unforgiven

Apparently Chris Dixon is my new blog crush, a potential successor to worthies such as Pmarca and Steve Blank.  And I’m not alone:  Venture Beat picked up on Chris’s suggestion that the 2-and-20 compensation “rule” in venture capital compensation deserves to be revisited.

But my thinking about this whole conversation is best summed up by the immortal (and surprisingly moral) William Munny:  Deserve’s got nothing to do with it.  People talk about venture capital compensation as if there is some moral justification for what they make, or conversely a moral reason why they shouldn’t make their money.

Now, I don’t belong to the amoral school of thought that says that people “deserve” whatever the market will pay them – sometimes the market is wrong, sometimes the conditions are unfair, so sometimes there are outcomes that are morally unjust.  However, this is not one of those times.

Venture capitalists negotiate their compensation terms with extremely sophisticated investors.  Those investors are willing to pay VCs an amount that still gives the investment portfolio an expected return that is correct at the time of projection.  Sometimes the investor projects incorrectly, but that’s not a moral misjudgment, it’s just people not being good and/or lucky at their jobs.  And if the VC sector underperforms expectations, compensation will get adjusted over time.  Deserve’s got nothing to do with it – this is a case where the market is perfectly capable of taking care of itself.