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
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…)
August 10, 2017 Fenwick & West : Silicon Valley Venture Capital Survey – Second Quarter 2017
This report analyzes the valuations and terms of venture financings for 208 companies headquartered in the Silicon Valley that raised capital in the second quarter of 2017. Following a decline in 2016, venture valuations continued the improvement that began in Q1 2017. Valuation metrics are now marginally higher than their 13-year averages. (read more…)
CATEGORY: valuation, VC
July 21, 2017 World Economic Forum : A computer was asked to predict which start-ups would be successful. The results were astonishing
- Augmented reality will be far more significant than virtual reality because it will shape the way we look at and interact with the world around us.
- Image recognition and mapping technologies will be deployed across the auto industry as traditional car manufacturers adapt to self-driving vehicles.
- The problems associated with online security and fraud detection will continue to deepen, with major implications for government and enterprises, and mobile and e-commerce.
- The digitization of education is happening via practical applications that integrate into the existing system, including teaching and training applications as well as gaming.
- Drones are gaining adoption in commercial environments and companies at the forefront will be well placed to expand into consumer applications in the future.
- The smart home is developing through a range of affordable consumer products including lightbulb speakers, smart lighting, flexible security sensors and garden sensors.
- As computing becomes more closely integrated into the human experience, new applications of smart sensors are possible, including sweat analysis, earbuds, eye authentication and holograms.
- There continue to be major market opportunities in e-commerce as fashion becomes increasingly mobile and social.
- Artificial intelligence is supporting greater efficiency in knowledge work, which involves handling data or information, including bots and within sales and marketing.
- Space technology continues to advance in areas such as space satellite propulsion and mining.
CATEGORY: product-market fit, VC
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
July 14, 2017 Antoine Buteau via Medium : How Do Venture Capitalists Make Decisions? How Do Venture Capitalists Make Decisions by Gompers P., Gornall W., Kaplan S. & Strebulaev (2016)
Even though only 0.25% of companies receive venture financing, venture capital is an important source of financing that result in an outsized impact on the economy. Some studies estimate that 50% of U.S. IPOs are VC-backed and that these companies account for 20% of the U.S. market capitalization and 44% of R&D spending. (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
June 20, 2017 Toptal : 3 Core Principles of Venture Capital Portfolio Strategy
It is absolutely critical to understand that the vast majority of a fund’s return will be generated by a very few number of companies in the portfolio. This has two very important implications for day-to-day activities as a venture investor:
- Failed investments don’t matter.
- Every investment you make needs to have the potential to be a home run.
CATEGORY: capital, VC, winner take all
June 1, 2017 Bryce Roberts via Medium : Real Businesses
I assure you there are founders out raising money right now in the hopes of building a business so they can flip it, make millions, and fund their own comfortable “post financial” lifestyle. Of course, they would never frame it that way; so let’s be clear, if your pitch deck has an “exit strategy” slide you are pitching a lifestyle business. (read more…)
CATEGORY: bootstrap, product-market fit, profitability, resilience