131–140 of 177 posts
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If those investors had put their money into the S&P500 instead, they would have had a better return on their investment.
Only in this specific timeline. On average over a longer timeframe that is more representative of the market, they definitely would not have.
All this to say, I appreciate the goals of Joel in building a strong culture and strongly support this, but the product itself isn't that great to use as a customer, which is probably why growth isn't what VCs want. And I'm just hypothesizing that a hard look at the tech stack could maybe help.
If I remember correctly, these guys were proud and very public about building Buffer as a lifestyle business as were the VCs that backed them. At the end the VCs would came out with a negative IRR which was not unexpected—a lesson into why VCs don’t invest in lifestyle businesses.
I find it strange that being this profitable is labeled a "lifestyle business." The hypergrowth/unicorn exit isn't a healthy outcome for many businesses.
Businesses are great and I don't think most people are trying to talk down about them. But VCs are trying to build an asset they can sell. Because when you sell an company that has a high rate of projected growth you get all that money now as opposed to waiting 20 years. There are plenty of investments that pay out solid returns for 20+ years. VC type funds are attractive in no small part because they pay out in a shorter period of time.
It really has little to do with building a business outside of the fact that the asset happens to be a company.
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I think it is a bold move. In their situation it seems like the right move. I am seeing a lot of sentiment on HN that feels sorry for VCs. VC already get paid above 200k/year; no need to feel sorry for them. People should feel sorry for the founders & the employees who did all the work. Now if they get liquidation, then that is good.
It's not just a return for the VCs, but all the contributors that gave their money to the VCs to invest, like your university's endowment fund, retirement and pension funds, etc.
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The interesting question, if the intention was to stick it out in the long term, is whether raising VC money in the first place was a good idea. Bootstrapping the business would have probably been closer in line with the vision and allowed him to retain control without eventually souring relationships
It's easy to have 20/20 hindsight. The situation was different when Buffer was formed. There weren't as many examples of successful bootstrapped companies and Joel (the founder) was much less experienced. I don't want to say getting VC was a mistake for Buffer because I can see it might have had an upside of connections and advice for what was an inexperienced team, and I think at that time the management team was mo…
Does anyone even use buffer? I remember it gaining traction several years back but that's about it.
The data is open here: https://buffer.baremetrics.com/ As an anecdote, we are happy paying customers and have been for some time.
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You are thinking from the perspective of an individual investor. For VCs, this kind of return is abysmal since it won't cover the 7/10 companies that went completely bust. In order to VCs to take high risks on early stage companies, they need the winners to return 100x so the fund even makes financial sense. It's one of the main reasons why VCs constantly push startups for hyper growth. This is certainly better than…
>> For VCs, this kind of return is abysmal since it won't cover the 7/10 companies that went completely bust. Only very myopic VCs would think this way globally. If every business did this, it would be terrible. But each business is its own opportunity/set of circumstances, and forcing everyone to 10X+ is as equally stupid as cashing out $1MM on a four year term sheet on $2.5MM invested. You must evaluate each opport…
Might this be a (converse version of a) No True Scotsman fallacy?
Elsewhere in the thread, a comment [1] referenced an article [2] that details the return imperatives that VCs face. In particular, it details how small returns "don't move the needle".
OTOH, the article asserts that only 5% of VCs (misleading, if a percentage of number of firms instead of AUM) succeed in meeting this imperative, so I wonder how the other 95% still attract enough LP money.
[1] https://news.ycombinator.com/item?id=17872045
[2] https://news.ycombinator.com/item?id=17874278 https://techcrunch.com/2017/06/01/the-meeting-that-showed-me...
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Family for 30 years in rental property business. Anything which involves rent is by far not risk free. Very cycle driven, heavy on litigation and management has to be perfect to make returns.
I’ve been doing real estate for about 25 years and haven’t seen much risk at all. Biggest risks have been vacancy and maintenance. Vacancy is solved by setting the right rent and maintenance is a 10% reserve fund. Also I said “almost risk free”. :)
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>> For VCs, this kind of return is abysmal since it won't cover the 7/10 companies that went completely bust. Only very myopic VCs would think this way globally. If every business did this, it would be terrible. But each business is its own opportunity/set of circumstances, and forcing everyone to 10X+ is as equally stupid as cashing out $1MM on a four year term sheet on $2.5MM invested. You must evaluate each opport…
> Only very myopic VCs would think this way globally. Might this be a (converse version of a) No True Scotsman fallacy? Elsewhere in the thread, a comment [1] referenced an article [2] that details the return imperatives that VCs face. In particular, it details how small returns "don't move the needle". OTOH, the article asserts that only 5% of VCs (misleading, if a percentage of number of firms instead of AUM) succe…
You never want small returns. But when you can choose a small return over basically a near-zero chance of losing all your money, it isn't that difficult of a choice - or it shouldn't be.