections to do so. In fact they can’t even be an entrepreneur or work at a startup because they are drowning in student loan debt and don’t have families willing or able to fund them or support them (more than 80% of funding for new businesses comes from personal savings and friends and family). Let’s not kid ourselves by thinking otherwise or by weaving stories that neglect these realities.
I honestly wish this reporter would have told the story that the facts tell us because it’s a good one (rather than choosing to tell the story she wanted to tell because it seems like a sexier story and it generates buzz).
GoAhead Ventures is a marriage of the young and the young-at-heart, designed to uinquely fund and help young entrepreneurs succeed. Full stop.
Love it. You go boys.