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To play devil's advocate a bit here, the companies that are being devalued (on paper) are by definition the so-called "unicorns", or the outliers that VCs depen

To play devil's advocate a bit here, the companies that are being devalued (on paper) are by definition the so-called "unicorns", or the outliers that VCs depend on to offset losses to their duds. So if you start knocking off double-digit percentages from a few of these outliers, pretty quickly your portfolio takes a huge hit. Hypothetical situation with some seriously made-up numbers: * 2x $100k for 5% investment in companies at say a diluted stake of 2% goes from $10B to 5B * 5x $100k for 5% investment in companies who go bust * 3x $100k for 5% investment in companies who are acquired, make 10% returns ($110k per). Total investment: $1m Return from non-outliers: (5 x $0) + (3 x $110k) => $330k for a net of -$570k Return from outliers before devaluation (on paper): 2 x .02 x $10B => $400M Return from outliers after devaluation (on paper): 2 x .02 x $5B => $200M At this point, the losses/returns of the non-outliers are in the noise. But man, it hurts to have to explain the "loss" of your upside by such an enormous amount. I don't think VCs would shrug it off as just a part of their overall portfolio, since these are the valuations that prop up the overall performance.

austenallred 11y ago
If you invested in the early rounds of any of these unicorns, you probably returned the whole fund with that one investment, even given their devaluing.
- JonFish85 11y ago
  Even in that case though, nobody is going to be happy with less money than they thought they had. If Bill Gates woke up tomorrow with half of his money gone, he'd be livid, even though he'd still have more money than he knows what to do with.
  - austenallred 11y ago
    They didn't ever have any money. They didn't lose any money. It was all paper valuations, and it's never money until you can buy beer with it; that's just part of investing. Does it suck? Sure, but it's part of the game.
Eridrus 11y ago
Despite these numbers being entirely made up, they seem to illustrate the counterpoint to your argument perfectly, a 200x return is insane by any standards, sure you'd like it to be 400m, but you're not going to regret getting into VC as a class if this is what the numbers looked like. One thing to consider is that a power law distribution (which is how VCs see their investments), remains a power law distribution no matter how far you zoom in, so even in the "unicorn" bracket, they expect a few of the unicorns (Uber/The Honest Co) to do most of the work.

austenallred 11y ago

If you invested in the early rounds of any of these unicorns, you probably returned the whole fund with that one investment, even given their devaluing.

JonFish85 11y ago
Even in that case though, nobody is going to be happy with less money than they thought they had. If Bill Gates woke up tomorrow with half of his money gone, he'd be livid, even though he'd still have more money than he knows what to do with.
- austenallred 11y ago
  They didn't ever have any money. They didn't lose any money. It was all paper valuations, and it's never money until you can buy beer with it; that's just part of investing. Does it suck? Sure, but it's part of the game.

Eridrus 11y ago

Despite these numbers being entirely made up, they seem to illustrate the counterpoint to your argument perfectly, a 200x return is insane by any standards, sure you'd like it to be 400m, but you're not going to regret getting into VC as a class if this is what the numbers looked like. One thing to consider is that a power law distribution (which is how VCs see their investments), remains a power law distribution no matter how far you zoom in, so even in the "unicorn" bracket, they expect a few of the unicorns (Uber/The Honest Co) to do most of the work.