Category: risk
November 9, 2017 Luke Kanies via Medium : If You Take Venture Capital, You’re Forcing Your Company To Exit
Modern venture capital is obviously successful, as demonstrated by the fact that five of the world’s six largest companies were funded by it. But success is as much about what you say ‘no’ to as what you say ‘yes’ to, and venture capital is no different. In addition to delivering massive collateral damage in the course of its work (more on that later), the prevalent VC model rejects all ideas that do not fit within its narrow definition of a “suitable” investment. (read more…)
CATEGORY: risk, VC, winner take all
October 26, 2017 Founders Collective : Toxic VC and the marginal-dollar problem
Venture capital should come with a warning label. In our experience, VC kills more startups than slow customer adoption, technical debt and co-founder infighting — combined. VC should be a catalyst for growing companies, but, more commonly, it’s a toxic substance that destroys them. VC often compels companies to prematurely scale, which is typically a death sentence for startups. (read more…)
October 9, 2017 Bryce Roberts via Medium : “Venture Scale”
In my experience as an investor over the last 15yrs, this is far and away the most used reason for investors to pass on making an investment. The idea, the product, the market, the team is simply not “venture scale”. (read more…)
CATEGORY: risk, VC, winner take all
October 2, 2017 Luke Kanies via Medium : Moving Beyond Silicon Valley Software Companies
Like the general financial industry, the world of venture capital has become adept at using money to create more money, but it does not consider of the wisdom of its actions. It chooses easy answers, thus leaving harder but better questions unexplored, and accepts high collateral damage to the employees, customers, and industry that at best is painful and at worst is pure exploitation. (read more…)
CATEGORY: resilience, risk, VC
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…)
June 28, 2017 Jonathan Lu via Medium : Is there a new beginning for distressed VC-backed companies?
If you want to hit home runs, you’re going to strike out a lot too — they don’t call it venture for nothing, just like options trading the name of the game is risk. While the lure of the top 1% draws in the dreamers, and the ire at the bottom 1% draws equal media attention, as Thomas Piketty described in Capital in the Twenty First Century, the incentives of capital investment mean that this is exactly how the game is played. (read more…)
CATEGORY: risk, VC, winner take all
September 1, 2015 Inc.com : Yes It’s a Tech Bubble. Here’s What You Need to Know
"I define a bubble as something where assets have prices that cannot be justified with any reasonable assumption," says Jay Ritter, a professor of finance at the University of Florida's Warrington College of Business Administration who studies valuation and IPOs. While definitions of reasonable assumption vary, historically bubbles have occurred when, in an economic sector's development, the last money in is highly unlikely to realize a return that justifies the risk it has taken. How do you know when that moment has arrived? It's when those billion-dollar unicorns, as they're known among venture capitalists, begin to insist that their ultrahigh growth rates should not be subjected to conventional P/E-based valuation analysis. (Not that they could be, anyway, since their earnings are almost always a closely guarded secret.) (read more…)
November 12, 2014 Fenwick & West : Silicon Valley Venture Survey – Third Quarter 2014
Distribution of Venture Returns. It is well known that venture investing is a very risky business, with the key to success often being the one investment that provides a huge return to offset the numerous money losing or small return investments in a fund. (read more…)
CATEGORY: risk, VC, winner take all
April 12, 2009 Rassoul Yazdipour from California State University, Fresno : What can venture capitalists and entrepreneurs learn from behavioral economists?
In a nutshell, what this really means is that we as VCs and/or entrepreneurs may do all the sophisticated analyses, formal due diligences, and complicated evaluations and valuations on a given venture using our brain’s computer-like (rational) subsystem [...] we need to: a. Be at least aware of the inner working of our brain and get to know how in reality we as individuals arrive at a given judgment and choice; and b. Become aware of the main psychological traps and biases that continuously get turned on at and around our decision making times. We may not be fully capable of debiasing our choice process, but still this is much better than the alternative. (read more…)
CATEGORY: resilience, risk, VC