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So investors put $2.3M into the company and got back $3.3M. They essentially have a ROI of 1M over a span of four years. Am I crazy to think that this is a pret
by syntaxing 8y ago
So investors put $2.3M into the company and got back $3.3M. They essentially have a ROI of 1M over a span of four years. Am I crazy to think that this is a pretty good deal for the investors?! If someone gives me a ~40% return on a crapshoot investments (like how most start ups are), I would be pretty happy!
- tomasien 8y agoIt's fine for the VCs if they can recycle and re-invest that. Otherwise it's a 0.
- syntaxing 8y agoCan you please elaborate what you mean? The money is only useful to the VC if they can re-invest it elsewhere?
- maehwasu 8y agoIf the VC has another investment on its radar that it can't make due to capital being locked up in a stable but not explosive company like buffer, it would be fine taking the money back with some interest. If it doesn't have that, then taking buffer's money doesn't move the needle much.
- tomasien 8y agoaccurate
- devcpp 8y agoYes, you are slightly crazy. The whole idea of VCs is that while most startups are indeed crapshoot investments, some will make returns in the 100x. 1.5x is sometimes "good enough" but it won't keep a VC afloat if all of its investments go like that. Even 2x means that you only get to invest twice and fail once. And forget about profits or a living wage.
- glangdale 8y agoYes, you are crazy to think this. :-) Buffer seems like a fairly successful startup relative to the average. A roughly 8% return per annum is not a good return for a VC given that many of their investments in a given round will go to zero. There may be reasons for this going the way it did, but I doubt VCs would be all that happy with this.
- zminjie 8y agoYou are thinking from the perspective of an individual investor. For VCs, this kind of return is abysmal since it won't cover the 7/10 companies that went completely bust. In order to VCs to take high risks on early stage companies, they need the winners to return 100x so the fund even makes financial sense. It's one of the main reasons why VCs constantly push startups for hyper growth. This is certainly better than losing the investment completely but I can't imagine the investors being too thrilled about this outcome.
- erikpukinskis 8y agoIt means the three that have a liquidity event only need to cover 5/10 instead of 7/10. Is that not a helpful result?
- sebleon 8y agoHa, venture math is pretty hilarious. VCs basically need to give back their investors a 300% return in 10 years to make up for the risk they handle. Eg. For a $40M fund that's trying to grow to $120M, $1M here and there doesn't really move the needle.
- gowld 8y agoThe public NASDAQ has grown to 4x over the last 10 years. VC should do better or go home.
- charlesdm 8y agoNot quite. People invest in VC funds exactly because these returns are not correlated to the market (well, they sort of still are). It's diversification; people investing in these funds are generally NOT looking for similar returns to the public market.
- lucasgonze 8y agoVCs must aim high, but a medium-size win isn't the same as going bust. It's still better to get a return with strong linear growth than to get nothing.
- cycrutchfield 8y agoIf those investors had put their money into the S&P500 instead, they would have had a better return on their investment.
- odonnellryan 8y agoTrue, and the risk here would probably make this a "bad investment" in reality.
- gnu8 8y agoThere’s no reason on earth why anyone would consider having their money returned plus a mil a “bad investment,” even if they are a VC looking for 100x unicorn returns.
- fatihdonmez 8y agothere's also opportunity cost which you're missing. Average VC can invest limited number of startups. Instead of buffer They could invest some other startup which eventually exit with 100x
- kgwgk 8y agoThe reason is called opportunity cost.
- jedberg 8y agoI would. The whole point of a risky investment like that would be to get a better return. 10% per year is something I can get almost risk free, if I'm starting with $2MM.
- nodesocket 8y agoTell me about this 10% per year risk free investment? Owning S&P historically has returned 8% annual, by no means is risk free.
- 8y ago
- Kpourdeilami 8y agoI think when they invested, they expected more less like a triple-triple-double-double growth from 2014 to 2018. In 2014 their ARR was $4.6M so investors probably expected their revenue to follow the $4.6M -> $13.8M -> $41.4M -> $82.8M -> $165.6M trajectory. Buffer's current ARR is $15M, which although is pretty good, is not enough for it to work well with the VC model.
- mrnobody_67 8y agosee - https://techcrunch.com/2017/06/01/the-meeting-that-showed-me-the-truth-about-vcs/ https://techcrunch.com/2017/06/01/the-meeting-that-showed-me... the math is pretty crazy... even $50m and $100m exits would doom a fund.
- icedchai 8y agoI wouldn't. That's a ~10% yearly return. You can do better with index funds, never mind growth stocks. This is hardly a home run for a VC.