December 26, 2017 Fred Wilson : The Second Quartile

The best four to five investments per fund will usually produce greater than 80% of the total returns of a fund (the top quartile). This is where you might imagine that we spend all of our time, but the truth is that these investments generally go well and while we certainly do everything we can to help these companies, they often do not demand a lot of our time. When they do require a lot of our time, it tends to be situational. (read more…)

CATEGORY: leadership, resilience, winner take all

December 22, 2017 Bryce Roberts via Medium : Where There’s Smoke There’s Fire

The largest VCs have made their bets early, so funding slows for fast followers. Timelines for user growth take longer than anticipated. Revenue comes harder and less profitably than planned. New competition continues to get funded, albeit from less well known funding sources. Then, the category starts to feel and look and actually be overfunded.  Enter the next shiny thing. (read more…)

CATEGORY: resilience, VC, winner take all

December 20, 2017 Luke Kanies via Medium : Venture Capital Is Built on Serendipity

Venture investing is fundamentally uncertain. You’re making big bets on people, ideas, and markets that might never work out, and there are more ways to fail than succeed. As a result, investing has to take into account the likely failure of many efforts. If your financial model assumes each of your investments will be a success, you will have a short career indeed. (read more…)

CATEGORY: risk, VC, winner take all

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

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 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 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 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

July 20, 2017 Jonathan Lu via Hacker Noon : What climbing taught me about Venture Capital

For VC’s, the probability of failure is high but the consequence of failure is low / the probability of success is low but the consequence of success is high, so it’s only rational that they swing big and take a lot of shots on goal. There are 898 VC firms that invested in 7,751 companies in 2016 according to the National Venture Capital Association, meaning that VC firms invested on average in 8.6 companies last year. Compare that to 3600 Private Equity firms that invested in 3,538 companies according to Pitchbook’s annual report, for an average of 1 company per firm. (read more…)

CATEGORY: resilience, VC, winner take all