
The “Crisis” In Venture Capital - drm237
http://www.techcrunch.com/2008/07/01/the-crisis-in-venture-capital/
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pxlpshr
I can't begin tell you how many VCs were more concerned with customer
acquisition than the monetization strategy. Furthermore, less focused on
early-stage and more focused on growth... does anyone else see the
contradiction in that web 2.0 "investment strategy"? Too many finance guys
lack operation experience...

These results do not surprise me.

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notauser
The finance guys are buying operational experience by funding you.

Their goal is a good rate of return. They have (or should have) no interest in
running your business, because they already have a business of their own to
manage.

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susquaheart
Good point not....

I've worked with venture capitalists off and on over the years and what
everyone looking for funding needs to understand is what they think is a "good
rate of return"..

They'll never tell you during the application process but what they are
looking for is $10 in return in 2 to 5 years for every $1 they invest.

They really don't care how they get it. It can be from capital gain or
operating revenue but they always want 10 for 1........

Things haven't really changed all that much since Shakespeare wrote "Merchant
of Venice".

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notauser
A good enough rate of return is 10% - most companies operate on 10-15% IRR.
What you need to rememeber is that this 10-15% is AFTER adjustment, ie write
offs for risk, overheads etc.

In government contracting (fairly low risk), with a target profit margin of
10%, gross margin required can easily be over 25%.

> $10 in return in 2 to 5 years for every $1 they invest.

Over a 5 year period a 900% total return is 58.5% anual return. Assuming they
get a hit one time in six this would equate to a profit of about ten percent
(gross - before overhead costs etc), which is pretty low. Any less and they
would be better off doing something else with the money.

Of course if all six startups are a hit they make out like bandits - but if
you take the risk you get the reward. They could just as easilly end up with
six losers.

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aston
Those graphs are a bit sketchy. Kinda deceiving to compare a half year's
numbers with a whole year's. The conclusions are right, but there's some
psychological manipulation in the pictures.

