
Seattle angel investor says few investors add value (2016) - hayksaakian
http://blog.capitalandgrowth.org/jon-staenberg/
======
curiouslurker
"Yeah, it pretty simple. If it is hard to raise money figure out how you don’t
have to—get to profitability.

That discipline is healthy. There are very few companies that have the hyper-
growth that allows them to forgo profitability in the short-term and everyone
wrongly assumes those examples are the norm, whether it’s a Facebook or a
YouTube."

I think more Silicon Valley CEOs need to internalize this. They may have heard
it, but from the looks of it, they have not internalized it.

~~~
blazespin
It depends on your team/product. Are they going to build, max, a 1B business?
Sure, than 10x is fine. Do they have potential for a 10B - 100B business? Than
100x return makes sense, because land grab and consolidation will likely be an
aspect of the business - which requires significant capital and therefore
returns.

~~~
pieterhg
As OP said, very few companies are in this realm. While many people assume
this is the status-quo, it's not anymore.

~~~
sillysaurus3
If this were true, YC's batch sizes would be getting smaller, since they only
invest in companies that could become as big as Airbnb or Dropbox. But the
batches are getting bigger.

Maybe this is true for investors outside of YC's deal flow, though. That would
have some interesting implications.

~~~
jkuria
I think they do this to maximize the surface area for success. Investing in
more companies but keeping the bar high, increases the likelihood of finding
the AirBnBs and DropBoxs. After all, the cost of funding each company is
miniscule in the grand scheme of things.

~~~
sillysaurus3
True, but the assertion was that nowadays very few companies are capable of
reaching Airbnb-size valuations. YC is probably far more qualified to judge
this than we are, and since their batches are getting bigger, the assertion
seems false.

------
yinso
> That’s what everyone says but how many 100x’s are there really? I’ve been
> doing this a long time and there just aren’t that many.

> I don’t have the same pressures of a fund in liquidity, timing or the need
> for 100x returns. If I can consistently get 5x to 10x I’d take that all day
> long.

How many investors, angels, VCs or otherwise, focus on the 5x-10x return
deals?

And are 5x-10x deals safer, meaning that more of a sure thing, than the 100x
deals in terms of return? I.e. are VCs being rational by focusing on the 100x
deals since 5x-10x deals aren't safer, or are they forgoing safer and better
returns of the 5x-10x for the chance to become movers and shakers of the
largest players?

~~~
a13n
I've asked a VC this question before. They said that in theory going after
5-10x returns sounds great but in practice no successful VC firms use this
strategy. They all make their money from the few who "return the fund".

~~~
mrep
Well, I tend to think of VC's as investors who target insane growth companies
so that kind of makes sense.

One of my good friends works in private equity and their investment targets
are 100% focused on small banks who return an average of 2-5x.

Not quite the 5-10x returns but they have much higher success rates.

~~~
kornish
A friend of mine who graduated with honors from an Ivy econ program moved to
Palo Alto and went into PE. I asked him why he didn't go into VC in the heart
of venture capital.

He replied that PE was as close as you could get to formulaically printing
money while seed-stage (and even later) VC was more like splattering paint at
a wall and seeing what sticks, and that the former suited his personality
better.

An interesting comparison; food for thought.

------
chicagogal
I've heard the phrase "keep me updated" before ;) Perhaps they don't want to
give honest feedback in case they later turn out to be wrong and want in?

~~~
rpedela
That phrase is VC talk for no.

~~~
abalashov
To the point of the sibling comment, I think "no, at this time" is more
accurate.

------
0xbear
10x means much lower probability of failure in order to get any ROI at all.
Failure, sadly, is a lot harder to avoid than founders and VCs would like.
100x means the overwhelming majority of investments can fail and you still
make out like a bandit.

------
Karrot_Kream
> I’ve been doing this long enough to know that the next big thing won’t
> happen as quickly as people expect. I am therefore willing to forgo those
> 100x returns and get 10x on things that are more certain and nearer term.

If only more founders thought like this too.

~~~
ouid
Who considers 10x settling?

~~~
kornish
Institutions whose portfolio economics demand 1000x returns or bust.

And also some of the individuals (angels) investing alongside the above
institutions.

~~~
narrator
That's some really dumb money if it needs 1000x returns somewhere to beat
index funds.

~~~
kornish
Hey - when the median return of an investment in a VC portfolio is 0, that
alpha has to come from somewhere.

And you know what? It's a valid strategy for those with the skill (or luck) to
execute repeatedly. Sequoia earns their 3 and 30, or however much they charge.

All I'm saying is that when a company takes VC funding, the goal of the VCs
can override the goals of earlier, individually less powerful investors (i.e.
the angels). So while an early angel might be fine/thrilled with a 10x exit,
the VC might not be because their risk/reward profile differs from the angel.
Thus, when investing in companies intending to seek venture capital, one must
be aware of the high payout, low odds bet into which they are entering.

Of course, there are ways to mitigate this like secondary market liquidity or
institutional investors buying stock from earlier angels as part of a round.
But the point still stands.

------
anon4728
Money is plentiful.

The core, unscalable challenge is finding smart and motivated investors whom
can add value.

For example, take Raj Parekh:

\- nice guy

\- hustler's hustler

\- can act as anything from investor to sales to VP, without getting too
bossy, just unblocks problems and moves forward

\- knows the enteprise space

That's the ideal investor:

competent, helpful, humane, relentlessly resourceful and generally willing to
roll up sleeves as an equal part of the team.

