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The “Crisis” In Venture Capital
- pxlpshr 18y agoI can't begin tell you how many VCs were more concerned with customer acquisition than the monetization strategy. Furthermore, less focused on early-stage and more focused on growth... does anyone else see the contradiction in that web 2.0 "investment strategy"? Too many finance guys lack operation experience... These results do not surprise me.
- tortilla 18y agoGood points. Remember the obsession with "eyeballs" from the first bubble?
- daniel-cussen 18y agoThere was an obsession with eyeballs then too?
- notauser 18y agoThe finance guys are buying operational experience by funding you. Their goal is a good rate of return. They have (or should have) no interest in running your business, because they already have a business of their own to manage.
- susquaheart 18y agoGood point not.... I've worked with venture capitalists off and on over the years and what everyone looking for funding needs to understand is what they think is a "good rate of return".. They'll never tell you during the application process but what they are looking for is $10 in return in 2 to 5 years for every $1 they invest. They really don't care how they get it. It can be from capital gain or operating revenue but they always want 10 for 1........ Things haven't really changed all that much since Shakespeare wrote "Merchant of Venice".
- notauser 18y agoA good enough rate of return is 10% - most companies operate on 10-15% IRR. What you need to rememeber is that this 10-15% is AFTER adjustment, ie write offs for risk, overheads etc. In government contracting (fairly low risk), with a target profit margin of 10%, gross margin required can easily be over 25%. > $10 in return in 2 to 5 years for every $1 they invest. Over a 5 year period a 900% total return is 58.5% anual return. Assuming they get a hit one time in six this would equate to a profit of about ten percent (gross - before overhead costs etc), which is pretty low. Any less and they would be better off doing something else with the money. Of course if all six startups are a hit they make out like bandits - but if you take the risk you get the reward. They could just as easilly end up with six losers.
- pxlpshr 18y agoYou're most certainly correct. The VC's intention to produce a return certainly has not changed and never will... no rocket science there. That said, please correlate their goal to poor investment strategies/methodologies in hopes of achieving 10:1. And that's my point.
- aston 18y agoThose graphs are a bit sketchy. Kinda deceiving to compare a half year's numbers with a whole year's. The conclusions are right, but there's some psychological manipulation in the pictures.