May 16, 2018 Kevin Roose, New York Times : The Entire Economy Is MoviePass Now. Enjoy It While You Can
The new way to make it in business is to spend big, grow fast and use Kilimanjaro-size piles of investor cash to subsidize your losses, with a plan to become profitable somewhere down the road. (read more…)
CATEGORY: customer acquisition, growth, valuation, VC
April 16, 2018 Seth Levine : What’s the Optimal Portfolio Strategy for a Venture Fund?
Last year I wrote a few posts (here and here) that talked about how skewed venture returns were. The key take-away graphic from that post is below – outsized returns on venture investments are rare. Much rarer than most people realize. (read more…)
CATEGORY: risk, valuation, VC, winner take all
March 22, 2018 CB Insights : From Alibaba to Zynga: 28 Of The Best VC Bets Of All Time And What We Can Learn From Them
In venture capital, returns follow the power law — 80% of the wins come from 20% of the deals. Great venture capitalists invest knowing they’re going to take a lot of losses in order to hit those wins. Chris Dixon of top venture firm Andreessen Horowitz has referred to this as the “Babe Ruth effect,” in reference to the legendary 1920s-era baseball player. Babe Ruth would strike out a lot, but also made slugging records. Likewise, VCs swing hard, and occasionally hit a home run. Those wins often make up for all the losses and then some — they “return the fund.” (read more…)
CATEGORY: risk, VC, winner take all
March 5, 2018 Eric Paley via Tech Crunch : When venture capital becomes vanity capital
I’ve written a lot about the benefits of efficient entrepreneurship. I’ve explained my view conceptually, tried to illustrate the mechanics of how excess capital kills promising companies, and shared data from 71 IPOs that demonstrates that even in success, more capital raised is not correlated with better outcomes. Just in case all of that was too conceptual, this blog post is designed to appeal to another emotion—greed. Raising less money or money later doesn’t just lead to better companies, it leads to richer founders. (read more…)
CATEGORY: leadership, valuation, VC
February 20, 2018 Alessandro Pluchino : Talent vs Luck: the role of randomness in success and failure
The largely dominant meritocratic paradigm of highly competitive Western cultures is rooted on the belief that success is due mainly, if not exclusively, to personal qualities such as talent, intelligence, skills, efforts or risk taking. Sometimes, we are willing to admit that a certain degree of luck could also play a role in achieving significant material success. But, as a matter of fact, it is rather common to underestimate the importance of external forces in individual successful stories. It is very well known that intelligence or talent exhibit a Gaussian distribution among the population, whereas the distribution of wealth - considered a proxy of success - follows typically a power law (Pareto law). (read more…)
CATEGORY: resilience, risk, winner take all
February 5, 2018 Dave Hersh via Medium : Can This Company Be Turned Around?
There are no shortage of companies in need of wholesale transformation, where the strategy or execution didn’t work and they are stuck between capital needs and market realities. (read more…)
CATEGORY: leadership, profitability, resilience
February 3, 2018 Jonathan Lu via Startup Grind : Three profound truths I learned from Silicon Valley Startups
1. There is no correlation between intelligence and bias. 2. Who you raise money from is more important than how much you raise. 3. It’s just as important to be realistic as you are persistent. (read more…)
CATEGORY: leadership, resilience
January 11, 2018 Luke Kanies via Medium : Venture Capital Is Ripe For Disruption
By comparison, today’s system looks stable. (Although, in this case, looks are deceiving.) There are hundreds of seed and venture funds, all following the same playbook: Try to get their investments to the magic number of $1 million in annual recurring revenue (ARR), raise an A round of funding, and keep on the funding train until you go public or go bust. There’s so much pattern matching going on that founders are contorting their companies to fit the funding schedule rather than discovering their own destinies. (read more…)
CATEGORY: alternative financing, capital, VC
January 9, 2018 Pitchbook : A Dynamite Year for VC
In 2017, record-breaking fund sizes and unprecedented levels of dry powder gave rise to mega-deals and dramatic shifts in the exit market. Outsized funds spark outsized deals. Driven by strong VC fundraising and non-traditional investor activity, capital invested reached the highest levels in over a decade while deal volume dropped. The result? Fewer, but larger, deals. (read more…)
CATEGORY: growth, VC, winner take all
January 8, 2018 Christian Knott via Medium : The Risk-Return Profile of Venture Capital
When analysing actual fund performances [...] results ranged from -50% IRR to over 200% IRR with an average of 6%. A surprising result given that frankly, I would have expected a portfolio of less risky assets to return 6% and much more from Venture Capital. By the way, it does not become prettier when looking at the median performance that is -6%. In context, this means that a majority of venture funds loses money, with a small number of funds delivering very strong returns** (read more…)
CATEGORY: risk, VC, winner take all