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That's absurd. 1 point of the company at a given stage might be 5-10% of the total investment that the VC makes (given that VCs typically shoot for 10-20% of t
by rlucas 8y ago
That's absurd. 1 point of the company at a given stage might be 5-10% of the total investment that the VC makes (given that VCs typically shoot for 10-20% of the company).
The VC is doing, give or take, the same deal 10-20x in a portfolio. If you talk about that 1% becoming a norm, then it really moves the dial 5-10% on the total return for the VC.
A founding team should be owning 60-80% of the company after that transaction. Meaning, the 1% ownership difference is something like 1.3% of the founders' total return.
If you're going to try to do math on it, be fair and real.
Full disclosure: VC here.
- bsder 8y agoYou are optimizing for the fact that you need all your companies to give you this since you can't predict the single "hit" that will generate the vast majority of the value of your portfolio. Founders are (or at least should be) optimizing for the fact that they are most likely to be a mediocre business that isn't going to cash out with a lottery ticket.
- rlucas 8y agoI actually agree (broadly) with your statement about founders. As far as what the VC is optimizing for -- fair enough, I am only pointing out that saying the 1 point difference in, say, a 10 or 11 point equity stake is somehow actually only 0.2% to the VC isn't fair. It's a 10% difference in the VC's stake.