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.
Or at least you think you are. Have you heard of Engineer's Savings Time? It's the tendency for engineers to underestimate the amount of time it will take to complete a task, and it's based on the difficulty of estimating on one hand, but also ego on the other. This is reversed for the same reasons in the investor world: overestimating the amount of business power a company has.
They're both subject to the impossibility of predicting the future, but contrary to decades of thinking and writing going into software estimation, it seems like relatively less effort has been dedicated to revenue/profit estimation. Of course, when I put it in those words it appears possible I just have a blind spot, but I think the problem remains.
They are proxies for expectations based on past experience, given the glut of quantitative measures that aren't strongly correlated.
In the end, you're playing in the unicorn league if you think you are.
Maybe this is true for investors outside of YC's deal flow, though. That would have some interesting implications.
> 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?
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.
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.
You could try asking for specific things that require improvement but I don't think you'll get a useful answer in most cases. You'll hear some words back but all they will mean is "I am not in love with your company".
If only more founders thought like this too.
"If you show revenue, people will ask how much and it will never be enough. The company that was the 100x or the 1000x becomes the 2x dog.
But if you have no revenue you can say you are pre-revenue. You are a potential pure play. It is not about how much you earn. It is about how much you are worth.
And who is worth the most? Companies that lose money. Pinterest, Snapchat. Amazon has lost money every quarter for the last effing 25 years and that Bezos m*cker is the effing king"
You find this all over the place as 800$ Aeron chairs and 40$ iKea chairs are both in the same and very different markets.
Angels and VCs are more often than not at odds because they have different economics they are playing for.
An angel puts in 250k? They would be thrilled with a 10M exit. Along comes a VC with a 5M A round and suddenly they need a 500M exit to feel like it was a success.
And also some of the individuals (angels) investing alongside the above institutions.
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.
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.