I have this friend who works as a venture capitalist in Silicon Valley. I call him the Vulture. He always has the best stories about what really goes on inside these crazy startup deals, and how VCs really behave once they've put money into a company — usually, like a pack of assholes. Last night he sent me an email about an item that was in the news yesterday: Kevin Rose, the founder of Digg and formerly a partner at Google Ventures, is bailing out of Google Ventures and starting an incubator, North Technologies. He has raised $5 million to get started, and admits he has no idea what the big idea will be. "You're investing in a couple product people getting together and trying a bunch of different ideas," he told re/code.

The Vulture says this just proves, again, that Silicon Valley has lost its damn mind. Instead of quoting him I'm just going to publish the email he sent me. He says it's okay. Here goes:

Kevin Rose's new company, North, is Silicon Valley's latest lottery ticket. Take a chance! buy a ticket! Enter the latest venture tricky tray! It's lottery time for Silicon Valley's king of Internet TV. Kevin Rose is starting a winner! So, they all hope. A $5M "seed" round that was led by True Ventures should tell LPs to avoid venture capital as an asset class.

You read that right — a $5 million seed.

Rose has been a four-time loser as an entrepreneur. Pownce, Digg, Revision3 and Milk were kick saves. His latest and greatest startup adventure, North Technologies, looks and feels like Milk, before it spilled into Google's lap for $15 million.

To his credit, he has a successful "seed" investor track record with many great outcomes. His portfolio is estimated to have realized returns of 22 times invested capital. Those investments include Facebook, Twitter, OMGPop and NGMOCO. He also has investments in Square and Foursquare, which are unrealized, but good bets. All of these companies are FOKs – friends of Kevin.

But that's really not the point. The fact is we're talking about a $5 million "seed" that is split between twenty-three investors. So, for shits and giggles, let's try to decipher the latest Silicon Valley lottery ticket offer. Let's just say that $5 million was split evenly between all the investors, which is highly unlikely. Each investor puts in $217,391.30.

Second assumption, which is even more unlikely: the post money valuation was $10 million. Now, each investor owns roughly 2.1% of North Technologies. Third assumption, the company gets acquired in short order for $500 million. Your investment dollar returns $10.2 million. It's nice for a small seed investor. Doesn't move the needle for some of the larger funds that invested.

First of all, it's unlikely that the investor syndicate split the investment evenly. The larger funds likely tossed some more money at the feet of Rose and the smaller funds and individuals, much less. It's even less likely that the investors own 50% of the company. It's more likely that Rose sold something like 25% of the company, which means less ownership for the equity investor who threw his cash on the floor to clean up spilled Milk.

So, let's go to the next set of assumptions: a 75/25 split in ownership. That means that the post money valuation could be $20 million and the investors own 25%. Twenty-three investors who own 25%. Sounds like a bunch of friends who bought a bar with the intention to drink the profits, burn it down and take the insurance money. Because we all know there are only so many Instagrams or Oculus Rift type outcomes in this bubble.

The second point: who the fuck raised the table stakes for seed investments? $5 million? That was a Series A investment less than two years ago. And I thought it was different this time? I thought it took less money to build consumer app companies today?

I mean, that's not a seed. It's a fucking fully blossomed tomato farm at $5 million. But, when you have a bunch of dumb FOKs who want to give you money for an idea that failed the first time around? Yeah. Maybe it will be different this time.

[Photo: AP.]