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great post but it misses several important dynamics (in addition to subtler effects): 1. LPs invest in multiple VCs - they have their own portfolio effect. 2. n

by asah 10y ago

great post but it misses several important dynamics (in addition to subtler effects): 1. LPs invest in multiple VCs - they have their own portfolio effect. 2. not even VC investment is equal -- there's 10-50x difference between their largest and smallest bets. 3. there's non-financial benefits to being an investor in Uber (and doubly, for being able to say it publicly). There's no benefit in saying you're an investor in the stock market. Subtly, if you're a top VC and NOT an investor in enough Uber's (and only investing in unknowns) then LPs and entrepreneurs don't take you seriously. These effects combine to dampen the effects you mentioned. Consider FriendFeed - small $50M acquisition by Facebook, but given its non-financial impact, do you think the VCs regretted the investment? They'll make their $$$ somewhere else, perhaps the entrepreneur's next startup... which turned out to be quip, acquired for $750M last week...

lpolovets 10y ago
This is a great, insightful comment, and I agree with everything you said except for the part about FriendFeed. 1) Unfortunately, VCs have to care about financial impact over everything else. That's the only thing their LPs pay them for. So an amazing mission-driven company with a modest exit will make a VC and their LPs much less happy than a company that doesn't do anything particularly meaningful but exits for $2b. Put differently, if I invest in 50 companies that make the world better but don't product great returns, I won't have a job in 5 years; if I invest in 50 companies, one of which exits for $10b, I'll be able to raise VC funds for a long time. 2) That said, I bet FriendFeed was a fantastic exit for investors and employees. The acquisition was for a combination of cash and .5% of facebook's stock (https://techcrunch.com/2009/08/10/the-cost-of-friendfeed-roughly-50-million-in-cash-and-stock/ https://techcrunch.com/2009/08/10/the-cost-of-friendfeed-rou...). That .5% would have appreciated about 15x by the time Facebook IPO'ed a few years later, and even more if investors are still holding on to the stock. (source: I'm a VC.)
bogomipz 10y ago
LPs? Can you clarify that abbreviation?
- phpnode 10y ago
  Limited Partners

by asah 10y ago

lpolovets 10y ago

This is a great, insightful comment, and I agree with everything you said except for the part about FriendFeed. 1) Unfortunately, VCs have to care about financial impact over everything else. That's the only thing their LPs pay them for. So an amazing mission-driven company with a modest exit will make a VC and their LPs much less happy than a company that doesn't do anything particularly meaningful but exits for $2b. Put differently, if I invest in 50 companies that make the world better but don't product great returns, I won't have a job in 5 years; if I invest in 50 companies, one of which exits for $10b, I'll be able to raise VC funds for a long time. 2) That said, I bet FriendFeed was a fantastic exit for investors and employees. The acquisition was for a combination of cash and .5% of facebook's stock (https://techcrunch.com/2009/08/10/the-cost-of-friendfeed-roughly-50-million-in-cash-and-stock/ https://techcrunch.com/2009/08/10/the-cost-of-friendfeed-rou...). That .5% would have appreciated about 15x by the time Facebook IPO'ed a few years later, and even more if investors are still holding on to the stock. (source: I'm a VC.)

bogomipz 10y ago

LPs? Can you clarify that abbreviation?

phpnode 10y ago
Limited Partners