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The idea is that the venture capitalist's motivations aren't necessarily aligned with the company's. They're interested in creating a unicorn, because that one
by Sileni 8y ago
The idea is that the venture capitalist's motivations aren't necessarily aligned with the company's. They're interested in creating a unicorn, because that one company will create the returns necessary to turn a profit on a huge number of attempts. So they attempt to quickly build huge companies with everything they touch, in an effort to get that one that will pay off. Many companies end up being overbuilt to a point where their sales can't sustain their size, in the interest of attempting to have the capacity for future sales.
- benj111 8y agoYes but the venture capitalist that manages to identify non unicorn, but still big companies has an advantage. A fund that gets 1% unicorns might be successful, one that gets 1% unicorns and 5% big companies still has an advantage. Which fund would you invest in?
- Sileni 8y agoAs a VC? The unicorn fund. Which agrees with what the market has been supporting this last decade. Given the same investments in each, the unicorn provides a bigger return. Because of economies of scale, it's more likely to gain traction and continue its success, especially in a place like tech where marginal cost is almost non-existent. Not to mention the overhead on managing a single investment vs. many. Not to mention the administrative costs of 5 companies vs one. Not to mention the benefit of choosing a company based on your interests and abilities, since most VCs have a more hands-on role than traditional investors. It just aligns with the culture; the whole idea in most tech startups is to leverage economies of scale as much as possible. Often their profit per customer is tiny. They're relying on millions of people using the product.
- benj111 8y ago>As a VC? No as an individual investing in VCs. VC A invests in 100 companies, 1 turns into a unicorn, 99 go bust. VC B invests in 100 companies, 1 turns into a unicorn, 5 turn into (slightly less) large successful companies, 94 go bust.
- achillesheels 8y agoI agree with the OP’s point. In a race of unicorns the length of the horns matter. A Facebook trumps a portfolio of LinkedIn, Tumblr, Snapchat, Box, Nest anyday.
- benj111 8y agoI've restated it twice now, I'm confused as to why I'm being misread. Unicorn _and_ 5 big companies. A portfolio of Facebook _and_ LinkedIn, Tumblr, Snapchat, Box, Nest would trump both.
- achillesheels 8y agoSee, I treat LinkedIn as a unicorn.