111–120 of 383 posts
Earlier quoted context omitted.
If they have fixed costs, why is it a percentage based fee? Why not just be upfront with a fixed dollar value per year of fees for that part?
Fees such as trading costs are a percentage of trading volume. Therefore, the more money you are managing, the higher your trading costs. (i.e those costs are "fixed" but its a "fixed percentage" rather than a static number.)
Most business founders don’t need VC money and are worse off for taking VC money. I find the mindset “my pitch deck was 2 months old so I didn’t get funding” very out of touch of business realities. It is far more likely that that type of business doesn’t need VC funding. Your SaaS can probably be built with your daytime developer salary. No VC ever says “wow, what a great investment opportunity, one of the best, but…
Remember: if VCs believed in what they were doing they would not take a 2% annual management fee and 20% of the upside. They’d take 40% of the upside and live on ramen noodles. VCs make money by raising money from LPs. They spend this money on investments which don’t look too bad if they fail, because nearly all of them fail. Looking good while losing all of your investors money on companies which go broke is the key…
This is nonsense... VCs have a whole staff of people needed to do business and a ton of costs. There's a legal team, marketing/events, human resources, finance, some executive assistants. Screening, meeting founders, traveling to meet founders, takes up a TON of time and obviously most of the time, no investments are made! Also don't forget, VCs have an office, usually not in a cheap place, so lease costs, cleaning c…
It's interesting you are pointing exactly at the OP point without realizing it. If you are assuming that the VCs will be doing this for "free", it means they simply don't believe they'll have any ROI, let alone one that beats the market.
Earlier quoted context omitted.
Fees such as trading costs are a percentage of trading volume. Therefore, the more money you are managing, the higher your trading costs. (i.e those costs are "fixed" but its a "fixed percentage" rather than a static number.)
I highly doubt trading costs are part of the 2% management fee.
Earlier quoted context omitted.
As noted, the VC would raise capital like any other business to cover its operating costs. Think about why they don’t do that.
They already do that... they raise funds from LPs which include a fee which covers the costs. And it works fine, LPs repeatedly invest in the same firms which they wouldn't do if they thought it was a bad deal. There are firms which have been investing for 20-30 years with the same LPs. If the business model wasn't working it would have failed and the VC firm would have closed a long time ago.
Tons of VCs do fail.
Earlier quoted context omitted.
This doesn't make sense. I worked in hedge funds, even there the management fee (2%) covers the fixed costs (legal, trading operations, treasury, IT operations, etc.) whereas the performance fee (20%) incentivises the alpha. In VC it's even worse, because at least hedge funds are liquid . VC investments don't realize their value for 5-10 years! Are they supposed to work for free for 10 years? Even the support staff?
Take 40% and raise capital for the VC operations as a separate transaction than from the LPs, of course. Efficient markets.
Earlier quoted context omitted.
This doesn't make sense. I worked in hedge funds, even there the management fee (2%) covers the fixed costs (legal, trading operations, treasury, IT operations, etc.) whereas the performance fee (20%) incentivises the alpha. In VC it's even worse, because at least hedge funds are liquid . VC investments don't realize their value for 5-10 years! Are they supposed to work for free for 10 years? Even the support staff?
If they have fixed costs, why is it a percentage based fee? Why not just be upfront with a fixed dollar value per year of fees for that part?
My experience is that if the VC is someone who has background from finance, consulting, or law, then they are more likely to lose their minds over superficial stuff like logo placement, font consistency, alignment of images / tables / etc., and of course consistency in dates etc. - probably because that's all they did during their formative years in their respective industries.
Second point: There's a bunch of VCs out there with the only qualification of
A) Having founded / led a successful startup
B) Having invested in startups during the ZIRP-era
So while you have some tremendously good VCs that have stood the test of time, and have "seen it all", there are also VCs that will be washed away the next few years. So don't take it personally if / when some VC will decline you and and be all preachy about it.
Last point: Some of these stories are just made-up BS to generate content and thoughts. Half of the stuff VCs write on LinkedIn or Twitter seems to be fiction, for the sake of getting a point through to their listeners. Also keep that in mind.
Earlier quoted context omitted.
Profitable companies attract much more VC interest and even competition.
Doesn't a VC make money from valuation, not profitability. A profitable business has either reached market potential, or isn't spending enough on growth. Anecdotally I can think of many more examples of unprofitable businesses getting VC money.
Yes, but spending money on growth is probably the number one thing VCs like to invest in. If you happen to be profitable, but also can demonstrate a clear path to growth, then VCs will lean in.
Earlier quoted context omitted.
I've never heard of a musical group or artist who can make a sustainable living on just a local scene (although maybe that's rather the point, since they stayed local to wherever they are). Even for huge artists, from what I've heard merch is where the money is, not ticket or record sales (or today, streaming, which is _ludicrously_ tilted against the artist actually making any money). Admittedly I last looked into t…
> Even for huge artists, from what I've heard merch is where the money is, not ticket or record sales That’s not quite true. It’s an extreme example, but Taylor Swift’s personal earnings from her current tour is expected to end up in the billions. Back in the day, touring was something of a marketing tool to sell records, today the records are marketing for the tours (and they build hype, which yields sponsorships an…