3 ms·

The seed round _is_ the 'probable return' calculation. Seed numbers should tell you what other (professional) investors consider to be a 'good deal'. If you a

by Murkin 15y ago

The seed round _is_ the 'probable return' calculation. Seed numbers should tell you what other (professional) investors consider to be a 'good deal'. If you are willing to get in and worse conditions, you are either brilliant or..

wheels 15y ago
That's partly true, but there are some subtleties not conveyed by such: If a VC is investing in a seed round, it's effectively just an option on a later investment. It's the ante, not a bet. If you're investing from a $1 billion fund, it's not really worth making sure you're getting a good price on a $100k investment that's 0.01% of your capital. I have more than 0.01% of my liquid assets in my back pocket right now. The employee, on the other hand, might be investing 10% of their life. And for angels, compared to an employee, there's very little opportunity cost. An employee needs to clear a lot more to break even since they're leaving tens of thousands per year on the table in terms of salary. Most angels, who participate in syndicates and write checks in the range of $15k, aren't really limited in the number of investments they can do by the amount of cash they have. So the opportunity cost is the spread between their startup returns versus more traditional investment vehicles (say at about 6% per year). An employee taking a 30-50% salary cut is risking a lot more (not to mention that they probably aren't rich at the outset). Now, the worse conditions bit is also not quite true. The comment below on the market pricing employee scarcity versus investor scarcity is apt -- and actually it can go both ways. If the market is particularly frothy, investor equity may be overpriced relative to employee stock, or in the more common case where a startup scrapes together a seed round, it may be underpriced.

3 ms·

The seed round _is_ the 'probable return' calculation. Seed numbers should tell you what other (professional) investors consider to be a 'good deal'. If you a

by Murkin 15y ago

wheels 15y ago
That's partly true, but there are some subtleties not conveyed by such: If a VC is investing in a seed round, it's effectively just an option on a later investment. It's the ante, not a bet. If you're investing from a $1 billion fund, it's not really worth making sure you're getting a good price on a $100k investment that's 0.01% of your capital. I have more than 0.01% of my liquid assets in my back pocket right now. The employee, on the other hand, might be investing 10% of their life. And for angels, compared to an employee, there's very little opportunity cost. An employee needs to clear a lot more to break even since they're leaving tens of thousands per year on the table in terms of salary. Most angels, who participate in syndicates and write checks in the range of $15k, aren't really limited in the number of investments they can do by the amount of cash they have. So the opportunity cost is the spread between their startup returns versus more traditional investment vehicles (say at about 6% per year). An employee taking a 30-50% salary cut is risking a lot more (not to mention that they probably aren't rich at the outset). Now, the worse conditions bit is also not quite true. The comment below on the market pricing employee scarcity versus investor scarcity is apt -- and actually it can go both ways. If the market is particularly frothy, investor equity may be overpriced relative to employee stock, or in the more common case where a startup scrapes together a seed round, it may be underpriced.