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Raise less, build more

trohan.com

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Re: Raise less, build more

#11

Post by mfitton »

Animats wrote: post #8

Short version: "A large, poorly performing fund (1.5x) pays its GPs dramatically more than a smaller, higher performing (4x) fund."

Isn't this flawed, though? If a venture company has a billion dollars in LP funding secured, then instead of having that 1 1 billion fund, they could have ten of the 100 million funds listed in the article. Sure, it's more work, but it's also, hypothetically, a vastly larger return, both for GPs and LPs. Not to mention, doing the billion dollar, lower-returning fund makes VC less attractive to the LPs that put up most of the money, as they're paying more in management fees for a lesser return.

It seems to me that funds getting larger is driven by a flawed expectation from VCs that large funds will perform as well as small funds, not based on a cynical extraction of money from their LPs, but maybe I'm mistaken.

Re: Raise less, build more

#12

Post by coding123 »

djbusby wrote: post #9

In observing 100s of deals, advisor to dozens of early stage businesses I'd add: So many folk show up asking to raise because they only see how their company can work "at scale". They have forgotten to do things that don't scale. It's like they skip problem-market fit, jump way past MVP (but still call it that) and almost have to raise - then try to force the market to exist. Many (most?) of these companies I've seen…

That sounds like what magic leap was - it will only work if everyone has one. Doesn't matter if 10 people are not interested. You convince everyone to buy one when everyone else has to have one.

But how do you get it so that everyone else has one first?

Re: Raise less, build more

#13

Post by quickthrower2 »

jandrese wrote: post #5
alex_lav wrote: post #3

Earlier quoted context omitted.

Yeah sometimes it becomes clear founders forget the purpose of a company is to make money/turn a profit and not just to repeatedly raise money and be famous. I have worked at a company that forgot this. It feels kind of surreal sometimes.

That's one view of what a company should do. Another is that it should become famous enough to attract the attention of a FAANG and get bought out ASAP, making the founders multimillionaires before they turn 30. It's the techbro lottery. Many will play, few will win.

The company is the product kind of thing. More like flipping real estate.

Re: Raise less, build more

#14

Post by quickthrower2 »

djbusby wrote: post #9

In observing 100s of deals, advisor to dozens of early stage businesses I'd add: So many folk show up asking to raise because they only see how their company can work "at scale". They have forgotten to do things that don't scale. It's like they skip problem-market fit, jump way past MVP (but still call it that) and almost have to raise - then try to force the market to exist. Many (most?) of these companies I've seen…

> So many folk show up asking to raise because they only see how their company can work "at scale"

Maybe that is the optimum way to get investment? Like how coders at an interview could talk about how they solve business problems with simple solutions, but instead need to talk about how they have kubernetes and microservices experience, know Martin Fowler's patterns inside out, can recite what the L in SOLID means, etc.

Re: Raise less, build more

#16

Post by [deleted] »

quickthrower2 wrote: post #13
jandrese wrote: post #5

Earlier quoted context omitted.

That's one view of what a company should do. Another is that it should become famous enough to attract the attention of a FAANG and get bought out ASAP, making the founders multimillionaires before they turn 30. It's the techbro lottery. Many will play, few will win.

The company is the product kind of thing. More like flipping real estate.

[deleted]

Re: Raise less, build more

#17

Post by morelisp »

quickthrower2 wrote: post #14
djbusby wrote: post #9

In observing 100s of deals, advisor to dozens of early stage businesses I'd add: So many folk show up asking to raise because they only see how their company can work "at scale". They have forgotten to do things that don't scale. It's like they skip problem-market fit, jump way past MVP (but still call it that) and almost have to raise - then try to force the market to exist. Many (most?) of these companies I've seen…

> So many folk show up asking to raise because they only see how their company can work "at scale" Maybe that is the optimum way to get investment? Like how coders at an interview could talk about how they solve business problems with simple solutions, but instead need to talk about how they have kubernetes and microservices experience, know Martin Fowler's patterns inside out, can recite what the L in SOLID means, e…

The L in SOLID is the only useful letter for building simple solutions.

Re: Raise less, build more

#18

Post by bjornsing »

> A typical venture fund has a 2% management fee…

> A $100M fund which does 4x earns the GPs $80M ($in carry, plus $20M in management fees)

Nope. 2% of $100M is $2M, not $20M.

> A $1B fund which does 1.5x earns the GPs $300M ($100M in carry, plus $200M in management fees)

Nope.

Re: Raise less, build more

#19

Post by trohan »

bjornsing wrote: post #18

> A typical venture fund has a 2% management fee… > A $100M fund which does 4x earns the GPs $80M ($in carry, plus $20M in management fees) Nope. 2% of $100M is $2M, not $20M. > A $1B fund which does 1.5x earns the GPs $300M ($100M in carry, plus $200M in management fees) Nope.

Management Fee are paid annually, and typically for 10 years if not more.

It's 2M x 10 years (for each year of the funds life).

Ditto for 20M (x 10 years)

Re: Raise less, build more

#20

Post by duxup »

Generally shouldn’t the motivation to fund the “right” amount be with the VCs? Founders are going to ask for whatever they can right?

But VCs don’t seem to be interested in funding less…

Whatever magical market forces that might change how funding works, they don’t seem to be at play.

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