MIB: Scott Kupor on the Information Asymmetry in Venture Investing

The average VC has done 100s if not 1000s of deals; the typical entrepreneur is on his first or second start up. This creates an information asymmetry between entrepreneurs and venture capitalists. So says Scott Kupor, the first employee at Andreessen Horowitz, and managing partner of the firm today. He is the author of the new book, Secrets of Sand Hill Road: Venture Capital and How to Get It.

The asymmetry creates issues, not only for the entrepreneur, who does not want to be taken advantage of, but also for the VC, who is concerned with finding and funding quality deals. In his book, Kupor provides the road map for start-ups to better understand the nature of venture capital. He explains the advantages that accrue to any start-up founder who knows how to successfully navigate the perils and pitfalls of the entire capital raising process.

Kupor explains why Y Combinator and other seed funds were such game changers for start-ups. As entrepreneurs became more educated, the deal funnel and gate keeper relation that was previously controlled by a handful of connected VCs was altered. These changes were quite significant: Since 2005, Y Combinator has funded over 2,000 startups, with 4,000 founders, that combine for a valuation of over $100B.

Overall, the influence of venture capital on the American economy cannot be overstated: he notes that Venture backed companies now spend 44% of the entire R&D budget for public companies, and that the 656 publicly traded firms that were VC backed are 20% of the total market capitalization of public firms.

His favorite books are here; A transcript of our conversation is available here.

You can stream/download the full conversation, including the podcast extras on Apple iTunesBloombergSpotifyGoogle PodcastsOvercast, Castbox, and Stitcher. All of our earlier podcasts on your favorite hosts can be found here.

Next week, we speak with Allison Schrager, co-founder of LifeCycle Finance Partners and author of “An Economist Walks into a Brothel: And Other Unexpected Places to Understand Risk.”


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