Early in July I met Keith Raffel at Thrillerfest, which is a convention for thriller writers and their readers. Keith is a veteran of Silicon Valley and the author of Smasher and Dot Dead. He agreed to blog on Acrimoney, talk about his books and pull back the veil of venture capital. I think you'll enjoy Keith's insights, not to mention the anecdote that gives rise to the title of this post. BTW, after you read Keith's post, you will understand why Acrimoney is looking for $50 million in seed capital.

If you ask the man or woman in the street what public purpose an investment banker serves, chances are you’d be met with a blank stare.  If you ask a person striding down University Avenue in Palo Alto, Silicon Valley’s ground zero, what purpose a venture capitalist serves, he or she would patiently explain how they invest in new companies with hopes they become the next Facebook or Google.

In the wake of the Dot-Com Implosion of 2000-01 and the Great Recession of 2008-09, venture capitalists have lost much of their buccaneering spirit.  A friend of mine ran an online analytics company which hit all its targets, but when it came time for a cash infusion, the venture capitalists who’d been backing it lost their nerve.  I touch on this phenomenon in my novel, Smasher: A Silicon Valley Thriller.  Our hero, who’s out seeking another round of capital for a start-up with a breakthrough technology muses:

VCs, bah.  When you had no need for their money, investment offers would cascade over you like a tropical waterfall.  When you could use a capital infusion – like now – the money flowed like water in a wadi, a riverbed in the Sahara.  In other words, it didn’t.

The situation can be even worse for a company looking for its first round of financing.  Back in the late 1990s, I founded UpShot, the first Silicon Valley company based on a cloud computing model – in other words, users’ data resided on our servers, not on users’ desktops, and were accessed through a browser.  (Facebook is a good example of cloud computing.)    We raised $3M for the company with no more than a prototype and three employees. 

It’s a lot harder today.  Traditional venture funds are much bigger and are looking for blockbusters.  With funds of $200M and up, they need to put a lot of money to work to make a significant effect on their overall returns.  A seed investment of $3M isn’t worth their time.  As the quote above from the cynical hero of Smasherimplies, VCs want to invest in companies that are already successful, companies where VCs in other firms are also clamoring to invest, companies where they can put a lot of money to work.

Let’s face it.  Many venture capital firms aren’t really that venturesome anymore.  The founding partners of the firms who made early bets on Apple, Intel, Yahoo, Sun, and Google, are giving way to a second generation with less tolerance for risk and more focus on Excel spreadsheets.  Funny thing, though – a time when the market stinks is the best time to start a company.  Office space is cheap, used equipment can be had for a song, and employee stock options are worthless, which means it’s easy to tempt employees out of their current gigs.   

Even when VCs make an investment, they can have different objectives from the CEOs of the companies they’re financing.  Back before I became an  entrepreneur and a novelist, I worked as counsel to the Senate Intelligence Committee.  A CIA veteran asked me one day, “Who owns you?”  He wasn’t looking for a high-falutin speech about my dedication to the Republic.  What he wanted to know was whom I had to please to keep my job.  Although VCs sit on the boards of start-ups they’ve invested in and owe them a fiduciary duty, many are “owned” by the investors in their funds. 

In Smasher, VC Margo Fulbright is worried if she can’t deliver a company for purchase to the fictional behemoth Torii Networks, she’ll have a tougher time selling other companies in her portfolio to Torii.  Keeping on good terms with Torii is critical to the long run performance of her portfolio and pleasing her investors – far more important than getting the very best price for just a single one of her companies.  (We sold UpShot to Siebel Systems, which in turn was swallowed by Oracle, a company another notch up in the Silicon Valley food chain.) 

Now I don’t want to tar all venture capitalists with a lack of guts or furtive motives.  In fact I’ve been fortunate to work with VCs who were supportive, gutsy, and loyal.  Given what I’ve seen and experienced, Ian Michaels, the entrepreneur-hero of my books Dot Deadand Smasher, was not all that difficult to portray.  Maybe I should take on a bigger challenge and write a novel whose protagonist is a heroic venture capitalist.  If the Dexter books and TV show can feature a serial killer as a hero, why not?

About the author

Keith Raffel wrote one article on this blog.

As counsel to the Senate Intelligence Committee, Keith Raffel held a top secret clearance to watch over CIA activities. As a Silicon Valley entrepreneur, he founded UpShot Corporation, the award-winning Internet software company, and sold it to Siebel Systems. He has also been a carpenter, college writing instructor, candidate for elective office, and professional gambler. These days he stays busy writing his mysteries and thrillers in Palo Alto, California. His latest book was the national bestseller, Smasher: A Silicon Valley Thriller.

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