October 10, 2018 CNBC~ : Start-up economy is a ‘Ponzi scheme,’ says Chamath Palihapitiya
Chamath Palihapitiya, the outspoken Silicon Valley tech investor, called the start-up economy a charade on Wednesday, while also addressing the current the state of Social Capital, his embattled investment firm. "We are, make no mistake … in the middle of an enormous multivariate kind of Ponzi scheme," said Palihapitiya, at the Launch Scale conference in San Francisco. (read more…)
CATEGORY: risk, valuation, VC, winner take all
September 10, 2018 SaaS Capital : How Do SaaS Companies Perform in a Recession?
A recession will slow the growth of an “average” SaaS company substantially. In the 2008 recession, the growth rate for arguably the best SaaS companies in the world (by virtue of them being public) fell from 40% to 10%. While the SaaS business model insulates companies from wild swings in revenue and profits, it does not make them immune, and cyclicality will negatively impact those SaaS companies with natural ties to cyclical industries or cyclical business functions. (read more…)
CATEGORY: downturn, resilience, SaaS
August 22, 2018 The Quantified VC : How to Win in Venture Capital: Focus on the Fat Tails
Since the track record of VCs is overwhelmingly skewed by a tiny handful of “unicorns,” entrepreneurs who try to assess the reputation of VCs by only looking at home-runs may get a skewed view. In good times, investors will be supportive. But how will they behave during bad times? Even great companies go through ups and downs. If your startup is not one of the big winners (which is likely, based on probabilities), how will your VCs behave? Will they abandon ship?—?or worse, will they turn negative or downright hostile? (read more…)
CATEGORY: risk, valuation, VC, 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
July 1, 2018 Harvard Business Review : The Other Diversity Dividend
Over the past several years one of us (Paul Gompers) has examined the decisions of thousands of venture capitalists and tens of thousands of investments, and the evidence is clear: Diversity significantly improves financial performance on measures such as profitable investments at the individual portfolio-company level and overall fund returns. And even though the desire to associate with similar people—a tendency academics call homophily—can bring social benefits to those who exhibit it, including a sense of shared culture and belonging, it can also lead investors and firms to leave a lot of money on the table. (read more…)
CATEGORY: resilience, VC
June 21, 2018 Collaborative Fund : Tails, You Win
Venture capital is a tail-driven business. You’ve likely heard that. Make 100 investments, and almost all of your return will come from five of them; most of your return from one or two. Correlation Ventures crunched the numbers. Out of 21,000 venture financings from 2004 to 2014, 65% lost money. Two and a half percent of investments made 10x-20x. One percent made more than 20x return. Half a percent – about 100 companies – earned 50x or more. That’s where the majority of the industry’s returns come from. It skews even more as you drill down. There’s been $482 billion of VC funding in the last ten years. The combined value of the ten largest venture-backed companies is $213 billion. So ten venture-backed companies are valued at half the industry’s deployed capital. (read more…)
CATEGORY: VC, winner take all
June 20, 2018 Ilya Strebulaev via Stanford GSB : Inside the Secret World of Venture Capital
If you think talking a venture capital firm into funding your startup is hard, try getting one to share its secrets with you. That’s the challenge Stanford Graduate School of Business finance professor Ilya Strebulaev took on when he founded the Stanford Venture Capital Initiative, which has been steadily amassing a deep and unprecedented database designed to figure out how the VC world really works (read more…)
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
June 10, 2018 Carl Fritjofsson via Hacker Noon : Do VCs really add value??—?Founders say sometimes.
As venture capitalists, we pride ourselves on being “value-added investors”. We not only provide financial means to scale a company, but it is often accompanied by advice, connections and professional services of various kinds. I always aspire to be the most trusted and helpful investor and advisor to any company I get involved with. But in all honesty, I’m fairly certain that VCs tend to oversell the impact we have at a company and the actual value-add we bring. (read more…)
CATEGORY: leadership, VC
May 29, 2018 Clint Korver, Ulu Ventures : Picking Winners is a Myth, but the Power Law is Not
In short, VCs cannot reliably pick winners. They can, however, construct portfolios that consistently generate great returns. Simply stated, more investments give a venture firm better odds of investing in an outlier company that can make a fund. However, there are limits. Portfolio construction requires weighing the benefits of diversification against a VC’s ability to generate and support high-quality investments. Striking the right balance separates great VCs from the rest. (read more…)
CATEGORY: risk, VC, winner take all