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You can do a startup, but grow organically. No one says you need to play the VC game with crappy odds and low chances of payoffs. Alternatively, if you need to

You can do a startup, but grow organically. No one says you need to play the VC game with crappy odds and low chances of payoffs. Alternatively, if you need to raise investment (once you have established the model actually works) there are alternative ways to fund the business (i.e. family investment funds who want to be your longer term partner rather than flipping it in two to five years) I'd rather take a 50% chance on owning a smaller niche business (think Convertkit) that does a few million a year, of which most profit ends up in my pocket, than playing the VC game with low odds and hoping for a $100m exit. The only ones for whom the odds are great, are VCs. They'll make back their entire fund on one or two investments as part of their portfolio and will pocket a healthy amount of carried interest as a result, on a massive amount of money. But they're not the ones slaving away. And their management fee makes sure they're always well compensated and living well.

randall 8y ago
The canonical essay: https://www.joelonsoftware.com/2000/05/12/strategy-letter-i-ben-and-jerrys-vs-amazon/ https://www.joelonsoftware.com/2000/05/12/strategy-letter-i-...
exelius 8y ago
Actually the VCs don’t make out so well either; VC as an asset class generally underperforms the public markets. A few whales (Kleiner, Sequoia, et al) run the market, and they’re market-makers who prop up valuations and bring in other folks. VC is a gladiatorial ring where rich people do economic battle with each other. But it’s largely zero sum with some small, highly localized gains.
- charlesdm 8y ago
  Very true. To be honest, it's a bit of a crapshoot, but in comparison to other asset classes VC managers are very well compensated for the mostly meager returns they deliver. If you're a two person VC fund managing €50m, and you return 50% in 10 years on that money, you'll make close to €5M + a €1m management fee for 4 to 7 years. The only reason why I assume that is, is because it's not super closely aligned with the performance of the stock market (well, it sort of is -- you often need public companies to acquire some of these startups).
  - exelius 8y ago
    Right, even then you have more funds end in the red or very close to break-even than the black. It’s definitely a portfolio game. My hypothesis is that the Unicorns need public-company levels of financing but don’t want the oversight used to have to go public to get money. But now that Goldman and SoftBank are writing $10B checks, they can also set terms favorable to late stage investors. This can wipe out many of the mid-late VC investors’ gains, but they are under pressure to take the money in the short term just to get to an exit, so they agree to it. I actually think that what took Travis Kalinik down was the fact he diluted his early investors so much they just want to get to an IPO. That wasn’t going to happen any time soon under Travis. The sexual harassment stuff was legit, but his days were always numbered once he diluted as much as he did. Anyway just some speculation. Would love to hear others’ opinions.

randall 8y ago

The canonical essay: https://www.joelonsoftware.com/2000/05/12/strategy-letter-i-ben-and-jerrys-vs-amazon/ https://www.joelonsoftware.com/2000/05/12/strategy-letter-i-...

exelius 8y ago

Actually the VCs don’t make out so well either; VC as an asset class generally underperforms the public markets. A few whales (Kleiner, Sequoia, et al) run the market, and they’re market-makers who prop up valuations and bring in other folks. VC is a gladiatorial ring where rich people do economic battle with each other. But it’s largely zero sum with some small, highly localized gains.

charlesdm 8y ago
Very true. To be honest, it's a bit of a crapshoot, but in comparison to other asset classes VC managers are very well compensated for the mostly meager returns they deliver. If you're a two person VC fund managing €50m, and you return 50% in 10 years on that money, you'll make close to €5M + a €1m management fee for 4 to 7 years. The only reason why I assume that is, is because it's not super closely aligned with the performance of the stock market (well, it sort of is -- you often need public companies to acquire some of these startups).
- exelius 8y ago
  Right, even then you have more funds end in the red or very close to break-even than the black. It’s definitely a portfolio game. My hypothesis is that the Unicorns need public-company levels of financing but don’t want the oversight used to have to go public to get money. But now that Goldman and SoftBank are writing $10B checks, they can also set terms favorable to late stage investors. This can wipe out many of the mid-late VC investors’ gains, but they are under pressure to take the money in the short term just to get to an exit, so they agree to it. I actually think that what took Travis Kalinik down was the fact he diluted his early investors so much they just want to get to an IPO. That wasn’t going to happen any time soon under Travis. The sexual harassment stuff was legit, but his days were always numbered once he diluted as much as he did. Anyway just some speculation. Would love to hear others’ opinions.