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Hi lpolovets, In the world of massive, multi 100 million exits where does a more 'humble' single digit Million exit's it with you and investors?

zhoujianfu 9y ago
I’m not lpolovets but I do angel invest and my take is the math really does only make sense if you get a few big hits... which would imply the only rational angel/VC strategy is only invest in ones with big potential (and diversify). And that’s what I try and do. That said, I have seen that a lot of small seed funds and new angel investors (most are new!) like to say that they’re happy with lots of small wins. I dunno if it’s just their way to show how they “think different” from the conventional wisdom (of “go big or go home”), or it’s just to seem more down to earth and approachable to not turn off potential deal flow, or just because they are really new and haven’t actually done the math (or are more risk-adverse than they probably should be in this line of work). But then, when push comes to shove, I haven’t seen any ACTUALLY invest when they honestly don’t believe it could be a $100M+ exit.
lpolovets 9y ago
TLDR: if you aim for 100x and achieve a 3x, that won't affect my fund much financially but I'll be very happy for you and your team. But if you initially aim for a 3x then I can't invest in the first place based on my portfolio model. For a good VC fund, a typical portfolio might look something like 30 investments -> 11 fail, 10 return 1x, 6 return 5x, 2 return 15x, and 1 returns 50x. That's a 4x return overall, but most of that return is concentrated in the top 10% of companies. So the investing model only works if a VC fund keeps swinging for the 50x return and occasionally succeeds. The way I would frame exits from my perspective is that I need to keep investing in companies with 50x potential so that hopefully at least one will reach that level during a fund's lifecycle. But along that path, a lot of companies will predictably exit for 5x or 1x or 0x. Those exits don't have a huge impact on my fund's financial returns, but the companies are still run by people who I like and believe in, and the ideas those people worked on are ones that we (and their employees) believed in. So if a company exits for 0x everyone is bummed on behalf of the founders and their team who went all-in. But if the founders aimed at 50x and came out with 2x I am very happy for them personally. I don't get upset at all that not every exit is a 50x because that would be like always betting on 17 in roulette and being upset every time a different number pops up. That's not how the statistical distribution works. What would bum me out is if someone is clearly on track for a 10x or 50x outcome, but then sells at 2x or 4x because that's good enough for them.
- RHSman2 9y ago
  Thanks for the detailed reply. Really clear.

zhoujianfu 9y ago

I’m not lpolovets but I do angel invest and my take is the math really does only make sense if you get a few big hits... which would imply the only rational angel/VC strategy is only invest in ones with big potential (and diversify). And that’s what I try and do. That said, I have seen that a lot of small seed funds and new angel investors (most are new!) like to say that they’re happy with lots of small wins. I dunno if it’s just their way to show how they “think different” from the conventional wisdom (of “go big or go home”), or it’s just to seem more down to earth and approachable to not turn off potential deal flow, or just because they are really new and haven’t actually done the math (or are more risk-adverse than they probably should be in this line of work). But then, when push comes to shove, I haven’t seen any ACTUALLY invest when they honestly don’t believe it could be a $100M+ exit.

lpolovets 9y ago

TLDR: if you aim for 100x and achieve a 3x, that won't affect my fund much financially but I'll be very happy for you and your team. But if you initially aim for a 3x then I can't invest in the first place based on my portfolio model. For a good VC fund, a typical portfolio might look something like 30 investments -> 11 fail, 10 return 1x, 6 return 5x, 2 return 15x, and 1 returns 50x. That's a 4x return overall, but most of that return is concentrated in the top 10% of companies. So the investing model only works if a VC fund keeps swinging for the 50x return and occasionally succeeds. The way I would frame exits from my perspective is that I need to keep investing in companies with 50x potential so that hopefully at least one will reach that level during a fund's lifecycle. But along that path, a lot of companies will predictably exit for 5x or 1x or 0x. Those exits don't have a huge impact on my fund's financial returns, but the companies are still run by people who I like and believe in, and the ideas those people worked on are ones that we (and their employees) believed in. So if a company exits for 0x everyone is bummed on behalf of the founders and their team who went all-in. But if the founders aimed at 50x and came out with 2x I am very happy for them personally. I don't get upset at all that not every exit is a 50x because that would be like always betting on 17 in roulette and being upset every time a different number pops up. That's not how the statistical distribution works. What would bum me out is if someone is clearly on track for a 10x or 50x outcome, but then sells at 2x or 4x because that's good enough for them.

RHSman2 9y ago
Thanks for the detailed reply. Really clear.