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According to the OP, which borrows liberally from an earlier piece by someone else[a], the way to win for VC firms is by investing more capital, faster, with le

by cs702 5y ago

According to the OP, which borrows liberally from an earlier piece by someone else[a], the way to win for VC firms is by investing more capital, faster, with less due diligence, and at higher (market-clearing) valuations than competitors. Just throw money at things that look, you know, like promising winners. Don't waste time on things like assessing risk. While in theory it's always possible to lose money investing in startups (gasp), there is NO mention of that possibility in this article. The concept of risk of loss appears to be... foreign to the author, I guess? Over the past six to seven decades, the US venture capital industry has gone through a handful of boom-and-bust cycles. For example, many VC funds that launched at the peak of the last major VC boom, in 1998-2000, ended up losing 50-100% of LP capital over the next decade. Perhaps all that "ancient" history is irrelevant now. Maybe there's no risk of loss anymore? Maybe this time it's different? -- [a] See this comment: https://news.ycombinator.com/item?id=29297400 https://news.ycombinator.com/item?id=29297400

melony 5y ago
Do GPs get sued if LPs lose money?
robocat 5y ago
> Don't waste time on things like assessing risk. They assess risk differently. They do due diligence. The average VC assesses risk poorly, 50% of VCs lose money*, let alone return enough for value-at-risk. Doing a deal a day will give them enough data for them to measure actual risk/rewards over time. You don’t learn much if you only play a few times a year. Edit: Also a traditional fund might invest in say ten companies and that LP funding round is betting one of those investments will return all the profit. This is a high variance investment strategy and the LPs returns are highly correlated with market conditions. With investments in a lot more companies as Tiger are doing, the variance is driven down, especially if the fund is spread across companies with varying ages. I suspect that there is more scope for LPs to cash out earlier, unlike a typical LP problem where money is locked up for a decade and is highly illiquid. I have read that a VC funds one company and says no to 99. There absolutely has to be A LOT of money left on the table in the other 99 - the signal to noise ratio of understanding new enterprises is so high that it is guaranteed. > While in theory it's always possible to lose money investing in startups (gasp), there is NO mention of that possibility in this article. I think that the risk of losses is implicit enough. The article definitely mentions your “boom-and-bust” cycles: “The most significant risk to Tiger is macroeconomic.” “Should the sector experience a sharp downturn”… Also: “Tiger will need to make sure it does not become the poster-child for failures of [governance]”. Edit: Interestingly enough, AVC who is usually insightful, recently wrote about how seed investment $1M for 1% is a poor investment strategy https://avc.com/2021/11/seed-rounds-at-100mm-post-money/ https://avc.com/2021/11/seed-rounds-at-100mm-post-money/ and the Tiger Global article mentions the critical part of Tiger Global’s involvement with seed funds that AVC missed: “To make sure it sees more deals, Tiger cozies up to seed funds. […] The source I spoke to noted that Tiger essentially asks these managers, ‘How do we become the only partner you bring Series As to?’.” * 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...

by cs702 5y ago

melony 5y ago

Do GPs get sued if LPs lose money?

robocat 5y ago

> Don't waste time on things like assessing risk. They assess risk differently. They do due diligence. The average VC assesses risk poorly, 50% of VCs lose money*, let alone return enough for value-at-risk. Doing a deal a day will give them enough data for them to measure actual risk/rewards over time. You don’t learn much if you only play a few times a year. Edit: Also a traditional fund might invest in say ten companies and that LP funding round is betting one of those investments will return all the profit. This is a high variance investment strategy and the LPs returns are highly correlated with market conditions. With investments in a lot more companies as Tiger are doing, the variance is driven down, especially if the fund is spread across companies with varying ages. I suspect that there is more scope for LPs to cash out earlier, unlike a typical LP problem where money is locked up for a decade and is highly illiquid. I have read that a VC funds one company and says no to 99. There absolutely has to be A LOT of money left on the table in the other 99 - the signal to noise ratio of understanding new enterprises is so high that it is guaranteed. > While in theory it's always possible to lose money investing in startups (gasp), there is NO mention of that possibility in this article. I think that the risk of losses is implicit enough. The article definitely mentions your “boom-and-bust” cycles: “The most significant risk to Tiger is macroeconomic.” “Should the sector experience a sharp downturn”… Also: “Tiger will need to make sure it does not become the poster-child for failures of [governance]”. Edit: Interestingly enough, AVC who is usually insightful, recently wrote about how seed investment $1M for 1% is a poor investment strategy https://avc.com/2021/11/seed-rounds-at-100mm-post-money/ https://avc.com/2021/11/seed-rounds-at-100mm-post-money/ and the Tiger Global article mentions the critical part of Tiger Global’s involvement with seed funds that AVC missed: “To make sure it sees more deals, Tiger cozies up to seed funds. […] The source I spoke to noted that Tiger essentially asks these managers, ‘How do we become the only partner you bring Series As to?’.” * 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...