September 1, 2015 Inc.com : Yes It’s a Tech Bubble. Here’s What You Need to Know
"I define a bubble as something where assets have prices that cannot be justified with any reasonable assumption," says Jay Ritter, a professor of finance at the University of Florida's Warrington College of Business Administration who studies valuation and IPOs. While definitions of reasonable assumption vary, historically bubbles have occurred when, in an economic sector's development, the last money in is highly unlikely to realize a return that justifies the risk it has taken. How do you know when that moment has arrived? It's when those billion-dollar unicorns, as they're known among venture capitalists, begin to insist that their ultrahigh growth rates should not be subjected to conventional P/E-based valuation analysis. (Not that they could be, anyway, since their earnings are almost always a closely guarded secret.) (read more…)
June 25, 2015 Jerry Neumann : Power Laws in Venture
The professional innovation community takes it as a given that venture returns are power-law distributed. In Peter Thiel’s class at Stanford he said “…actual returns are incredibly skewed. The more a VC understands this skew pattern, the better the VC. Bad VCs tend to think the dashed line is flat, i.e. that all companies are created equal, and some just fail, spin wheels, or grow. In reality you get a power law distribution.” (read more…)
CATEGORY: resilience, VC, winner take all
June 8, 2015 Chris Dixon from A16z : Performance Data and the ‘Babe Ruth’ Effect in Venture Capital
“How to hit home runs: I swing as hard as I can, and I try to swing right through the ball… The harder you grip the bat, the more you can swing it through the ball, and the farther the ball will go. I swing big, with everything I’ve got. I hit big or I miss big.” –Babe Ruth One of the hardest concepts to internalize for those new to VC is what is known as the “Babe Ruth effect” (read more…)
CATEGORY: valuation, VC, winner take all
April 14, 2015 Saints Capital : A Guide to Secondary Transactions: Alternative Paths to Liquidity in Private Companies
The sale of private company shares on the secondary market is becoming increasingly prevalent as the timeline to reach a liquidity event has lengthened over the last decade. In order to proactively manage secondary transactions, the boards, management teams, and investors of these companies need to be aware of the relevant issues, challenges and considerations. (read more…)
CATEGORY: capital, secondaries, valuation
December 1, 2014 Small Business Economics : Who Become Serial and Portfolio Entrepreneurs?
“Serial entrepreneurs” run multiple businesses in sequence while “portfolio entrepreneurs” run multiple businesses in parallel; they differ from “novice entrepreneurs” who have so far operated only one venture. The present paper is the first to model occupational choices between all three entrepreneurial types: It goes on to discuss its theoretical predictions in the light of independent evidence about serial and portfolio entrepreneurship from the extant literature. (read more…)
CATEGORY: leadership, product-market fit
November 12, 2014 Fenwick & West : Silicon Valley Venture Survey – Third Quarter 2014
Distribution of Venture Returns. It is well known that venture investing is a very risky business, with the key to success often being the one investment that provides a huge return to offset the numerous money losing or small return investments in a fund. (read more…)
CATEGORY: risk, VC, winner take all
October 29, 2014 Business Insider : Why Selling A Startup For $20 Million Can Be Better Than Selling It For $200 Million
"My advice is you shouldn't do a startup for financial reasons," he wrote via email. "Most startups fail and there are easier ways to make money with less risk...And if a company is successful, which is very hard to achieve, the money comes whether you build a fat company or a lean one. Mike [Arrington] and Arianna [Huffington] both did great financially. So did Mark Zuckerberg and Kevin Systrom. How many yachts can you water ski behind?" (read more…)
CATEGORY: bootstrap, leadership, valuation
July 21, 2014 Andreessen Horowitz : 12 Things I Learned From Marc Andreessen
#1 “The key characteristic of venture capital is that returns are a power-law distribution. So, the basic math component is that there are about 4,000 startups a year that are founded in the technology industry which would like to raise venture capital and we can invest in about 20.” “We see about 3,000 inbound referred opportunities per year we narrow that down to a couple hundred that are taken particularly seriously… There are about 200 of these startups a year that are fundable by top VCs. … about 15 of those will generate 95% of all the economic returns … even the top VCs write off half their deals.” #10 “There’s a new generation of entrepreneurs in the Valley who have arrived since 2000, after the dotcom bust. They’re completely fearless.”… “Founders today are very technical, very product centric, and they are building great technology and they just don’t have a clue about sales and marketing…it’s almost like they have an aversion to learning about it.” “Many entrepreneurs who build great products simply don’t have a good distribution strategy. Even worse is when they insist that they don’t need one, or call no distribution strategy a ‘viral marketing strategy’ … a16z is a sucker for people who have sales and marketing figured out.” (read more…)
CATEGORY: leadership, product-market fit, VC
June 20, 2014 Capital Dynamics : Introductory Guide to Investing in Private Equity Secondaries
The average high bid from 2006-2007 was above 100% of the reported NAV, i.e. buyers paid premiums to NAVs across all strategies, betting on further appreciation potential for the acquired funds. In 2008, following the collapse of Bear Sterns in February, the dramatic events in September 2008 and the ensuing ‘great financial crisis’; prices in the second half of the year fell sharply and continued to be at a very compressed level through 2009, reflecting widespread financial distress that some Sellers found themselves experiencing while the Buyer community experienced uncertainty and risk-aversion. At the prices offered, only the most liquidity-pressed Sellers actually sold. Consequently, the overall transaction volume pulled back and ended up at an estimated USD 10 billion, or merely 50% of the levels seen in 2008 (see Figure 2). In 2010, markets and economies around the world started to recover, as did pricing in the secondary market. Transaction volumes and pricing quickly rebounded to more normalized levels. Since 2010, as market participants became increasingly optimistic, both transaction volumes and initial high bids have risen to 90% of NAV for all strategies in the second half of 2015. (read more…)
CATEGORY: capital, secondaries
February 19, 2014 Devin Mathews via Fortune : How to avoid the venture capital trap
Building your company this way gives you the flexibility to make mistakes along the way without the fear of your VCs pulling the plug. Sure, this way doesn’t get much press but it comes with control over how fast you climb, where you place your bets, and who and when you add to your team. As the saying goes, revenue is for vanity and profit is for sanity. (read more…)
CATEGORY: bootstrap, resilience