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TheStreet Open House

Silicon Valley VCs: Stock Market Is 'Crazy'

Stocks in this article: AAPLFBYHOO

NEW YORK ( TheStreet) -- I've been in San Francisco this week and I've had several meetings with some brilliant venture capitalists and tech executives.

I always introduce myself and tell them I run a tech-focused hedge fund that only invests in public equities (although we just started an early-stage angel fund). They usually do a double-take when I say that I only invest in public companies.

One guy yesterday said: "Really? Only in public companies? Wow. I could never do that. The public markets make no sense. It's crazy."

But he wasn't alone. In meeting after meeting, this has been the reaction.

These guys -- and they were all guys -- consistently made the same points:

  • The stock market made no sense to them compared to the private markets.
  • The stock prices of companies are "manipulated." Seriously, I heard this several times from these blue-chip guys. They often pointed to Apple (AAPL) as an example of this.
  • All stock investors, according to them, are emotional.
  • You cannot "invest" in a company once it's public because it has no basis in reality to the inherent value it is creating. Instead, they thought the stock price was simply a reflection of peoples' perceptions of how a stock would move in the future. In other words, it's a perception of a perception. They couldn't understand how they had an edge in that kind of environment.
  • Several people referred to the stock market as a "casino."
  • The VCs continually pointed out how they "understood" how to make money as a venture capitalist. At every point along a company's maturity as a private company in its life cycle, they felt that they could stack the odds in their favor on how to make money in the future.

    They also constantly referred to how their world of investing was "tangible." They made comments like "I can see how my advice today gets translated into the product and how that increases the company's value a few months from now." By contrast, they looked at the daily gyrations of the stock prices of public companies and had no clue how the markets possibly could determine those movements.

  • After Apple, several talked about the recent Facebook (FB) initial public offering as an example of how crazy Wall Street is. One also pointed to Yahoo! (YHOO) and asked me how it was possible that the public markets could value Yahoo!'s core business at "zero" for years, once you subtracted the value of its Alibaba and Yahoo Japan holdings.

I'll be honest. I was quite surprised at this reaction.

If I didn't tell you this was a collection of the Silicon Valley elite who were making these comments to me, you might have thought I'd polled a group of 60-year-old retirees from Des Moines commenting about how crazy Wall Street is.

However, taking a step back, the comments made me realize just how used to the day-to-day gyrations I've gotten used to in watching public stocks. If I only spent 5% of the day looking at stock price movements, I might think Wall Street is crazy too.

We become experts on what we focus on. If I'm a tech operating executive, I learn how to drive sales and cut costs in my organizations. If I'm a VC, I learn to watch the waves of technological change coming, how to build my network of tech execs, how to hustle to get in a good deal at a good price, and rinse and repeat.

The public stock market is a different animal. Unless you're sitting there watching it for years and years, of course it's going to look crazy.

Given all this, I can understand how Mark Zuckerberg and Facebook have helped influence most tech company investors and CEOs to want to delay an IPO as long as they can. I can understand how VCs like Tim Draper rant about the excessive administrative costs and burdens placed on the shoulders of young companies by Sarbanes-Oxley and Dodd-Frank.

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