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My monthly column in Entrepreneur Magazine is up (and on the newsstands). This month’s article is titled Check Your VC’s Pulse and offers entrepreneurs three important questions to ask your VC investors to understand better the health of their firm. It also explains what the various answers to the questions mean.
As an addendum to the article, read Fred Wilson’s post titled A Stimulus Plan For Venture Capital? No Thanks. In response to Tom Friedman’s NY Times op-ed piece where he suggests the US government take the auto industry bailout money and give it to top venture capital firms instead, Fred explains the problem and risk of adverse selection very clearly.
“So Tom’s idea, while it looks good on paper, is a dream. The top venture firms don’t want, don’t need, and are never going to take government money. The same is true of the top entrepreneurs.
The worst firms, on the other hand, will gladly accept government money. And that is what is going to happen with all of these government efforts to pour more money into the "innovation sector". That money will go to bad investors and weak entrepreneurs and management teams for the most part. It’s a problem of adverse selection.”
The post is great, but the comments (113 so far) are even better.