

Venture Capital in the 1980s - theyeti
http://reactionwheel.net/2015/01/80s-vc.html

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JacobAldridge
Worth the read - really picks up in terms of relevance towards the end.

 _" Technical risk [betting on new technology working] is horrible for
returns, so VCs do not take technical risk...Market risk [betting that a new
market will emerge], on the other hand, is directly correlated to VC returns.

"[T]he only thing VCs can control that will improve their outcomes is having
enough guts to bet on markets that don’t yet exist. Everything else is noise.

"The 1990s are not our map, the 1980s are. Don’t worry about irrational
exuberance fueling a bubble, that is not what is happening. Worry about fear
of risk."_

Having worked with hundreds of private enterprises (so much smaller visions),
I've seen this play out. The owners that take risks achieve growth (and some
implode or explode). The ones who don't take risks either buy themselves a
job, or die with a whimper.

I'll often suggest my potential clients go online and take a Risk Indicator
test my team developed. Many won't even risk the $40 that costs (let along my
coaching fees), which is a good sign they wouldn't get an ROI on investing in
my team anyway.

The more of a macro view I take on businesses of all sizes, the more relevant
I see the Risk discussion. Really enjoyed this piece for examining it in a
field where I have less experience.

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Taniwha
I moved to the valley in '84 and worked for startups for 20 years ..... the
main big difference pre-dotcom boom was very simple: a rule of thumb that you
couldn't go public without 5 consecutive quarters of profit (dare I say
increasing profit) .... imagine that

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Animats
The VC industry as a whole was profitable from the late 1970s to 2001 or so.
In the first dot-com crash, it tanked. It didn't come back to profitability
by, at least, 2011. Too many companies were being VC-funded too far into their
growth period, rather than going public.

Most VC funds have a 10-year life, so profitability data runs some years
behind.

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dbarlett
Previously:
[https://news.ycombinator.com/item?id=8908463](https://news.ycombinator.com/item?id=8908463)

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elmar
"the only thing VCs can control that will improve their outcomes is having
enough guts to bet on markets that don’t yet exist. Everything else is noise."

Priceless.

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brudgers
It is an error to mention Microsoft in the context of Venture Capital backed
firms except as a point of comparison. Microsoft was not VC funded. That's one
reason why its IPO made the world's richest person and created 10,000+
millionaires. It is also what allowed Gates and Ballmer to retain enough
shares to act for the long term and ignore Wall Street's quarterly horizon for
over 25 years.

~~~
ganeumann
Microsoft did take venture money, albeit when it was further along. Microsoft
began its hypergrowth in 1981, after they contracted with IBM to provide the
PC's operating system. It wasn't until then that they needed outside capital
to support their growth.

Bill Gates' high-school classmate David Marquardt invested through Technology
Venture Investors (TVI) and joined Microsoft's board of directors in 1981. (He
just stepped down last year.) This was several years after the company was
founded in 1975, but well before the 1986 IPO.

[edit: substantiation.

If you check Microsoft's IPO prospectus (available in pdf here:
[http://www.lannigan.org/pdf/Microsoft_prospectus.pdf](http://www.lannigan.org/pdf/Microsoft_prospectus.pdf)),
you'll see on page 30 that TVI owned 6.1% of the company just prior to the
IPO.]

~~~
brudgers
Thanks.

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michaelochurch
Excellent read. I'm just going to comment on one thing:

 _The typical venture-capital concerns used to provide money only after a few
hundred thousand dollars or more had been put into a business by relatives and
principals, and only after the company had a product well along in
development._

One of the major differences between then and now is that normal people could
actually save money, because the two-decade (or longer?) Boomer/NIMBY-created
housing bubble hadn't happened yet. Bootstrapping was possible, and it was a
negative signal if an entrepreneur hadn't put, at the very least, $10,000 of
his own money in the show.

In 2015, the it-gets-VC-or-doesn't-happen attitude may seem degenerate, but
it's a necessity given that it's no longer normal (but rather extraordinary)
for a 30-year-old programmer to have a six-figure net worth, thanks to Boomer-
created housing and health insurance costs.

~~~
icedchai
A necessity? Only because people have no self discipline. Few people have the
ability to save/invest and defer gratification. Spend, spend, spend is the
American way.

~~~
bkeroack
The life of relative comfort of the average HNer (engineer, likely six figure
income, little fear of unemployment) is basically what the middle class was
40-50 years ago (adjusted for inflation, etc). This level of material security
used to be _common_ , even expected.

At one time it was possible to own a home, several cars and raise multiple
children on a single, average income!

~~~
nostrademons
However, because it's getting so _uncommon_ now, it's becoming significantly
easier to save up large quantities of money for those people who are fortunate
enough to have good jobs.

Think of it this way: you probably have friends, neighbors, or classmates that
manage to survive on a grad student or service worker salary (~$20-30K). It
may not be comfortable, but they can do it. If they can do it, why can't you?
Are you too good for their lifestyle?

Now if you're making $80K after tax and they're making $20K and you're living
the same lifestyle, you put away $60K/year. For every year you've worked,
you've saved up for three. There's your startup capital.

~~~
icedchai
Over the past 15 years or so, I've saved over 1.2 million USD. I also paid off
my mortgage and am completely debt free.

The most I ever made in a single year was around 160K or so.

