Category: risk
August 4, 2020 Morgan Stanley : Public to Private Equity in the United States: A Long-Term Look
The dispersion between the best and worst funds is very high in venture capital relative to other asset classes (see exhibit 43). As we reviewed earlier, median returns to investors have been lackluster since 2000, but this hides the fact that top performing funds have generated very good returns. Identifying which funds are in the top quartile can be tricky. Indeed, more than one-quarter of all funds claim to be in the top quartile. The reason is that there are different ways to measure results, including various benchmarks, performance measures, and data sources. Outlook. The outlook for returns from U.S. venture capital in the aggregate, given investor commitments and fund investments, appears to be consistent with the recent past. The dispersion of returns within the asset class suggests that investors who have access to top tier funds will continue to earn very attractve returns. It also stands to reason that the large swell of investment in late-stage venture will earn lower returns than the smaller sum invested in early stage. (read more…)
July 24, 2020 Josh Lerner and Ramana Nanda, Harvard Business School : Venture Capital’s Role in Financing Innovation: What We Know and How Much We Still Need to Learn
Just how large a temptation the venture capital compensation scheme can pose is illustrated in the work of Metrick and Yasuda (2010), who show that of every $100 invested by the limited partners, over $23 end up in the pockets of the venture investors. These sums might not be disturbing if the very substantial payouts to each partner reflected even larger returns being made by the limited partners in the fund. But profit-sharing is not the most important source of compensation. Instead, almost two-thirds of the income (in time-adjusted dollars) is coming from the venture capital management fees, which remain fixed whether the fund does well or poorly. These incentives clearly may motivate groups to add capital in excess of the growth of partners, even if performance suffers somewhat. (read more…)
May 15, 2020 Crunchbase : Why Startups Should Become ‘Camels’ – Not Unicorns – During COVID-19
While head-spinning valuations make for great headlines, challenges facing the tech economy indicated a shift in this “growth at all costs” mindset for a while. With economic uncertainty looming, the shift accelerated, and it’s no surprise as startups look to how they can survive an increasingly likely drought. Soon, unicorns will become myths once more as we see the rise of the “camel.” (read more…)
CATEGORY: downturn, resilience, risk
April 1, 2020 New York Times : Start-Ups Are Pummeled in the ‘Great Unwinding’
Bill Gurley, an investor at the venture capital firm Benchmark, said that over the past 10 years of the start-up boom, investors had taken on more and more risk. That has changed, leaving many of the riskiest start-ups exposed. “‘Risk on’ happens slowly,” he said. “‘Risk off’ happens overnight.” (read more…)
February 23, 2020 San Francisco Gate : As the startup boom deflates, a reckoning is coming for Silicon Valley
Over the past decade, technology startups grew so quickly that they couldn’t hire people fast enough. Now the layoffs have started coming in droves. Last month, robot pizza startup Zume and car-sharing company Getaround slashed more than 500 jobs. Then DNA testing company 23andMe, logistics startup Flexport, Firefox maker Mozilla and question-and-answer website Quora did their own cuts. (read more…)
February 13, 2020 Vanity Fair : “No Longer Tethered to the Fundamentals”: A Nassim Taleb Protege On How To Prepare For The Coming Market Crash
What do you do when the bond market is basically uninvestable and the stock market keeps hitting all-time highs and you know in your gut that none of this will end well? What do investors—big and small—do in such unfortunate circumstances, like the ones we collectively find ourselves in now? (read more…)
February 7, 2020 Alex Danco : Debt is Coming
The Financial Capital all-equity stack, as powerful as it is for creating something out of nothing, is and has always been at odds with the Production Capital mentality of a business builder and operator. There is nothing inherent to tech companies that requires that so many of them fail to live up to their aspirational valuations, aside from the way they’re funded. (read more…)
CATEGORY: alternative financing, debt, risk, valuation
January 9, 2020 Wall Street Journal : Money-Losing Companies Mushroom Even as Stocks Hit New Highs
The combination of forces has pushed the percentage of listed companies in the U.S. losing money over 12 months to close to 40%, its highest level since the late 1990s outside of postrecession periods. This time there’s no recession, and stock market indexes are at or near record highs. That sounds scary, although it’s mainly worrying for investors in smaller companies. (read more…)
CATEGORY: downturn, profitability, risk, valuation
December 12, 2019 Kauffman Fellows : Venture Returns With Abe Othman of AngelList
In a blockbuster conclusion, you found that seed stage investors should put money into every credible deal – this is a surprising finding! Yes, we found that investors could benefit from indexing as broadly as possible at the seed stage, by putting money into every credible deal, because any selective policy for seed-stage investing—absent perfect foresight—will eventually be outperformed by an indexing approach. We did do some simulations, not in the publication, on what indexing at seed actually looks like over human timescales. Over a ten-year investment window, indexing beats 90-95% of investors picking deals, even when those investors have some alpha on deal selection. So the idea that there are some terrific seed investors that soundly beat indices is not inconsistent with our results. (read more…)
December 6, 2019 Entrepreneurship Theory and Practice : ADHD-Related Neurodiversity and the Entrepreneurial Mindset
Our results suggest neurodiversity from ADHD is meaningfully related to aspects of an entrepreneurial mindset. Our results suggest entrepreneurs with ADHD employ a more intuitive cognitive style and demonstrate higher levels of entrepreneurial alertness and RICH, while no significant differences in metacognition were found. (read more…)
CATEGORY: leadership, risk