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It's the fundamentals behind investing. Basically, you make no money gambling $10 ten times on 10% chance of success with $100 returns, but you make money if th

It's the fundamentals behind investing. Basically, you make no money gambling $10 ten times on 10% chance of success with $100 returns, but you make money if the returns are $10,000. So, for investing in companies, there is no point funding companies aiming for millions as you can't get a good return because of the failure rates. They're basically taking up one of the slots of a potential billion $$$ company. The point is for every 10 companies funded, have 1 become a billion $$$ company, while most of the rest will fail. Say YC has a 6% stake, which gets diluted down to 1%(? I don't really understand this side of it) and then the company sells for $10 mill. Great for the founders, but YC only make $100,000. That doesn't cover the other 9 companies that failed (10 * $16,000 = $160,000 = $60,000 loss).

jacquesm 9y ago
It is, but the corollary to that is that nobody knew ahead of time which companies where going to be the $1B and up companies and which were duds, also-rans or simply solid small to mid sized businesses. No investor ever invested in a billion dollar start-up to be knowing that start-up was going to be a billion dollar company one day. So those stats are based on one thing only: survivor bias and each and every investor will have to be satisfied with investing in what they believe to be solid performers with potential upside.
wastedhours 9y ago
As much as I appreciate that's the VC model, perhaps less would fail if VCs didn't push for billions in revenue? The failure rate might be less than 9/10 if it wasn't "all or nothing"? Guessing it still wouldn't make enough home runs as an investment vehicle though?
- Joboman555 9y ago
  Failure rate doesn't matter. 99% failure * 1B > 90% failure * 1M
  - CryoLogic 9y ago
    That's assuming 90% failure when looking for sustainable businesses. There are some upcoming VC's which are doing well funding smaller companies. Momentum Ventures is one I know of.
- sharemywin 9y ago
  The problem is the fund size. when you have make a good return on 100m you need something that will eventually get there.

jacquesm 9y ago

It is, but the corollary to that is that nobody knew ahead of time which companies where going to be the $1B and up companies and which were duds, also-rans or simply solid small to mid sized businesses. No investor ever invested in a billion dollar start-up to be knowing that start-up was going to be a billion dollar company one day. So those stats are based on one thing only: survivor bias and each and every investor will have to be satisfied with investing in what they believe to be solid performers with potential upside.

wastedhours 9y ago

As much as I appreciate that's the VC model, perhaps less would fail if VCs didn't push for billions in revenue? The failure rate might be less than 9/10 if it wasn't "all or nothing"? Guessing it still wouldn't make enough home runs as an investment vehicle though?

Joboman555 9y ago
Failure rate doesn't matter. 99% failure * 1B > 90% failure * 1M
- CryoLogic 9y ago
  That's assuming 90% failure when looking for sustainable businesses. There are some upcoming VC's which are doing well funding smaller companies. Momentum Ventures is one I know of.
sharemywin 9y ago
The problem is the fund size. when you have make a good return on 100m you need something that will eventually get there.