
The Second Quartile - justinv
http://avc.com/2017/12/the-second-quartile/?utm_source=dlvr.it&utm_medium=twitter
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Buge
At first I wondered why they would write an article bragging that they spend
over 75% of their time trying to bring in just 20% of their income. It would
obviously be more efficient to focus on increasing the 80% or firing some
people and focusing on keeping the 80% the same.

Then I realized this is a publicity piece to get startups to allow AVC to
invest, assuring startups that AVC will stick by them even if the startup
isn't great.

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skrebbel
That is true but does it make the article incorrect? If this is really what
they do and not a flat out lie then it's honest marketing.

~~~
Buge
You're right, I phrased it a little harshly. There's nothing wrong with
promoting how much they help the startups that aren't doing as well. Providing
that guarantee is like insurance, it allows all startups to move forward more
confidently.

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sharkweek
> There will be roughly ten investments per fund that will return maybe 5% of
> the fund (the third and fourth quartile). We spend a lot of time on these
> investments and it is difficult work that I have written a lot about over
> the years. _The time and money we spend on these investments is not rational
> but we do it anyway._

I notice this in my own work all the time. Some sort of human condition,
probably, that "requires" I focus on the biggest headaches to try and solve
them, despite probably being a lot of other more beneficial things to focus on
when thinking about long term results.

As for the whole argument around the second quartile, this just seems to be
the ecosystem of venture capital. A business with [insert healthy, reasonable,
steady annual growth metric here], fantastic by most standards, doesn't
initially cut it when VC portfolios require so much bigger returns to remain
viable against other asset vehicles. But then suddenly that's not the case
anymore, once the business has I guess proven itself as being a success
relative to other fantastic flare-outs who once had much higher expectations.

I always think about that scene from Silicon Valley about 'pre-revenue' being
more exciting for investors:
[https://www.youtube.com/watch?v=BzAdXyPYKQo](https://www.youtube.com/watch?v=BzAdXyPYKQo)

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killjoywashere
Soooo... be in the top half? Seems reasonable but as you select into more
competitive demographics, it gets quite challenging. If you're up against
teams of PhDs at well funded companies, that's strong signal that it may get
hard to stay in the top half.

~~~
Buge
They say they spend tons of time on the 3rd and 4th quartile as well.

According to them, the only people they don't really help are the top
quartile, who bring in 80% of their money. Weird.

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threeeyed-raven
What's the best way to fund yourself if you aren't in the first quarter?
What's non-vc way to fund yourself?

~~~
adventured
Keep your expenses extremely low. That applies to any non-VC context
generally.

People borrow money from friends & family, credit cards, or from their assets
such as a home.

People lean on savings or take a tax hit and pull capital out of a 401k.

Smaller angel investors are a common avenue (someone that might put in $15k or
$50k). They have very little in common with bigger VC investors, they're more
like taking an investment from a friend or family member in terms of the
actual relationship of dealing with them and their expectations.

Ideally, the absolute best way to non-VC fund, is by securing sales
immediately. That is, to not start a business until you have your first
customer. Now, that works for some things and not for others obviously, some
businesses do not lend themselves easily to that manner of self-funding out of
the gate.

If you're talking about a business that's already growing well but needs
serious non-VC financing, that's very challenging. If you can demonstrate
consistent growth over time and the ability to generate a profit, there are
some options for debt financing with specialty financial firms. Traditional
bank loans usually won't cut in that situation, that's usually a path if
you're operating a franchise chain or convenience store, very traditional
predictable businesses (ideally with some assets the bank can take if it all
goes south).

The best book I've ever read detailing the struggle of self-financing a very
successful company, is Shoe Dog by Phil Knight, in founding & building Nike.
They were doubling sales every year for the first dozen years and nobody
wanted to fund that growth, they were constantly on the edge of bankruptcy.
They had no serious assets, no cash pile, no meaningful profit - all that
growth was going right back into larger orders in a repeating cycle; so banks
absolutely hated them and were aggressively reluctant to provide sales
financing. It's fascinating to read what Knight had to go through to enable
Nike to survive, how many times it almost went bankrupt despite meteoric
growth.

