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Reasons I Won’t Fund You

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Re: Reasons I Won’t Fund You

#61

Post by paulsutter »

pjc50 wrote: post #55
alkonaut wrote: post #51

> I want to hear that you are building a unicorn — or at least, trying. Is this the mentality of the whole startup/venture capital universe? (Excuse me for being disconnected, this is a completely separate world from mine). Are there no venture capitalists, or young startup kids who want to build companies that just grow slowly and organically, and that are profitable throughout, rather than trying to build some serv…

> Is there no venture capital invested with a horizon of a decade or three? Sadly, no. You might get angel funding for that, but realistically most investors want a quickish exit rather than a long relationship. For long-term businesses you're reliant on friends-and-family or remortgaging your house. Also implicit in the "unicorn" model is the idea that the unicorn will be a global monopoly on a particular type of se…

>> Is there no venture capital invested with a horizon of a decade or three? > Sadly, no.

Actually, there is one 20 year fund that I know of. All other funds are 10 year funds.

Bill Gates "Breakthrough Energy Fund" is a 20 year fund, which is an astonishing duration. Every other VC fund I have ever heard of, is a 10 year fund. A 10 year fund means that the intended time from fund creation, to distributing all the cash returned, is within 10 years. Which is almost impossible with startups, but that's VC how funds are structured.

http://www.forbes.com/sites/kerryadolan/2016/12/12/bill-gate...

Re: Reasons I Won’t Fund You

#62

Post by riteshpatel »

alkonaut wrote: post #51

> I want to hear that you are building a unicorn — or at least, trying. Is this the mentality of the whole startup/venture capital universe? (Excuse me for being disconnected, this is a completely separate world from mine). Are there no venture capitalists, or young startup kids who want to build companies that just grow slowly and organically, and that are profitable throughout, rather than trying to build some serv…

VC firms invest other people's money and those people have money in a specific fund entity. Each fund has a specific structure that has various rules on stuff like minimum investment sizes, ownership and time to return the investors' money.

Also, as 9 out of 10 investments, on average, will fail, the 1 that wins has to be big enough to balance out the losses, plus make a profit for the investors that's much greater than putting their money into public stocks, bonds, banks, etc. That's why each investment has to have the potential to be a billion-dollar-plus company, or it doesn't make sense to make the investment in the first place.

Very different from angels who are a) happy to wait b) happy to get 3-4x on their money.

Re: Reasons I Won’t Fund You

#63

Post by duncanawoods »

riteshpatel wrote: post #62
alkonaut wrote: post #51

> I want to hear that you are building a unicorn — or at least, trying. Is this the mentality of the whole startup/venture capital universe? (Excuse me for being disconnected, this is a completely separate world from mine). Are there no venture capitalists, or young startup kids who want to build companies that just grow slowly and organically, and that are profitable throughout, rather than trying to build some serv…

VC firms invest other people's money and those people have money in a specific fund entity. Each fund has a specific structure that has various rules on stuff like minimum investment sizes, ownership and time to return the investors' money. Also, as 9 out of 10 investments, on average, will fail, the 1 that wins has to be big enough to balance out the losses, plus make a profit for the investors that's much greater t…

> as 9 out of 10 investments, on average, will fail, the 1 that wins has to be big enough

This is misleading. It is only because they pursue high risk ventures that 9/10 fail and they are only picking high risk ventures because they dream of x1000 returns. They could use a different investment thesis to choose lower risk, lower payoff companies and have a portfolio where only 1/10 fails.

The VC reasoning is that the 1/10 success is not just x20 for an overall x2 return but actually x100 or x1000. I think VC performance over the years has proven this false, especially if you exclude the top VC as outliers, but its glamorous to be a high-rolling gambler so the myth that "VC as unicorn hunter" is the optimal strategy continues.

Re: Reasons I Won’t Fund You

#64

Post by rdlecler1 »

cocktailpeanuts wrote: post #31
rdlecler1 wrote: post #27

The irony here is that a lot VCs break these rules with either LPs or entrepreneurs: #1 can't see the future (herd behaviour), running VC as a lifestyle business rather than building a platform like a16z, NEA, YC, 500; #5 lack of understanding of the competition (or where they sit in the pecking order); #6 I wouldn't want to work for you (arrogant, or just not that sharp); #7 too slow/too late (slow or non responsive…

The truth to the "irony" is that those are the actual deals that investors want to invest in. This post is for the rest. If you are the hottest company on the market, none of this post applies to you. But 99.9% of the startups out there are not. I see a lot of people on this thread saying this guy is arrogant, etc., but I think that's taking it the wrong way. He's just providing his point of view, and it's not just h…

That goes both ways. The best VCs I've met are also the ones working the hardest and are the most professional. They're also the least likely to be following the herd and the ones you most want on your captable. As an LP they are also the hardest funds to get into. Still those funds represent 5-10% of the funds out there, so the other 90% are falling into the mediocre or worse category. Still most entrepreneurs will take their money because most entrepreurs don't have the track record or traction to be choosey. It's still a buyers market.

Re: Reasons I Won’t Fund You

#65

Post by riteshpatel »

riteshpatel wrote: post #62
alkonaut wrote: post #51

> I want to hear that you are building a unicorn — or at least, trying. Is this the mentality of the whole startup/venture capital universe? (Excuse me for being disconnected, this is a completely separate world from mine). Are there no venture capitalists, or young startup kids who want to build companies that just grow slowly and organically, and that are profitable throughout, rather than trying to build some serv…

VC firms invest other people's money and those people have money in a specific fund entity. Each fund has a specific structure that has various rules on stuff like minimum investment sizes, ownership and time to return the investors' money. Also, as 9 out of 10 investments, on average, will fail, the 1 that wins has to be big enough to balance out the losses, plus make a profit for the investors that's much greater t…

Something I just saw in my news feed that'll also help to give more insight:

https://medium.com/jme-venture-capital/meaningful-vc-exits-2...

Re: Reasons I Won’t Fund You

#67

Post by brianwawok »

shostack wrote: post #66

Can someone explain the comment around SAFEs?

Isn't the idea of a SAFE to avoid having to place a valuation on a startup with no revenue for a seed round? And if you are taking 2 million round at a 10 million valuation, you are a bit beyond that...

(Not a VC just thinking out loud)

Re: Reasons I Won’t Fund You

#68

Post by urda »

> Even (sorry) when you’re with your family. I want you obsessing about your company.

Looks like it only takes 1 reason why I will avoid you as a person (and not just as an investor). This is not a healthy mentality, this is not a good "reason", this is not something we should celebrate in our line of work.

This is something that should be struck down, called out, and shamed.

Re: Reasons I Won’t Fund You

#69

Post by brianwawok »

dandare wrote: post #45

I am not sure if my perception is distorted because of HN but is there a class of investors that do not obsess with unicorns and regularly invest with the target of 10x-100x profit?

Wouldn't that be anyone that only does series B or later? I think your risks go down along with rewards the later you jump on.

Re: Reasons I Won’t Fund You

#70

Post by mbrzuzy »

urda wrote: post #68

> Even (sorry) when you’re with your family. I want you obsessing about your company. Looks like it only takes 1 reason why I will avoid you as a person (and not just as an investor). This is not a healthy mentality, this is not a good "reason", this is not something we should celebrate in our line of work. This is something that should be struck down, called out, and shamed.

He mentioned he knows it isn't healthy.

Personally, I'm not a huge fan of the start up world these days, due to a lot of clashing ego's. But I can respect Jason for telling it straight.

I don't think anything should be "shamed", just because it's not something you agree with. Allow people to operate however they want, it's a free country after all.

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