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I don't understand 3) From the VC's point of view how is a 5% chance of a $200m exit different from a 1% chance of a $1b exit? (etc.)
by aianus 10y ago
I don't understand 3)
From the VC's point of view how is a 5% chance of a $200m exit different from a 1% chance of a $1b exit? (etc.)
- lpolovets 10y agoThere's little difference between those, but usually what VCs are comparing are things that are more like 2% chance at $1b vs 2% chance at $200m -- and then there's a big difference. Also, if one company is a 5% chance chance at $200m but 0% chance of being worth more than that, while another company is a 1% chance of $1b, the second company might still be a better investment because it's probably 1% chance of $1b AND a 5% chance of $200m if it doesn't go all the way to $1b.
- scott00 10y agoAssuming that those numbers are known precisely, the 5%/$200M is clearly the better option. But in practice it's basically impossible to distinguish a 1% success rate business from a 5% success rate business. On the other hand, it's pretty doable to estimate best-case outcomes based on the size of the market being addressed and some assumptions about margins and market share derived from the business model.