71–80 of 175 posts
Bootstrapping (funding growth with revenue) isn't the silicon valley way; the silicon valley method is as follows: 1. get funding
2. grow team/build product
3. raise more funding and find product market fit
4. seize control of market / make large top line moneys
5. repeat 3/4 a as necessary.
6. acquisition/IPO, shareholders payout.
Earlier quoted context omitted.
> a lot of theses articles are pretty basic corporate finance One take: yes, and venture-backed companies often forget or ignore the basics of corporate finance. Another take: orthodox corporate finance isn’t tailored for start-ups. If you’re developing a product, GAAP income is meaningless. So we bootstrap interim financial metrics, e.g. eyeballs and ARPUs and DAUs (oh my!). In truth, the latter dominates at the ear…
I'll add to this a quote that is (purportedly) native to gp's northern EU: "Do you not know, my son, with how very little wisdom the world is governed?"
— Axel Oxenstierna, 1648
Earlier quoted context omitted.
Interesting to think that the company which he divested from may have made it because of his exit.
Unless you have some information you're not sharing, this is a pretty horrible thing to say.
Also, the offspring of the man in question identifies an aspect of his temperament that led to things turning out the way they did.
Almost unrelated, but I also learned what was capital efficiency and payback period after playing Monopoly for the first time in years. Long story short, when the properties were eventually sold out, I burned my cash flow to buy more of them to other players, at a high price, when they needed money (it would also allow them to play longer) My logic was that by owning the most properties and by building houses and hot…
Monopoly was literally invented to illustrate the deceptions of capitalism. Great game.
So I am a Silicon Valley outsider. I live in the northern EU and work with project management in the construction industry representing the owner. It’s mostly infrastructure, roads, water. Old industry, conservative, we basically hate new things. On my spare time I tinker with my computer, learn assembly or whatever. Hence HN. I have recently started a course in corporate finance at my local uni because my new role r…
Investors are sophisticated enough to quickly reason about basic margin opportunity, and decide if the company could ever be profitable, even if the founders have no real business experience. The assumption is that by the second round or so, you can refine the estimate of "Could ever be profitable".
More importantly for venture capital, is that there are many profitable businesses in the world that have people with finance expertise. If you just wanted to invest in profitable companies, you wouldn't be doing venture capital. Instead, you're seeking companies that will have massive returns and become profitable some day.
If the founders still don't know how to do finance, but they're making a ton of money, you send them a CFO to tighten that up. Same way you send them names for VP of Sales, or whatever else they need.
Deciding to give up on a company that seems to be generating lots of money, and "just" needs to improve margins is hard. If you tighten too early, you've blunted growth. If you tighten too late, you've thrown away the money. For the last few years, the amount of money sloshing around meant you saw more of the latter. The firms "had" to keep investing their funds, so they were chasing more and more deals on hope. But $10M out of a $1B fund is still no big deal.
tl;dr: the rare thing is rocket ships, not financial sophistication.
[1] https://www.k9ventures.com/blog/2012/05/31/hope-and-numbers/
This reminds me of an exchange I had with someone who wanted to enter into a business deal with me. He bragged about how his company had X millions in revenue. Since revenue was a meaningless figure to me in this context, I asked what their profit margin was. After hemming and hawing about it, he admitted the company was not profitable, and it became clear it was unlikely to become profitable anytime soon.
So I am a Silicon Valley outsider. I live in the northern EU and work with project management in the construction industry representing the owner. It’s mostly infrastructure, roads, water. Old industry, conservative, we basically hate new things. On my spare time I tinker with my computer, learn assembly or whatever. Hence HN. I have recently started a course in corporate finance at my local uni because my new role r…
> a lot of theses articles are pretty basic corporate finance One take: yes, and venture-backed companies often forget or ignore the basics of corporate finance. Another take: orthodox corporate finance isn’t tailored for start-ups. If you’re developing a product, GAAP income is meaningless. So we bootstrap interim financial metrics, e.g. eyeballs and ARPUs and DAUs (oh my!). In truth, the latter dominates at the ear…
Earlier quoted context omitted.
On the contrary, I think the internet being bigger means the prize for being #2, 3, etc is great too. Very few markets are actually winner takes all.
Yep! And the second / late mover advantage. For any that are unfamiliar: https://insight.kellogg.northwestern.edu/article/the_second_...
Demonstrated through Twitter, and now Cashapp
I love payback period, it's a great metric. But it's easy to take it too literally. It's meant to be a tool to help you make prioritization decisions ("what if we do this instead of that"), but people often use it as a management report ("we did this; here's the verdict"). Here's a SaaS example: if it costs you $1000 to acquire a customer that pays you $100/month, the PBP is 10. That doesn't sound amazing. But you ha…
My dad had great ideas for businesses. Yet each one he started failed for him. Why, because he has such unrealistic view on how long the payback period will be. He even founded with a partner what is now a national company, but at the time it did not make a big profit in the first year, so he sold his share of the business. He had "Get rich Quick" fever, and never saw that bussiness rarely become an overnight success…
There are a lot of moving parts, a lot to learn, and timing/luck are also factors. Until they all hit at the same time, it looks like a flop. It takes time to find, learn, or assemble all the key bits.
Sorry your dad's impatience was so persistent. Sense of urgency is important, but impatience is deadly. Thanks for sharing such a clear example.
So I am a Silicon Valley outsider. I live in the northern EU and work with project management in the construction industry representing the owner. It’s mostly infrastructure, roads, water. Old industry, conservative, we basically hate new things. On my spare time I tinker with my computer, learn assembly or whatever. Hence HN. I have recently started a course in corporate finance at my local uni because my new role r…
Specifically, construction is more tied to either real estate, hospitality or government contracts. These often raise money via a bond (debt) offering or an equity with a very well-worn finance model. These projects require a lot of upfront capital (billions not unusual for roads) and have long time horizons, with log() or linear returns, and have a very well understood model for packaging as a risk asset. These risk assets attract a certain kind of investor, or a certain risk profile in a large fund's portfolio.
Venture capital as an asset class is a bit different. The expectation is that an idea can be proven out relatively cheaply, and the business will scale since the major leverage is intellectual property (vs physical assets). The expectation is also that most business will fail, with maybe a handful of successes capturing most of your return. VC's investing in startups with risk-appetite LPs, is very different than a real estate developer going to a large bank to build a housing project. The VC model is closer to investing in a TV show than a construction project.
Put simply: Investing in a moderately sized government construction project ($2b or so for a toll road in latin America) is a totally different finance product than a startup that leverages IP. The aggregation of risk is also different (VC vs say, REITs) and the devices are different (equity vs debt / leverage). Most investors either run a balanced fund at a large size, or specialize, since they are so different.
EDIT: Also important is relative size of each investment asset class. VC is hilariously small (222 billion in 2022) in comparison to something like energy (2.4 trillion in 2022). VC gets a lot of press but for most professional investors "real funds" start at about a billion table stakes.