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Let’s say you distribute X million € to X startups (each one gets 1M) and you know that on average one of them will yield 2X in 5 years and the rest will just b
by ivan_gammel 4y ago
Let’s say you distribute X million € to X startups (each one gets 1M) and you know that on average one of them will yield 2X in 5 years and the rest will just burn the money and die. This seems to be a good investment, right? You only need to pick those startups carefully. It appears, the criteria of selection may be quite different from what you would look at if you were to provide those money as a loan. I’m not sure how VCs really make their decisions, but this is just a case of having a good risk model based on variables that matter the most.
- kmonsen 4y agoNo the unicorn needs to do a lot better than 2x. I think you need an X and a Y there for it to make sense.
- ivan_gammel 4y agoI don’t know if every VC had an unicorn at least once in their portfolio, but for early stage investments to be a good idea they just need to beat consistently any other investment opportunities.
- nkurz 4y agoYou might be misinterpreting. His nomenclature is misleading, but he doesn't mean "2x", he means "2X", where X is the number of companies. That is, you give 1 million € to 10 companies, and the one winner makes you 20 million € (20 times what you invested). He's saying you are guaranteed to double your money in 5 years, which for most investments isn't easy. Or maybe you understand this, and mean that a VC firm needs to target even better returns than this to stay cover their costs and stay in business? Possible.
- NegativeK 4y agox > 2 means you've lost more than your investment in five years. You've going to need a startup to return X million dollars to break even. > You only need to pick those startups carefully. This is the "draw the owl" moment. The top comment is saying that they wouldn't pick any startup that didn't have someone to understand basic corporate finance.