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I dig into the economics in the post. The data shows the median VC would get better net IRR returns with a Mittelstand PE strategy. It works because Mittelstan
by thanedar 4y ago
I dig into the economics in the post. The data shows the median VC would get better net IRR returns with a Mittelstand PE strategy.
It works because Mittelstand revenue and profitability is much more predictable.
If you're on the Midas List, VC is still a better business. But many investors, especially solo GPs, should consider building a portfolio of middle class startups.
- throwaway98797 4y agobut how will the LPs brag to their friends about their brilliant investments? sure 13% IRR is amazing, but it is not going to make my neighbor jealous
- tptacek 4y agoI wonder if the numbers you're giving are tripping up a mismatch between what you mean by "Mittelstand" or "mid-market startup" and what HN generally thinks of. You're saying the numbers are attractive given a "mid-market" definition that spans all the way to 9 figures of annual revenue. It's true that there's much less risk in quickly getting a company to 6 figures of annual revenue and growing organically from there. But there's a lot of risk --- risk equivalent I think to the typical VC-funded startup --- trying to get it to 10MM/yr within the time horizon of a typical VC investment. Another sticking point with me is that claim that even services companies can get to this level of profitability with good management. Well, yeah, they can. But they don't exit at the same valuation as product companies, because they tend to fall apart when their founders leave.