Category: capital
November 13, 2018 The Hustle : As funding rounds grow larger, fewer startups are able to raise money
Venture capital mega-funds have supercharged startup fundraising all the way down to the seed: Since 2013, the average seed round of funding has grown from $550k to more than $2m. But, as the size of rounds has increased, The Wall Street Journal writes, the number of companies receiving that funding has decreased by more than 40% (read more…)
CATEGORY: capital, growth, VC, winner take all
October 11, 2018 The Hustle : With 1/2 as many public companies as 20 years ago, normal investors are squeezed out
According to research from The Atlantic, there are half as many public companies listed on US stock exchanges today as there were in 1997. In other words, despite a few widely publicized IPOs, most companies rely on private investment to grow — creating a system where VCs can profit from the startup economy, but average investors cannot. (read more…)
CATEGORY: capital, winner take all
July 17, 2018 Chris Savage & Brendan Schwartz via Wistia : How an Offer to Sell Wistia Inspired Us to Take On $17M in Debt
Most founders dream of building a product that eventually becomes a household name and sells for a billion dollars, but chasing that goal comes with some downsides. We chose a different path. (read more…)
CATEGORY: bootstrap, capital, leadership, risk
June 13, 2018 Red Wilson : The Valuation Obsession
There is an obsession with the values that are being placed on companies when they finance. There has always been one but it is worse than ever. Every day, without fail, I read a headline that so and so company has raised, will raise, or is trying to raise capital at some eye popping valuation. (read more…)
CATEGORY: capital, valuation, VC
January 11, 2018 Luke Kanies via Medium : Venture Capital Is Ripe For Disruption
By comparison, today’s system looks stable. (Although, in this case, looks are deceiving.) There are hundreds of seed and venture funds, all following the same playbook: Try to get their investments to the magic number of $1 million in annual recurring revenue (ARR), raise an A round of funding, and keep on the funding train until you go public or go bust. There’s so much pattern matching going on that founders are contorting their companies to fit the funding schedule rather than discovering their own destinies. (read more…)
CATEGORY: alternative financing, capital, VC
October 27, 2017 Pitchbook : First-time funds keep on rolling
Unless you're Aaron Judge of the New York Yankees, rookies rarely perform better than veterans. But that's not the case for private equity funds. In our latest PE analyst note, we analyzed first-time global PE fund returns against the broader PE landscape. Even with the disadvantages that come with rookie funds—less experienced staff, smaller infrastructure, fewer back-office resources, etc.—first-time funds have outperformed follow-on funds by a significant degree. (read more…)
October 4, 2017 Homan Yuen via Hacker Noon : VC Math
This is why you hear investors asking questions relating to market size/TAM, future and potential revenue, comparables, etc. They are trying to understand if your company has the potential to be a company that will be valued at $1B or higher, i.e. a unicorn. It is important that the VC invest in companies that have the potential to “return the fund” because they need every investment to have the possibility to be a big winner. A fund needs a few big winners to hit the return metrics that the LPs demand of the VCs. It’s nothing personal, it’s just math. The strategy and math change for a $10M or $1B fund, but the concepts are still the same. (read more…)
CATEGORY: capital, VC, winner take all
September 16, 2017 Joe Lonsdale via Medium : In Defense of Private Equity
Jim Coulter of TPG noted that whereas VC is in the business of mutation, PE is in the business of evolution. Where VCs fund “mutant” start-ups that offer completely novel technological innovations, private equity firms facilitate the process of natural selection to ensure that only the “fittest” companies survive. This is an important distinction between the two industries, and there are other technical differences. But broadly speaking, you can’t believe in the fundamental value proposition of the venture capital industry unless you believe in the basic paradigm of investment, assistance, and economic repair pioneered by PE. (read more…)
July 14, 2017 Antoine Buteau via Medium : How Do Venture Capitalists Make Decisions? How Do Venture Capitalists Make Decisions by Gompers P., Gornall W., Kaplan S. & Strebulaev (2016)
Even though only 0.25% of companies receive venture financing, venture capital is an important source of financing that result in an outsized impact on the economy. Some studies estimate that 50% of U.S. IPOs are VC-backed and that these companies account for 20% of the U.S. market capitalization and 44% of R&D spending. (read more…)
June 20, 2017 Toptal : 3 Core Principles of Venture Capital Portfolio Strategy
It is absolutely critical to understand that the vast majority of a fund’s return will be generated by a very few number of companies in the portfolio. This has two very important implications for day-to-day activities as a venture investor:
- Failed investments don’t matter.
- Every investment you make needs to have the potential to be a home run.
CATEGORY: capital, VC, winner take all