The New Funding Landscape
paulgraham.com
The New Funding Landscape
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Re: The New Funding Landscape
#2[deleted]
Re: The New Funding Landscape
#3s/hoplessly/hopelessly/
Edit: If someone who downmodded feels like explaining, please do, because I thought it was a nice thing to do to correct typos in someone's essay.
Re: The New Funding Landscape
#4s/hoplessly/hopelessly/ Edit: If someone who downmodded feels like explaining, please do, because I thought it was a nice thing to do to correct typos in someone's essay.
[deleted]
Re: The New Funding Landscape
#5> So if some of the super-angels were looking for companies that could get acquired quickly, that would explain why they'd care about valuations. But why would they be looking for those? Because depending on the meaning of "quickly," it could actually be very profitable. A company that gets acquired for 30 million is a failure to a VC, but it could be a 10x return for an angel, and moreover, a quick 10x return. Rate of return is what matters in investing—not the multiple you get, but the multiple per year. If a super-angel gets 10x in one year, that's a higher rate of return than a VC could ever hope to get from a company that took 6 years to go public.
Very true, but this model doesn't seem sustainable to me, unless I greatly underestimate the number of companies that could provide that "quick 10x return" (or unless the amount of money invested remains small and constant year-to-year).
Imagine you start with $10M in investments this year and make 10x. To make the same return next year, you've gotta find enough companies capable of a 10x return to invest all $100M you now have. Should you succeed, the following year you'd have $1B to invest. In a very short amount of time, your limiting factor switches from the amount of money you have to invest to the number of quality companies you can find to invest in.
It seems their rate of return is going to significantly decrease, year after year, until they're forced to change their strategy to one more in line with what the VCs are doing.
Re: The New Funding Landscape
#6I think some discussion of the changing economics of web startups would have been in order. The reason why smaller investments are becoming more common is because people can do more with less. So perhaps VC's will simply focus on other industries like biotech, which don't seem to have that "problem" just yet.
Also:
s/risk depends/Risk depends/
Re: The New Funding Landscape
#7> So if some of the super-angels were looking for companies that could get acquired quickly, that would explain why they'd care about valuations. But why would they be looking for those? Because depending on the meaning of "quickly," it could actually be very profitable. A company that gets acquired for 30 million is a failure to a VC, but it could be a 10x return for an angel, and moreover, a quick 10x return. Rate…
That assumes that every valuation is aiming for the 'quick buck', the x10 return.
It could be that if the angels are less certain of whether a company can balloon, they demand the more exact valuation in the theory of making that a x10 portfolio member..
Re: The New Funding Landscape
#8>Who will win, the super-angels or the VCs?
I see the start-up companies and entrepreneurs the winners here for now. Question is how long this new arrangement with with super angels is sustainable.
Re: The New Funding Landscape
#9Angel investing is kind of a fad right now. Everyone's doing it. My gut instinct is that it's at least a mini bubble. In 3-5 years a lot of angels are going to be unhappy about negative returns, the stock market is going to be looking stronger, and they'll shift their money back to stocks and bonds.
Surely this huge influx of angel investors has contributed to the much higher valuations early stage startups have been exacting in recent months. When many of these new angel investors wind up losing money and angel investing is no longer the cool thing to do, those sky high valuations will probably return to normalcy.
These are just my personal predictions, and I could be completely wrong. During his talk, pg said he'd wondered if we might be seeing a bubble and decided that we're not. Who knows? Either way, I think that we, as entrepreneurs, should take advantage of the current situation.
Re: The New Funding Landscape
#10Whoever they are - send some to Australia!! The funding situation over here is a travesty for anything that doesn't have a patent attached to it (in my experience, anyway).