
Fundraising Acceleration Is the New VC Investment Thesis - AndriusWSR
http://techcrunch.com/2014/11/02/fundraising-acceleration-is-the-new-vc-investment-thesis/
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7Figures2Commas
fund·rais·ing ac·cel·er·a·tion (vc-speak)

the act of investing in a company at an exorbitant valuation today that it
might or might not be able to justify at some unknown point in the future

example usage: Marc didn't want to wait until Slack had enough revenue to
support a billion-dollar valuation, so he used fundraising acceleration to
lock in an investment at a billion-dollar valuation today

see also: insanity, investment bubble, greater fool theory, simulated time
travel

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bubblemachine3k
In the same tone, there's a stock XYZ at $1. I think it will go to $10 in the
next year, so instead of buying in at $1, I buy at $8? Wow. On Wall street,
this is called "dumb money".

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nostrademons
This is also called the "efficient market hypothesis", and is a cornerstone of
basic equity valuation. The idea is that if you have information that a
company's stock is sure to rise in the future, it is rational for you to pay
any amount up to the point at which you believe it will be valued in the
future to acquire it now. And so the stock price will instantly reflect all
public information about the future prospects of the stock.

You may call it "dumb money", but if so, then all money is dumb.

~~~
hawkice
Grandparent mentions "greater fool theory", which is perhaps a clearer
counterpoint to your (quite correct) point.

It's also worth saying that upside risk is typically coupled with downside
risk (which is something you're hinting at) -- the wider market has the
probability of failure built into its current pricing. So, somewhat
perversely, even if you don't think it'll have a billion dollar valuation with
probability exceeding that of the market, it can become a better investment
simply by increasing the probability of > $0 outcomes (by reducing that
downside risk). Demonstrating that with a pivot seems like actually good
evidence.

I wouldn't make the same investment, but there are a couple angles to discuss
here.

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waterlesscloud
"This absolute laser focus on the winners has led to the current data
revolution in venture investing, where firms hire teams to scour the web for
signs of startups breaking out, all in the hope of catching the next winner
before any other firm realizes what is happening."

Next up, the black hat version of this. People who help companies fake the
signals. Assuming this isn't already happening.

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lowglow
This is already happening. I've known startups from top accelerators paying
for visitors from stumbleupon to show as a signal of "growth".

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pearknob
Slack's marketing is genius. The whole play on making Email look bad is
brilliant and many startups are following suit.

But to be quite frank Slack is making things a whole lot worse (for me only
perhaps?). It's super distracting. I have to add a new app to my workflow
(while maintaining email). And Slack is much more demanding (end up checking
it much more the email). Too many notifications and msgs. It isn't as ground-
breaking as they want us to believe.

I wonder how long it will take for others to feel the same way I do? (maybe
I'm the outlier?)

Mr. Butterfield is doing a stellar job leading the wheel. Congrats!

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majormajor
It's not just you, I might also be crazy. I find "if it's not something you're
willing to write me an email about, it's probably not something worth bugging
me about" a useful filter.

The difference in the requests I get over IM-type platforms vs emails (or even
ticket trackers and the like) is pretty big. For whatever reason, most people
don't want to bother writing an email, so they'll actually do more
investigation on their own before sending one...

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jdp23
> What might look like a frothy bubble though, is in fact a much more
> fundamental change in the way venture capitalists perceive investments...
> Some might call this a bubble, but Slack is literally the embodiment of the
> fundraising acceleration thesis.

"This time is different."

[Nothing against Slack: great idea, great team, great execution after a pivot.
Kudos to them for their success so far.]

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jacques_chester
You know, when people start developing elaborate theses about how Everything
Has Changed and There Are New Rules and This Time, Seriously, No Really, _This
Time Is Different_ ... it's time to start worrying.

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uptown
Slack feels like IRC with a cleaner interface, attachments, and user-accounts.
You can even connect to it with IRC clients if you choose.

Regarding VC investments ... What prevents VCs from simply inventing wealth?
That is, what is preventing a VC from investing $X dollars at an absurd
valuation just to amplify the perceived value of their own investment? This
chart perfectly shows the investment versus the valuation:
[http://graphics.wsj.com/billion-dollar-
club/](http://graphics.wsj.com/billion-dollar-club/)

~~~
AJ007
In a thinly traded market this is basically what happens. Domain names provide
a good comparison if you've followed that market at all in the past 15 years.
The art market as well. In some cases blatent manipulation. You may be able to
expirment yourself, identify a very rare set of collectibles, may be a comic
book which rarely shows up for sale on eBay. Buy it every time. Hunt down all
available copies of it. Eventually you will own all copies and the price
history. Liquidating it all at a profit is a whole other event.

The danger zone for these valuations is what if the company doesn't really
have something thats going to last? We assumed that with Facebook, because of
all the social networks that came before. So far we are wrong. We assumed this
would be the case with Zynga and so far were right. What if some of these
software startups end up being more like games and less like things that stick
around a long time?

Complicated subject. Lots of exceptions. Certainly the role of the network
effect is playing a huge role in these valuations. The scary thing is that in
order to justify these valuations founders will have to become more aggressive
in pricing and billing practices. We are greatly benefiting from dirt cheap
software right now, the assumption being its more important to grow the
network and reach that critical mass before the competiton. What happens when
all of these SaaS companies decide its time to cash in and raise their prices?
(and by raise prices, more like do tricky things to maximize how much you are
spending, vetern marketers know all about how to pull that one off.)

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uptown
Thanks for the response. Sometimes it feels like in their quest to find the
next unicorn, VCs are taking the short-cut and gluing horns onto horses.

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mathattack
One can argue that Slack is overpriced, but writing like this is silly:

"To put it another way, if Slack had the same annual revenues as LinkedIn at
$1.5 billion in 2013, it would be valued at almost $140 billion and become one
of the most valuable technology companies in the world."

The Price to Sales ratio doesn't stay constant. It's out of whack in startups
on the assumption that the startup grows into it. Comparing Price to Sales of
a startup versus a mature firm is just plain stupid.

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rajacombinator
So this is some kind of PR fluffery from KPBC I guess? Count the number of
times the author uses this awkward and meaningless "fundraising acceleration"
fabrication ...

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cynusx
I still don't understand where slack differentiates from hipchat.

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lnanek2
HipChat was already acquired. As was Yammer. So they aren't VC relevant any
more. Products often stagnate once acquired anyway.

