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>> For VCs, this kind of return is abysmal since it won't cover the 7/10 companies that went completely bust. Only very myopic VCs would think this way global

>> For VCs, this kind of return is abysmal since it won't cover the 7/10 companies that went completely bust. Only very myopic VCs would think this way globally. If every business did this, it would be terrible. But each business is its own opportunity/set of circumstances, and forcing everyone to 10X+ is as equally stupid as cashing out $1MM on a four year term sheet on $2.5MM invested. You must evaluate each opportunity individually to maximize profit and growth. The intentions can always be to shoot for hypergrowth, but if the probability drops below the profitability point, you shouldn't be forcing the issue. Terrible investors do this, and it happens fairly regularly, though it's slowing down as founders become a bit more intelligent with their options.

mmt 8y ago
> Only very myopic VCs would think this way globally. Might this be a (converse version of a) No True Scotsman fallacy? Elsewhere in the thread, a comment [1] referenced an article [2] that details the return imperatives that VCs face. In particular, it details how small returns "don't move the needle". OTOH, the article asserts that only 5% of VCs (misleading, if a percentage of number of firms instead of AUM) succeed in meeting this imperative, so I wonder how the other 95% still attract enough LP money. [1] https://news.ycombinator.com/item?id=17872045 https://news.ycombinator.com/item?id=17872045 [2] https://news.ycombinator.com/item?id=17874278 https://news.ycombinator.com/item?id=17874278 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...
- icelancer 8y ago
  >> In particular, it details how small returns "don't move the needle". You never want small returns. But when you can choose a small return over basically a near-zero chance of losing all your money, it isn't that difficult of a choice - or it shouldn't be.
  - mmt 8y ago
    The point is that, to a VC, a small return is indistinguishable from losing all the (not "your", since they rarely have much, if any of their own money in it) money. Given their economics, VCs have a very strong incentive (or an imperative, according to that article) for "forcing everyone to 10X+" (and I would argue it's more like 20x+), no matter how small the likelihood of that outcome. Without at least one outsized exit, they're a failure. Put another way, their LPs aren't paying them to, in any way, play it safe. Near-zero chance isn't the same as zero. So, yes, the choice for a typical VC isn't difficult. It's just the opposite of what you're proposing.
    - icelancer 8y ago
      If VCs actually think that, they are pretty bad at math. It is not indistinguishable. But even if it is (and I repeat, it is not, otherwise it wouldn't be so hard to get funding for $1-2MM), then they are unethical, terrible people who have no conscious about other people. Which I suppose is just repeating what most people say here, but worth connecting it to numbers.
      - mmt 8y ago
        > they are pretty bad at math You've been couching your assertions in hyperbolic judgmental-sound terms, which I fear detracts from your point, but this seems to be the crux of it. You have not, however, demonstrated the "math" in your viewpoint. Specifically, how does it work out, being sure to include risk (or probability) as a factor? > otherwise it wouldn't be so hard to get funding for $1-2MM That doesn't follow, as any difficulty can be adequately explained by (perceived) likelihood of an outsized return (100X+). Are you sure you're not confusing VCs with lower (e.g. average) risk investors?

mmt 8y ago

> Only very myopic VCs would think this way globally. Might this be a (converse version of a) No True Scotsman fallacy? Elsewhere in the thread, a comment [1] referenced an article [2] that details the return imperatives that VCs face. In particular, it details how small returns "don't move the needle". OTOH, the article asserts that only 5% of VCs (misleading, if a percentage of number of firms instead of AUM) succeed in meeting this imperative, so I wonder how the other 95% still attract enough LP money. [1] https://news.ycombinator.com/item?id=17872045 https://news.ycombinator.com/item?id=17872045 [2] https://news.ycombinator.com/item?id=17874278 https://news.ycombinator.com/item?id=17874278 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...

icelancer 8y ago
>> In particular, it details how small returns "don't move the needle". You never want small returns. But when you can choose a small return over basically a near-zero chance of losing all your money, it isn't that difficult of a choice - or it shouldn't be.
- mmt 8y ago
  The point is that, to a VC, a small return is indistinguishable from losing all the (not "your", since they rarely have much, if any of their own money in it) money. Given their economics, VCs have a very strong incentive (or an imperative, according to that article) for "forcing everyone to 10X+" (and I would argue it's more like 20x+), no matter how small the likelihood of that outcome. Without at least one outsized exit, they're a failure. Put another way, their LPs aren't paying them to, in any way, play it safe. Near-zero chance isn't the same as zero. So, yes, the choice for a typical VC isn't difficult. It's just the opposite of what you're proposing.
  - icelancer 8y ago
    If VCs actually think that, they are pretty bad at math. It is not indistinguishable. But even if it is (and I repeat, it is not, otherwise it wouldn't be so hard to get funding for $1-2MM), then they are unethical, terrible people who have no conscious about other people. Which I suppose is just repeating what most people say here, but worth connecting it to numbers.
    - mmt 8y ago
      > they are pretty bad at math You've been couching your assertions in hyperbolic judgmental-sound terms, which I fear detracts from your point, but this seems to be the crux of it. You have not, however, demonstrated the "math" in your viewpoint. Specifically, how does it work out, being sure to include risk (or probability) as a factor? > otherwise it wouldn't be so hard to get funding for $1-2MM That doesn't follow, as any difficulty can be adequately explained by (perceived) likelihood of an outsized return (100X+). Are you sure you're not confusing VCs with lower (e.g. average) risk investors?