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“Yes” means “no”: The language of VCs

jacobbartlett.substack.com

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Re: “Yes” means “no”: The language of VCs

#101

Post by zomglings »

jefftk wrote: post #92
zomglings wrote: post #77

Earlier quoted context omitted.

The reason I don't use the world exponential, is that superlinear growth in a product is generally not exponential. It is usually at best quadratic because there is some kind of network effect at play - the number of edges in a complete graph with `n` vertices is `n(n-1)/2`. The point is that the value of your product to your users should increase with the number of users OR the marginal cost to you of maintaining th…

True viral growth is exponential: each of your users gets you N>1 additional users, and so the growth of your userbase is proportional to your current scale. Superlinear but subexponential growth can still be pretty impressive, though, especially if it's fast (who cares about 0.1% weekly growth?)

Very good point.

One thing to add - in my experience, you need to spend money to go from merely superlinear to (locally) exponential.

This is the original reason that VCs exist.

If you go to an intelligent decisionmaker at a VC firm with proof of sustained superlinear growth and plan for how their capital will allow you to increase the rate (and higher derivatives) of your growth, they will almost certainly invest.

The reason that VCs have to specialize by industry or look for signals like Stanford/Harvard/whatever is that it's very difficult to validate or invalidate proof of superlinear growth. This requires specialization or, if lazy, social signals like the university you graduated from.

Re: “Yes” means “no”: The language of VCs

#102

Post by jedberg »

When I was raising funds, the thing that I hated to hear most was "We will give you $X as long as you find a lead" where $x was usually just less than 1/2 of what we were asking for.

That was basically their way of saying "we don't believe in you but we don't want to miss out if someone else does". We didn't really want investors like that so we bootstrapped instead.

Re: “Yes” means “no”: The language of VCs

#103

Post by marcell »

lisper wrote: post #3

It's not so much that "yes" means "no" but that VC's never actually say no, and it's easy to understand why. Whether or not they actually fund you, they always want you to think that they are going to fund you because that way they hedge their bets in two ways. First, if they learn new information (like if you suddenly start to get traction) they can change their minds without losing face. Second, and more importantl…

Disagree, I’ve heard “no” from dozens of VCs. They sometimes even give a post hoc rationalization.

Re: “Yes” means “no”: The language of VCs

#104

Post by marcell »

jedberg wrote: post #102

When I was raising funds, the thing that I hated to hear most was "We will give you $X as long as you find a lead" where $x was usually just less than 1/2 of what we were asking for. That was basically their way of saying "we don't believe in you but we don't want to miss out if someone else does". We didn't really want investors like that so we bootstrapped instead.

You can collect these “soft commits” to make it easier to land a lead.

You can tell the potential lead, “we have $X in soft commits, so if you become our lead, our company will have total $X + $Y funding.” It makes your pitch to the lead more compelling.

Re: “Yes” means “no”: The language of VCs

#105

Post by jedberg »

marcell wrote: post #104
jedberg wrote: post #102

When I was raising funds, the thing that I hated to hear most was "We will give you $X as long as you find a lead" where $x was usually just less than 1/2 of what we were asking for. That was basically their way of saying "we don't believe in you but we don't want to miss out if someone else does". We didn't really want investors like that so we bootstrapped instead.

You can collect these “soft commits” to make it easier to land a lead. You can tell the potential lead, “we have $X in soft commits, so if you become our lead, our company will have total $X + $Y funding.” It makes your pitch to the lead more compelling.

I know we could have, but we thought it would be dishonest of us to do so since we had no intention of taking the soft commits. They were always from investors that had nothing to offer and apparently no conviction in their belief either.

Re: “Yes” means “no”: The language of VCs

#106

Post by Nextgrid »

daft_pink wrote: post #30

Maybe it's my business major background and my skepticism of all these tech companies that have no reasonable business model to make $'s, but unless there is an obvious need for investment like buying a large amount of real estate or machinery, why would you need VC money to build an app after you've already spent several months doing it? It should run on it's own and not need investor money. You shouldn't be focused…

It was never about building sustainable businesses or even solving a problem or gap in the market. The only "problem" that needs solving is that someone wants to have an all expenses paid "startup founder" lifestyle for a few years, and some engineers want to build & tend to a playground where complexity is the core feature.

Doing so on your own dime (or a bank loan) is stupid. Doing so on the VC's dime is smart because you can not only walk off scot-free when the whole thing inevitably WeWorks into the ground, but can start over again in a different vertical.

Re: “Yes” means “no”: The language of VCs

#107

Post by yieldcrv »

pnw wrote: post #86
yieldcrv wrote: post #72

Earlier quoted context omitted.

a lot of this is reputation laundering the outside capital is real, quickly landing a lead investor that gets the other investors to close comes from controlling the pools of capital your family’s donor advised fund and private foundation are the lead investors, or they are the only limited partners in the private equity fund thats functionally a family office this same capability allows for top university background…

I've never seen a donor advised fund or private foundation on a startup cap table, and I've seen quite a few. Got any examples?

have you checked the incorporation status of every entity on the cap tables?

this would be difficult to know from a passing glance, they wont necessarily say any combination of “Charitable Non-Profit Foundation”, although I have seen that on cap tables and other disclosures

they can be any entity type and trusts. Trusts dont need to have “Trust” in the name

donor advised funds are not separately incorporated, and may also be on the cap table as the sponsoring charity

and again, as a limited partner in a fund, neither would show up on the cap table, just the fund they invested through

Re: “Yes” means “no”: The language of VCs

#108

Post by hn_throwaway_99 »

In fairness to the VCs, the 3 examples given in "The VC Codex" section seemed blatantly obvious to me. Here is the first one, for example:

> When they say: “Talk to us again when you have traction.”

> They really mean: “If you prove there is a market opportunity and that you can execute as a management team, then we might consider you. But because I don’t believe either of those things will happen, I will not be taking a risk on you”.

I mean, the general tone of the article is "VCs speak an ambiguous language because they're doing a dance with founders." One hand, sure, of course, that happens in literally every sales negotiation. But "Talk to us again when you have traction" seems pretty clear that the VC doesn't believe in either your market thesis or team, and they're basically saying "prove us wrong". I just don't see any guile here.

Re: “Yes” means “no”: The language of VCs

#109

Post by personjerry »

lisper wrote: post #3

It's not so much that "yes" means "no" but that VC's never actually say no, and it's easy to understand why. Whether or not they actually fund you, they always want you to think that they are going to fund you because that way they hedge their bets in two ways. First, if they learn new information (like if you suddenly start to get traction) they can change their minds without losing face. Second, and more importantl…

That's what the article says

Re: “Yes” means “no”: The language of VCs

#110

Post by marcus_holmes »

terminous wrote: post #53
daft_pink wrote: post #30

Maybe it's my business major background and my skepticism of all these tech companies that have no reasonable business model to make $'s, but unless there is an obvious need for investment like buying a large amount of real estate or machinery, why would you need VC money to build an app after you've already spent several months doing it? It should run on it's own and not need investor money. You shouldn't be focused…

Because the SV VC business model isn't to build a traditional profitable business that beats the competition by providing a superior product/service for a competitive price. It is to dominate the competition by subsidizing the real cost to consumers, until you have taken over the market and can raise the price and lower the quality of the product/service. Edit: Or the business model is to be acquired by a FAANG who f…

Does that even work as an investment model? The poster child for this has got to be Uber, and they've shown that this is a lot harder to achieve than it appears.

The huge wins have all been IPOs where the business is still growing/trying to dominate the market, and not where they're in that monetisation phase. At least that's what I've seen. I don't think there's a single case yet where the "dominate and then monopolise" plan has actually worked?

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