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Let me word it a different way. VCs invest in their asset ownership of the corporation, not in the business of that corporation. In this regard, I refer not to

Let me word it a different way. VCs invest in their asset ownership of the corporation, not in the business of that corporation. In this regard, I refer not to the legal structure of the corporation nor that VCs obviously invest in legally structured businesses incorporated preferably as Delaware C corporations, but rather I focus on the intent of the corporation (which is indeed a legal business as you've stated above). As an owner of Amazon stock, I'm an investor in my share of their corporation. I earn no part in their actual business, the business of Amazon. In this way, I don't care about dividends or shares of their revenue. Instead, I am looking at the asset value increase in my ownership of a share of their corporation. Perhaps we're saying the same things. The reason why this distinction matters is because most entrepreneurs pitch their startups to VCs as a business, focusing on the business aspects of their corporation, rather than on the value of the asset, which has little relation to the business-side concerns of the corporation. Whereas the VCs primarily are valuing the asset ownership side of the corporation and whether or not the corporation generates business value is not relevant as long as it generates asset value. That's the intent of what I write to shift the emphasis on realizing what VCs truly are interested in. And to the point on Ferrari collectors. They know that their asset is not a car, it's a Ferrari. They could potentially drive it around, but they don't. So to that example, they're actually not investing in cars, they're investing in Ferraris. You could make the same argument and say, well Ferraris are cars. And I'd say yes of course, but that's not the point. Ferraris could be boats or paintings, and it would be just as relevant. It's the asset value not the functionality they're investing in. That's why I say VCs invest in corporations not businesses, in the same way that Ferrari collectors invest in Ferraris, not cars.

lisper 4y ago
I understand the concept you are trying to convey but you are using the wrong words, and as a result you come across as naive and uninformed. You are making an observation about a VC's motivation and strategy. But the words you are using make it sound like you are talking about the structure of their investment. There is no distinction between a corporation and "the actual business" of the corporation from the point of view of an equity investor. An equity investor buys shares of the corporation, and that's it. An investor might be motivated to make that investment because they want a return, or they might be motivated to make that investment because they are passionate about what the corporation does, but either way, they buy the same stock. There are not separate investment mechanisms contingent on an investor's motives. It is true that VCs are motivated entirely by ROI, and this is an important thing to understand, but rendering that as "VC's don't invest in businesses" is wrong. It turns an important insight into a deepity [1]. (I suspect that this particular aphorism models itself after Ray Croc's famous quip that he was not in the hamburger business but the real estate business. But in his case it was actually true. Ray Croc never sold a hamburger. He sold franchises to people who sold hamburgers. That really is an important structural difference, and it's the reason that Ray got much (much!) richer than any of his franchisees. But in this case, the aphorism is flat-out wrong. There is no structural difference between what a VC does and what any other equity investor does, with the single exception that VCs never invest in companies that have already gone public.) [1] https://en.wiktionary.org/wiki/Citations:deepity https://en.wiktionary.org/wiki/Citations:deepity

lisper 4y ago

I understand the concept you are trying to convey but you are using the wrong words, and as a result you come across as naive and uninformed. You are making an observation about a VC's motivation and strategy. But the words you are using make it sound like you are talking about the structure of their investment. There is no distinction between a corporation and "the actual business" of the corporation from the point of view of an equity investor. An equity investor buys shares of the corporation, and that's it. An investor might be motivated to make that investment because they want a return, or they might be motivated to make that investment because they are passionate about what the corporation does, but either way, they buy the same stock. There are not separate investment mechanisms contingent on an investor's motives. It is true that VCs are motivated entirely by ROI, and this is an important thing to understand, but rendering that as "VC's don't invest in businesses" is wrong. It turns an important insight into a deepity [1]. (I suspect that this particular aphorism models itself after Ray Croc's famous quip that he was not in the hamburger business but the real estate business. But in his case it was actually true. Ray Croc never sold a hamburger. He sold franchises to people who sold hamburgers. That really is an important structural difference, and it's the reason that Ray got much (much!) richer than any of his franchisees. But in this case, the aphorism is flat-out wrong. There is no structural difference between what a VC does and what any other equity investor does, with the single exception that VCs never invest in companies that have already gone public.) [1] https://en.wiktionary.org/wiki/Citations:deepity https://en.wiktionary.org/wiki/Citations:deepity