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(Context: I'm a successful serial entrepreneur, but never on the fundraising side) My experience is that the best investment opportunities are counter-cyclical

(Context: I'm a successful serial entrepreneur, but never on the fundraising side) My experience is that the best investment opportunities are counter-cyclical. During a down economy, talent is cheap. Competition is low. It's easy to build a growth business which explodes when the economy enters a growth stage. It's also cheaper, more focused, and more efficient to have 5 people work for 5 years than 100 people for 1 year. 5-20 people is sort of optimal. That requires (more) patient capital, and longer times to IPOs, but has higher ROI. I think I could build any of several successful businesses with a smaller investment -- on the order of $5-10M -- sustained over a longer period (optimally, around $1-2M/year over 5 years). I don't think I'd want or need series B or C funding. That can accelerate things, which is helpful if I'm competing aggressively against five companies, and it's first to grab the market, but it makes companies a lot less lean, focused, and aligned as well. It also dilutes equity a lot, for everyone. Stock options have a reputation for being worthless, and when you run the numbers, that's generally true for anyone beyond the founders. Do you know if there are investors who can handle this type of structure? Or what constraints there are to having these kinds of investments? I understand the current time windows that a VC fund is open, but it's odd to me that there aren't more diverse types of funding available. Do you know why people haven't set up VC funds with other structures? It seems like a major inefficiency and friction....

karterk 4y ago
Have you looked at TinySeed? But they don't operate at a Series A scale in terms of cash deployed per investment. I suspect that the power law of returns in VC model requires really large outsized returns that cannot be achieved Without an all or nothing model.
- frognumber 4y ago
  Outsized returns can be generated, just in due course. Blowing $500M is great for building an Amazon or an Uber -- if you require a lot of hardware or logistics. It's useful in a 4-way rat race where it's first-past-the-goalpost. I tend to prefer deep tech, where I build something hard (or relatively hard) that's never been built. A company like Bose has $3.2B in annual revenues, 58 years after founding, and I believe they've never raised external capital. That's because they have a big pile of unique technology. Contrary to their image, they do a lot of work which is not speakers (and which you've likely never heard of), from architectural acoustics to government. TinySeed looks to fund small, niche SaaS companies, mostly. Most of the stuff they fund, more or less anyone with SWE background could build. For developing hard tech, I'd pick $10M and 10 years over $200M and 2 years, any day of the week.

karterk 4y ago

Have you looked at TinySeed? But they don't operate at a Series A scale in terms of cash deployed per investment. I suspect that the power law of returns in VC model requires really large outsized returns that cannot be achieved Without an all or nothing model.

frognumber 4y ago
Outsized returns can be generated, just in due course. Blowing $500M is great for building an Amazon or an Uber -- if you require a lot of hardware or logistics. It's useful in a 4-way rat race where it's first-past-the-goalpost. I tend to prefer deep tech, where I build something hard (or relatively hard) that's never been built. A company like Bose has $3.2B in annual revenues, 58 years after founding, and I believe they've never raised external capital. That's because they have a big pile of unique technology. Contrary to their image, they do a lot of work which is not speakers (and which you've likely never heard of), from architectural acoustics to government. TinySeed looks to fund small, niche SaaS companies, mostly. Most of the stuff they fund, more or less anyone with SWE background could build. For developing hard tech, I'd pick $10M and 10 years over $200M and 2 years, any day of the week.