Category: VC
December 7, 2017 Luke Kanies via Medium : Unicorns Distract Us from a Graveyard
I’m convinced that a firm that directly invested in reducing its failure rate would have as many unicorns, but it would also have more positive returns throughout its portfolio, and in the midst of building more companies and making more money, it just might do a little good at the same time. That would be a nice change. (read more…)
CATEGORY: risk, VC, winner take all
December 3, 2017 Jerry Neumann : Power Laws in Venture Portfolio Construction
Every person in venture, when pushed on why either so many companies don’t succeed or on why any young company deserves to be valued at $1 billion or more, says that it’s because venture-backed companies follow a power law. But when they think about portfolio construction, they treat outcomes as some other sort of distribution, one that’s easier to reason about. This post will take the hard road and try to reason about power law distributions. That means math, and code. (read more…)
November 29, 2017 Hunter Walk : For VCs, “What Could Go Right” Is More Important Than “What Could Go Wrong”
VCs are in the business of backing companies that have a substantial chance of failing and the earlier you invest, the more likely you are to see a zero return on your capital. What offsets this is that the successes tend to be outsized, returning 20x, 50x, or even 100x+. The notion that tremendous value is created by a very small percentage of startups, and the financiers behind this businesses are counting on a few of these companies to make up for all the nonperforming investments is called a power law distribution. (read more…)
CATEGORY: risk, VC, winner take all
November 28, 2017 Pitchbook : Why unicorns are overvalued (and the industry knows it)
The rise of private market unicorns is well known—rising from 40 in the US when the term was coined four years ago to more than 120 now. The cumulative unrealized value of current US unicorns is approaching $600 billion, per PitchBook data. Exit times are lengthening, giving rise to a dynamic I've dubbed the "zombiecorn" as VC-backed companies stay private for far longer than has been seen historically. But what if it's all built on a lie? (read more…)
CATEGORY: risk, valuation, VC
November 27, 2017 Pitchbook : 16 charts showing current trends in US venture capital
As of the end of the third quarter, this year is set to reach a decade-high in terms of total VC investment—but deal activity is on pace to decline sharply for the second year in a row (read more…)
CATEGORY: risk, VC, winner take all
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 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 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 20, 2017 Pitchbook : 2017 PE & VC Fund Performance Report
2016 marked the fifth consecutive year of positive net cashflows for both private equity and venture capital; however, net cashflows decreased significantly from 2015 to 2016. With investment activity remaining robust in 2017 while the pace of exits continues to decelerate, we expect the downward trend in net cashflows to persist. (read more…)
CATEGORY: valuation, VC
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