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Caveat: I'm a VC, so I definitely have a horse in this race. A few misc comments: - VC is not for every company. Most VCs will be the first to tell you that:

Caveat: I'm a VC, so I definitely have a horse in this race. A few misc comments: - VC is not for every company. Most VCs will be the first to tell you that: if you're not trying to build for a specific type/size of outcome, then VC funding is going to suck for you, and it's going to suck for the VC. It's not at all in a VC's best interest to invest in a company that has no desire to fit the VC model. - I think the VC model itself is a great development from the last century. The fact that someone can raise millions (more than most people earn in a lifetime!) with an idea enables a lot of innovation that would be hard to nurture otherwise. But because the failure rate is high, VCs have to bet on outlier outcomes. That works for the VC but isn't always ideal for the companies they fund (because the founder is all-in but the VC can absorb many losses as long as at least one of their investments is a big winner). - Many VCs add value and are great, but many other VCs subtract value and are awful. I've met people from both groups over the last 6 years in this job. It's not different than most jobs: there are amazing and awful teachers, politicians, engineers, doctors, etc. - I love all of the new models coming up: revenue-based funding (SaaS capital), funding for ad-based acquisition (Clearbanc), Indie.vc, etc. The more types of investment models there are, the better off everyone will be. If the only companies that look for VC funding are the ones that require VC funding because no other funding model would work, then that's a good scenario because no one is wasting each other's time or looking for suboptimal funding options.

spectre256 8y ago
I'm not a VC, but your last point is worth emphasizing. It used to be that if you wanted money for your company your options were basically: - go to your bank for a loan for a little money you have to pay back fairly soon - go to Sand Hill Road and get investment with the condition that you have to shoot for a huge outcome or die trying There's a _lot_ more in the middle now, and that's really cool.
nickchuck 8y ago
Great points
luxmanR1050 8y ago
What's the smallest annual net income target (say, within 10 years) for a company that you would suggest VC is a good fit for?
- ttul 8y ago
  $100M - that is the level at which an IPO becomes feasible. This implies that whatever idea you are pursuing needs to have a potential scale far beyond $100M if things go right, because you can’t IPO at $100M if investors don’t believe that $200M is around the corner.
- lpolovets 8y ago
  If you think you only need that first round of funding ($1m-$3m seed round) and would never need to raise again, then $25m+/year would be reasonable. A company like that could exit for $150m-$250m in 10 years, and if the seed investor is getting 20x or 30x on their investment, they'll be happy. However, 1) a lot of seed stage companies predict that "this is the last round of funding we'll ever need" and that's rarely the case, and 2) because of #1 it's hard to convince investors that you'll never need to raise more money. For most VC-backed companies -- the ones that raise multiple rounds before an exit -- $100m+/year in revenue is a good 10-year goal. That's about the level required to go public or exit for $1b+. Investors won't be unhappy if you shoot for $100m in annual revenue but "only" hit $40m or $6m. The nature of startups is that most don't end up going public. But it's hard to see any path where you could end up with $100m+/year in revenue within a decade, then most VCs will pass.
john_moscow 8y ago
>I think the VC model itself is a great development from the last century. The fact that someone can raise millions (more than most people earn in a lifetime!) with an idea enables a lot of innovation that would be hard to nurture otherwise. I think this has actually backfired. Because with sufficient number fudging you can raise more that you would ever earn, we have a whole generation of companies that are built to look great on paper, and actually identifying and solving business pains in a profitable way is becoming a lost art. Once the gravy train of investment cash accumulated in the previous economic cycles stops, we might be in for a very painful correction.
el_nahual 8y ago
I think the more important misalignment between VCs and founders is a temporal one--if a VC thinks a company isn't going anywhere, they can immediately write it off and get on with their lives, whereas if a founder thinks her company isn't going anywhere, they have to (or think they have to!) "keep at it" until it goes bust. So they waste 2-5 of the most productive years of their most lives going through zombie motions. Perhaps this perception is misplaced... I know VCs will say that they want a company to go bust as soon as possible (so that they aren't investing in Picplz). And this may be true.. but do you think a founder that had serially--and rapidly--gone bust 4/4 times 4 years in a row would get funding?
twtw 8y ago
> I think the VC model itself is a great development from the last century. The fact that someone can raise millions (more than most people earn in a lifetime!) with an idea enables a lot of innovation that would be hard to nurture otherwise Isn't this what the public stock markets used to be used for, before an IPO became a way to cash out?
- SkyMarshal 8y ago
  No, you can't take an early stage, pre-revenue company public. It takes ~7yrs plus or minus to scale a company from nothing to large enough to list on public markets, which is what VCs are for.
  - twtw 8y ago
    Sure, that's how it is now, but it definitely hasn't always been that way. The original public companies definitely were "early stage, pre-revenue," though you can argue that those were long enough ago to be irrelevant. Intel's IPO was 2 years after the company was formed.

spectre256 8y ago

I'm not a VC, but your last point is worth emphasizing. It used to be that if you wanted money for your company your options were basically: - go to your bank for a loan for a little money you have to pay back fairly soon - go to Sand Hill Road and get investment with the condition that you have to shoot for a huge outcome or die trying There's a _lot_ more in the middle now, and that's really cool.

nickchuck 8y ago

Great points

luxmanR1050 8y ago

What's the smallest annual net income target (say, within 10 years) for a company that you would suggest VC is a good fit for?

ttul 8y ago
$100M - that is the level at which an IPO becomes feasible. This implies that whatever idea you are pursuing needs to have a potential scale far beyond $100M if things go right, because you can’t IPO at $100M if investors don’t believe that $200M is around the corner.
lpolovets 8y ago
If you think you only need that first round of funding ($1m-$3m seed round) and would never need to raise again, then $25m+/year would be reasonable. A company like that could exit for $150m-$250m in 10 years, and if the seed investor is getting 20x or 30x on their investment, they'll be happy. However, 1) a lot of seed stage companies predict that "this is the last round of funding we'll ever need" and that's rarely the case, and 2) because of #1 it's hard to convince investors that you'll never need to raise more money. For most VC-backed companies -- the ones that raise multiple rounds before an exit -- $100m+/year in revenue is a good 10-year goal. That's about the level required to go public or exit for $1b+. Investors won't be unhappy if you shoot for $100m in annual revenue but "only" hit $40m or $6m. The nature of startups is that most don't end up going public. But it's hard to see any path where you could end up with $100m+/year in revenue within a decade, then most VCs will pass.

john_moscow 8y ago

>I think the VC model itself is a great development from the last century. The fact that someone can raise millions (more than most people earn in a lifetime!) with an idea enables a lot of innovation that would be hard to nurture otherwise. I think this has actually backfired. Because with sufficient number fudging you can raise more that you would ever earn, we have a whole generation of companies that are built to look great on paper, and actually identifying and solving business pains in a profitable way is becoming a lost art. Once the gravy train of investment cash accumulated in the previous economic cycles stops, we might be in for a very painful correction.

el_nahual 8y ago

I think the more important misalignment between VCs and founders is a temporal one--if a VC thinks a company isn't going anywhere, they can immediately write it off and get on with their lives, whereas if a founder thinks her company isn't going anywhere, they have to (or think they have to!) "keep at it" until it goes bust. So they waste 2-5 of the most productive years of their most lives going through zombie motions. Perhaps this perception is misplaced... I know VCs will say that they want a company to go bust as soon as possible (so that they aren't investing in Picplz). And this may be true.. but do you think a founder that had serially--and rapidly--gone bust 4/4 times 4 years in a row would get funding?

twtw 8y ago

> I think the VC model itself is a great development from the last century. The fact that someone can raise millions (more than most people earn in a lifetime!) with an idea enables a lot of innovation that would be hard to nurture otherwise Isn't this what the public stock markets used to be used for, before an IPO became a way to cash out?

SkyMarshal 8y ago
No, you can't take an early stage, pre-revenue company public. It takes ~7yrs plus or minus to scale a company from nothing to large enough to list on public markets, which is what VCs are for.
- twtw 8y ago
  Sure, that's how it is now, but it definitely hasn't always been that way. The original public companies definitely were "early stage, pre-revenue," though you can argue that those were long enough ago to be irrelevant. Intel's IPO was 2 years after the company was formed.