Fred Wilson (Union Square Ventures) just wrote about something similar in his blog post today.
http://www.avc.com/a_vc/2013/06/valuation-vs-ownership.html
Edit: mentioned in the article - I should read more carefully!
Paul Graham: Some VCs Push For Large Rounds, Even When Startups Don't Need Them
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Re: Paul Graham: Some VCs Push For Large Rounds, Even When Startups Don't Need Them
#12This is essentially a shallower version of "The New Funding Landscape" ( http://www.paulgraham.com/superangels.html ), which was published in 2010.
Yeah. It read like our beloved pg dumbed down to a Forbes puff piece level. Which kind of puts it at the business nerd equivalent of celebrity gossip for those not seriously interested in VC and startups. Such things can be a little painful to read if you're a startup nerd rather than a mainstream business nerd - not because it's wrong, but because it's shallow to us.
I wonder what impact it'll really have, though? Most people aren't in any position to ever deal with VC from either end, except at a far distance. And the VCs and startups are plenty aware of the situation already.
Re: Paul Graham: Some VCs Push For Large Rounds, Even When Startups Don't Need Them
#13Earlier quoted context omitted.
Just taking out Dropbox and Airbnb, the average for the rest already drops quite a bit. With Dropbox at more than $4bil [1] and Airbnb at $2.5bil [2], that leaves the remaining 283 at about $5bil total, or $17.6mil each. Taking out others like Weebly would drop it further. [1] - http://www.forbes.com/sites/quora/2013/02/07/why-is-dropbox-... [2] - http://www.bloomberg.com/news/2012-10-19/airbnb-said-to-be-r...
So what you're saying is that if you take all of the successful companies out of an investor's portfolio, that portfolio will have a lower value.
No, he/she is saying that "average" is a poor metric to represent the totality of the samples. This is particularly true when you have such a high standard deviation.
By eliminating some of the biggest outliers, you're reducing the standard deviation, thus making the average metric more representative.
You'd also have to disregard the companies with very low or no value, but it seems this was already done in PG's original statement: "Of the 285 _that have_ valuations..."
Re: Paul Graham: Some VCs Push For Large Rounds, Even When Startups Don't Need Them
#14Earlier quoted context omitted.
I wonder which companies are skewing that the most, anybody have a list of the top Y Combinator companies? Obviously the average of $46 million doesn't provide a clear picture at all.
Just taking out Dropbox and Airbnb, the average for the rest already drops quite a bit. With Dropbox at more than $4bil [1] and Airbnb at $2.5bil [2], that leaves the remaining 283 at about $5bil total, or $17.6mil each. Taking out others like Weebly would drop it further. [1] - http://www.forbes.com/sites/quora/2013/02/07/why-is-dropbox-... [2] - http://www.bloomberg.com/news/2012-10-19/airbnb-said-to-be-r...
Wasn't reddit sold quite cheaply, and not part of this list?
Re: Paul Graham: Some VCs Push For Large Rounds, Even When Startups Don't Need Them
#15"Graham suggests that if one reputable venture firm were to break this non-spoken 20% Series A agreement, the best startups would instantly flock to that firm. “It’s going to happen,” Graham says. “You might as well anticipate it and look bold.”" pg, Any plans on using the collective attractiveness of YC to help push that 20% stake down? e.g. would you talk to a lot of the startups in the current batch about collecti…
Any plans on using the collective attractiveness of YC to help push that 20% stake down?
I think he just did.
Re: Paul Graham: Some VCs Push For Large Rounds, Even When Startups Don't Need Them
#16"Graham suggests that if one reputable venture firm were to break this non-spoken 20% Series A agreement, the best startups would instantly flock to that firm. “It’s going to happen,” Graham says. “You might as well anticipate it and look bold.”" pg, Any plans on using the collective attractiveness of YC to help push that 20% stake down? e.g. would you talk to a lot of the startups in the current batch about collecti…
> would you talk to a lot of the startups in the current batch about collectively sticking to a lower percentage like 15%
I'm not a lawyer or even a particularly skilled investor, but that smells like an SEC violation. Even if it wasn't, I think it'd be something akin to price fixing.
Would someone who knows more care to chime in? Am I wrong?
Re: Paul Graham: Some VCs Push For Large Rounds, Even When Startups Don't Need Them
#17Earlier quoted context omitted.
Just taking out Dropbox and Airbnb, the average for the rest already drops quite a bit. With Dropbox at more than $4bil [1] and Airbnb at $2.5bil [2], that leaves the remaining 283 at about $5bil total, or $17.6mil each. Taking out others like Weebly would drop it further. [1] - http://www.forbes.com/sites/quora/2013/02/07/why-is-dropbox-... [2] - http://www.bloomberg.com/news/2012-10-19/airbnb-said-to-be-r...
Wasn't reddit sold quite cheaply, and not part of this list?
Yes, my mistake. Edited.
Re: Paul Graham: Some VCs Push For Large Rounds, Even When Startups Don't Need Them
#18"Graham suggests that if one reputable venture firm were to break this non-spoken 20% Series A agreement, the best startups would instantly flock to that firm. “It’s going to happen,” Graham says. “You might as well anticipate it and look bold.”" pg, Any plans on using the collective attractiveness of YC to help push that 20% stake down? e.g. would you talk to a lot of the startups in the current batch about collecti…
It would be overreaching of us to do something like that. We're not the VCs' adversaries. We need to cooperate with them, because they have expertise in later-stage problems that the startups need.
Re: Paul Graham: Some VCs Push For Large Rounds, Even When Startups Don't Need Them
#19"Graham suggests that if one reputable venture firm were to break this non-spoken 20% Series A agreement, the best startups would instantly flock to that firm. “It’s going to happen,” Graham says. “You might as well anticipate it and look bold.”" pg, Any plans on using the collective attractiveness of YC to help push that 20% stake down? e.g. would you talk to a lot of the startups in the current batch about collecti…
> would you talk to a lot of the startups in the current batch about collectively sticking to a lower percentage like 15% I'm not a lawyer or even a particularly skilled investor, but that smells like an SEC violation. Even if it wasn't, I think it'd be something akin to price fixing. Would someone who knows more care to chime in? Am I wrong?
Isn't the current situation of 20% as a bottom limit the same?
The US has a history of cartel like behavior in finance. Just look at the percentage charged for IPOs [0]. I'm sure if you created a similar graph for venture capital financing that you'd see a black line on the graph just like the one created by Mark Abrahamson, Tim Jenkinson, and Howard Jones.
Trying to break that 20% barrier would seem acceptable. After all, the goal here isn't to get the VCs to take less equity for the same amount of money, but to provide more flexibility in the tradeoff between cash and equity.
[0] http://www.sbs.ox.ac.uk/research/people/Documents/Tim%20Jenk...
Re: Paul Graham: Some VCs Push For Large Rounds, Even When Startups Don't Need Them
#20Earlier quoted context omitted.
I wonder which companies are skewing that the most, anybody have a list of the top Y Combinator companies? Obviously the average of $46 million doesn't provide a clear picture at all.
Just taking out Dropbox and Airbnb, the average for the rest already drops quite a bit. With Dropbox at more than $4bil [1] and Airbnb at $2.5bil [2], that leaves the remaining 283 at about $5bil total, or $17.6mil each. Taking out others like Weebly would drop it further. [1] - http://www.forbes.com/sites/quora/2013/02/07/why-is-dropbox-... [2] - http://www.bloomberg.com/news/2012-10-19/airbnb-said-to-be-r...
Measuring the "average" in any power-law distribution is mostly meaningless.