VC Cliche of the Week

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VC Cliche of the Week

So many times in life you need to make a choice between two people.

It could be a new hire, a roomate, an investor, someone to sell or buy something to/from. The list goes on and on.

I have found that its almost always best to go with someone you know if you can.

Because the devil you know is better than the devil you don't know.

I must have said this cliche a thousand times so far in my career.

It's a rule that I live by and I advise my companies to live by too.

It's why we love investing in teams we have invested in before.

It's why we encourage our management teams to hire people they know well over people they don't know.

It's why social networks like LinkedIn, Tribe, MySpace, etc exist. Knowing someone gives you comfort, trust, and allows you to take a risk you might not otherwise take.

The use of the word devil in this cliche has always interested me. Being a VC, who are accused of being evil (ie devils), I have often thought this cliche was particularly relevant to entrepreneurs picking VCs to invest in their companies. The devil you know is better than the devil you don't know.

It's also why I chose to run this one this week. Halloween is a great time of year and devils were out in spades Monday night. Seeing one of them walk down the street inspired this post. I hope you find it useful.

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Posted November 2, 2005 in Venture Capital and Technology

Comments

I think this is one of the reasons it's becoming so important for businesses and leaders to blog. A blog helps define you as a known devil. It gives people a sense of what's important to you, how you think and how you operate.

Posted by: Rick Burnes | Nov 2, 2005 8:38:47 AM

I thought you might want to consider one of my VC cliches, “No More Tuition” (http://www.mkbergman.com/?p=155).

At any rate, keep up the series. I find it often amusing and most often thoughtful.

Posted by: Mike Bergman | Nov 2, 2005 9:50:26 AM

If that was the proper thinking, then no one would ever divorce their abusive husbands.

Posted by: ellen | Nov 2, 2005 10:58:36 AM

there's a common saying in the spanish-speaking world that goes like... "known evil is better than the unknown good"

which has a thing or two to do with risk management.

(for those who speak en español:
"más vale malo conocido que bueno por conocer")

Posted by: vruz | Nov 2, 2005 12:57:40 PM

For shame! If you really followed this maxim then what are you doing in this business? We are blessed to be playing in a tech world where the excitement and success is in finding something new and interesting and taking a risk to see if it works. If that is not going with a devil you don't know I am not sure what is. Otherwise keep up the great work your blog is great.

Posted by: Zach Coelius | Nov 2, 2005 2:57:40 PM

The "Devil you know" applies in many cases (especially recruiting), but that tends to lead to sayings like "No one ever got fired for buying microsoft/IBM"!

Posted by: Chris Hamoen | Nov 2, 2005 4:31:46 PM

Ahhhh, the hypocrisy of Web 2.0.

Please forgive me a rant, no disrespect intended.

It's peer production, openness, grass roots, commotion at the edges - but with a core mouthpiece of centralized, interlinked evangelists who decide what is 2.0 and what isn't.

It's Wikipedia with one employee, but it's hyper funded, 12-employee Firefox extensions throwing open bar launch parties.

It's Myspace blowing the roof off and welcoming everyone with Internet access to join their sprawling community - but $2800 conferences and invitation only 2.0 summits of (just) "really smart people" to talk about how they did it.

And it's VC's raving about companies who turn over content generation to anonymous, unpaid strangers, but encouraging their portfolio companies to hire people they know.

There's a wonderful article by Mark Granovetter called "The Strength of Weak Ties" - the gist is that the networks that generate the most value for their nodes are not the densely connected strong networks in which everyone knows each other, but exactly the opposite sort of network - one with loose affiliations, a less incestuous world view, and far less comfort.

Says Duncan Watts on the subject of strong, comfortable networks such as the one Fred describes, "Because they know many of the same people you do, and may often be exposed to similar information, they are rarely the ones who can help you leap into a new environment, no matter how much they want to."

And LinkedIn, Tribe, MySpace definitively do not exist to put you in touch with people you know. They exist to put you in touch with people you don't know.

To put a final cap on my rant, I am thankful that Fred does not apply the same philosophy of seeking comfort and trust in his music that he does with his investment philosophy. If he applied this philosophy to music; A) I wouldn't read his music posts; and B) I'd never have found the Shout Out Louds.

Posted by: lawrence coburn | Nov 3, 2005 7:14:24 PM

Fred,
What you say is undoubtedly everyone's instinct, but progress over the centuries has been the direct result of suppressing this instinct.

so what happens if we carry this policy of "devil you know is better than the devil you don't" into the realm of governance? Should we stick with Bush forever? If so, let me slit my wrists right now and end it all.

Posted by: singlestrand | Nov 5, 2005 9:56:33 PM

Yes, it is true!

That is why do not use this Interweb thing, instead I use Compuserve only. Also I still am manufacturing buggy whips.

Why do I not make money? It is puzzle to me!

So is this why so many VCs are throwing money mostly at not very innovative me-toos that do little radical constructive thinking? Thank you for explanation!

[C. Niswander does not speak the English but he does some of the logic thing OK! So I impersonate him! I am really his cat.]

Posted by: C. Niswander | Nov 10, 2005 6:06:09 PM

Well, tech networks work well in a symbiotic environment. But that doesn't necessarily mean you(VCs) invest in known devils. Coz you are 1) locked in agreements which are not efficient for innovative business practices 2)stymying creativity for lesser risk. But in the longer run, these VCs would be wiped out and more adventurous/skilled VC would take the pole.

Kamal

Posted by: Kamal | Nov 13, 2005 12:20:18 PM

Posted by: JEROGatch | Nov 8, 2006 11:09:16 AM

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