81–90 of 116 posts
As a founder of a bootstrapped & profitable company, I don't really get what's so attractive about this funding model. It seems like it's just a really, really, really expensive loan. They make it sound nice with their anti-VC, pro-founder marketing angle. But at the end of the day, they are charging you 3x what you're borrowing.
Earlier quoted context omitted.
>Canadian "venture" capital. I love this. I wish it were a thing, "The Canadian Model".
The Canadian model for business isn't all that great. It doesn't do a great job of serving the country's social needs, and it also doesn't do a great job of producing competitive businesses. There's a fair number of public funds that get funneled into unproductive firms through things like innovation grants, and there's a lot of protectionism for incompetent incumbents. All of this seems to enrich a small class of el…
If they were productive firms, they wouldn't need government money. This is why free markets work better, because free markets allocate resources to the most productive uses.
in my humble and unwarranted opinion (see also not having run a vc company or a company for that matter) profits should have been the idea from the get go: all of this effort to get large and then use economies of scale to defeat rivals and then start making a profit is just wrong
Consider that you want to make an App store where you add value by manually validating every app available through your store and build trust with your customers by only serving the best apps.
How can you compete with the Apple App store? You can't. At least, not without creating a hardware/software ecosystem with millions of users.
You could shortcut that buildup of scale by only targeting android users but then your competition against the Apple App store will be entirely dependent on the strength of Android ecosystem.
This is probably silly but I have often wondered why you don't get straightforward loans in Software. If I were to open a restaurant I would hardly go for a VC. Do banks have something against software businesses ? Are there software companies that have bootstrapped themselves with loans (not friend/family loans) as opposed to VC ?
The market structure is pretty different. Restaurants have geographic barriers to entry - your restaurant is probably only serving customers within a ~20 mile radius. And the economics and business model are well-known: you know exactly how much rent is going to cost, how much labor is going to cost, how much food is going to cost, and how many tables you can turn over a night, and so you can build reasonable financi…
2. Marketing Costs
3. Compute Power
4. Software Pricing
can all be quantifiable in numbers. Again I don't know how loans operate.
To be a cynic, I think the software free lunch is over. Data will be increasingly localised. More draconian laws to come, let's hope they are stupid. Algorithms have also become "scary" for normal folks.
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I agree. This isn't quite an apples-to-apples comparison. But middle-market companies with okay-ish financials can easily get covenant-lite leveraged loans from the gigantic private credit market, for well under LIBOR + 1000 basis points. The current yield-to-maturity on the leveraged load index is 5.64%[1]. 3X in 7 years implies a yield-to-maturity of 17%. Why would any company pay more than three times the cost of…
Virtually no startup can get loans without a PG at any non-loanshark rate. This would be very attractive to someone who wants to grow their business without taking (more) personal risk than they have already.
Now I'm sure they're not using exactly the same definition. Plus we have to take into account recovery rates. But the point is that this VC program almost certainly is not funding the "average startup". To achieve those low levels of default, their investment pool has to be significantly safer and more stable than the typical Valley startup.
So either their typical investment is safer in obvious ways, like interest coverage and EBITDA multiples. In which case they should be able to access traditional credit markets at much more favorable rates. Or the VCs in question have a unique ability to identify sure bets in opaque ways. Ways that other investors just can't see. In which case the secret sauce isn't the funding structure, but the preternatural giftedness of the firm's general partners.
(Or there's a third option, which is that the fund's track record has just represented a string of good luck. They've been fooled by randomness and future returns will not live up to past history.)
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> A high-risk high-reward investment model may still produce higher rates of returns than a low-risk low-return model. So, this isn’t really my area, but if the market is efficient shouldn’t these come up about the same over a long enough period? In other words if one or the other has dramatically better returns that just means the risk was mis-priced to begin with. The immediate objection I can see to this (without…
In an efficient market, investments that are more risky will produce higher returns. If they didn't, no rational investor would invest in them. Why invest in a venture that is more risky, unless you're compensated via higher returns. You can already see this playing out in the public markets. Stocks produce far higher returns than corporate bonds, which produce higher returns than treasury bills. There's further nuan…
Having a higher potential return and actually being +EV aren’t the same thing. Just ask any bookie.
@Indie.vc ... you spent a ton of time writing this post only to have it paywalled by medium. I can't read it... Ditch medium as they aren't compatible with your business model :-P
Earlier quoted context omitted.
The Canadian model for business isn't all that great. It doesn't do a great job of serving the country's social needs, and it also doesn't do a great job of producing competitive businesses. There's a fair number of public funds that get funneled into unproductive firms through things like innovation grants, and there's a lot of protectionism for incompetent incumbents. All of this seems to enrich a small class of el…
> public funds that get funneled into unproductive firms If they were productive firms, they wouldn't need government money. This is why free markets work better, because free markets allocate resources to the most productive uses.
You misspelled profitable.
As a founder of a bootstrapped & profitable company, I don't really get what's so attractive about this funding model. It seems like it's just a really, really, really expensive loan. They make it sound nice with their anti-VC, pro-founder marketing angle. But at the end of the day, they are charging you 3x what you're borrowing.
When I was fundraising, we talked to a few of these type of funds (IIRC, this exact fund was one of them). It just seemed like worse terms for less money. It's a valid model, but I don't understand the self-righteous marketing.