6 ms·

> While there are plenty of VC horror stories, there are fairytales as well. What's the ratio, though??? 10/1? 20/1? 50/1?

getoffmycase 3y ago
According to a talk I heard from a VC, the bulk of investments return very little, several may 2x to 5x, a few may 5x, and one will 15-20x or greater. They’re looking for a 10+% return on the entire portfolio.
metadat 3y ago
In my experience, around 5% of VCs I've met in real life are truly decent human beings, even in cases where they don't have to be. The rest have been pure capitalistic sharks (which is understandable, given the entire sector filters for this).
- bombcar 3y ago
  The best VC I ever interacted with was retiring and treated us more like a fun project than a VC investment. Kelts is going longer than he should have and exited with a small return eventually.
- tptacek 3y ago
  Why are you meeting VCs? In what context? What else are they supposed to be in that context? It's a sales + finance job. If you're meeting them in a working context, and you're not transactional and don't have a really clear idea of what you're trying to accomplish, it'll be a alienating experience, except in the rare cases where they're going out of their way to be nice to you because you're out of your depth. I had a lot of animosity towards VCs from several bad experiences (with a company of mine that got funded, and then with another that didn't). But I've come to realize the commonality of those bad experiences was that I was naive about what was going on. I don't go to my bank hoping for camaraderie and sage advice. VC is tricky because of the "sales" layer it adds to the bank. The best parallel (this is probably really offensive to investors but it's more about me than about them) is real estate agents --- who I also had very bad experiences with, until I learned what was actually going on.
  - metadat 3y ago
    Great points and perspective, thanks for sharing! Totally agree. Having grown up in a family that runs a real estate firm, I can say the ratio is about the same - about 1 in 20 real estate agents are decent human beings who desire both to help others and make a living, and the rest are highly self-interested. What I find interesting is the VC stories along the lines of "X VC really worked with and helped/saved us!". I haven't encountered such stories about any bank.
    - tptacek 3y ago
      What tripped me up with real estate agents is how socially skillful they are. It's a survival skill, so as a cohort they're all anomalously good at building rapport and, from there, trust. If you don't know what you're doing, and what they're doing, and you rely on them as the domain experts, there's a pretty decent chance you're not going to be happy with the outcome. Their incentives aren't perfectly aligned with yours, and if you're not providing a structure to engagement, they are, and that structure will serve them. But the flip side of this is that what feels like mercenary behavior is also useful for the actual job of making real estate transactions happen, so if you optimize for the most trustworthy, least self-interested real estate agents, you're also not going to get the best outcome (and you're going to bounce off of lots of non-altruistic real estate agents in the process). It's going to leave you with grim feelings about the entire business about real estate. Which: fair enough! There's lots not to like about it. But you, personally, as a consumer of real estate services, will feel better and have a better experience if you learn to understand and adapt to how real estate actually works. And a lot of mercenary real estate agents are perfectly lovely people, just doing what it takes to do a job well. As with real estate, so with investing, I suspect. Great example: every VC you meet is going to tell you they're interested in investing and that they want to move the process forward, and they'll keep giving you hoops to jump through as long as you let them without ever intending to invest. That's incredibly aggravating, until you know what's going on and learn to read the room. I'm not good at any of this stuff and would get gutted like a fish trying to raise a round myself, but I've had the benefit of seeing it done well firsthand now, and talking to others who've done it well, and it makes a lot more sense to me now.
rattray 3y ago
Probably closer to 100/1, or worse - that's the gamble you (should) know you're taking if you accept venture capital. It's not for everyone, but eastdakota is right that it's not for nobody.
- antupis 3y ago
  It is tool and there is cases where you need to use that and some case where it is just stupid to use it.
- tptacek 3y ago
  If it was 100/1, no VC would stay afloat, right? The math here isn't that hard to work out; it tracks the portfolio logic of the funds themselves.
  - adrianN 3y ago
    It is my understanding that VCs only stay afloat because the payoff in case of success is huge enough to offset many failures. And I guess many VCs also don't stay afloat forever.
    - DeathArrow 3y ago
      It is my understanding that most VCs expect only one in ten businesses to succeed, but that one is enough to offset the loss and ensure a profit.
    - ymolodtsov 3y ago
      This is correct. For small and medium funds, a single successful portfolio company can return their entire fund with some multiple on top of this. The reason you invest in 30-40 companies instead of one is because you don't know which one it'll be. I've seen this from the inside, I liked the company a lot but I'd never suspect it'd become the most obvious success for us.
  - rattray 3y ago
    The "fairytale" cases (IPO) are quite rare, but acquisition is a little less rare, and help support the portfolio.
conradfr 3y ago
Your VC founded business can fail without being an horror story though.
- eastdakota 3y ago
  Indeed! And an honorable failure — where you learned a ton, tried your best to succeed, but it just didn’t work — is a terrific outcome. We acquihire “failed” startups quite regularly. The founders of those companies have often turned into some of our best senior engineering and product leaders. And some of them go on to then leave after learning from us to give a startup a go again. Success or failure aren’t the bad startup outcomes. The worst startup outcome is The Slog. The Slog sucks. I have several friends stuck in The Slog. Symptoms: you’re growing just barely enough to hold things together (call it 10–20% YoY on <$200k in revenue per employee). You keep thinking the next big thing is just over the horizon. You have a handful of customers who say they love you but won’t buy any more from you. Every once in a while you get some press or show up on HN saying you’re cool. THAT is the recipe for disaster. You can wake up and realize 10 years have passed and you have nothing (economically, educationally, or emotionally) to show for it. It’s possible both with bootstrapped and VC-backed startups. The Slog is the worst startup outcome. Bad VCs can definitely make The Slog worse. There’s so much money in the system there’s almost always someone who will put more in, even if on worse and worse terms. Good VCs, on the other hand, can help get you out of The Slog. They can counsel you when it’s time to give up. They can introduce you to potential acquirers. And while it may not be a huge financial win for you or them, it’s a much better outcome than slogging on indefinitely.
  - rtp4me 3y ago
    If you are inclined to share your VC experience, you might want to reach out to the founder of Dioxus. As a recent YC 23 “winner” and recent (ex)employee of CloudFlare, I’m sure the founder would love to get your personal take on VC funding. I also understand they’re working on a product that CloudFlare could possibly use…
  - mwcampbell 3y ago
    One perspective that's missing here is that of the users that are presumably benefitting from the company's product(s). The users would probably prefer that the company keep slogging than that it get acquihired and the "failed" product get killed. I recently read _The One Device_ by Brian Merchant, and I'm reminded of the story, told in that book, about how FingerWorks sold out to Apple. The FingerWorks users got screwed when Apple discontinued FingerWorks product development and put the team to work on developing multitouch for the iPhone instead. Now, the iPhone has several assistive technologies of its own (FingerWorks developed products for people with RSI), but the death of the FingerWorks products was still definitely a loss. So in my own company, as long as I have the power to do so (I have a cofounder, so it's not entirely my decision), I'll keep slogging rather than shut down a product that is benefitting users.
JumpCrisscross 3y ago
> What's the ratio, though??? 10/1? 20/1? 50/1? About the same as the ratio of successes to failures in a VC portfolio.

getoffmycase 3y ago

According to a talk I heard from a VC, the bulk of investments return very little, several may 2x to 5x, a few may 5x, and one will 15-20x or greater. They’re looking for a 10+% return on the entire portfolio.

metadat 3y ago

In my experience, around 5% of VCs I've met in real life are truly decent human beings, even in cases where they don't have to be. The rest have been pure capitalistic sharks (which is understandable, given the entire sector filters for this).

bombcar 3y ago
The best VC I ever interacted with was retiring and treated us more like a fun project than a VC investment. Kelts is going longer than he should have and exited with a small return eventually.
tptacek 3y ago
Why are you meeting VCs? In what context? What else are they supposed to be in that context? It's a sales + finance job. If you're meeting them in a working context, and you're not transactional and don't have a really clear idea of what you're trying to accomplish, it'll be a alienating experience, except in the rare cases where they're going out of their way to be nice to you because you're out of your depth. I had a lot of animosity towards VCs from several bad experiences (with a company of mine that got funded, and then with another that didn't). But I've come to realize the commonality of those bad experiences was that I was naive about what was going on. I don't go to my bank hoping for camaraderie and sage advice. VC is tricky because of the "sales" layer it adds to the bank. The best parallel (this is probably really offensive to investors but it's more about me than about them) is real estate agents --- who I also had very bad experiences with, until I learned what was actually going on.
- metadat 3y ago
  Great points and perspective, thanks for sharing! Totally agree. Having grown up in a family that runs a real estate firm, I can say the ratio is about the same - about 1 in 20 real estate agents are decent human beings who desire both to help others and make a living, and the rest are highly self-interested. What I find interesting is the VC stories along the lines of "X VC really worked with and helped/saved us!". I haven't encountered such stories about any bank.
  - tptacek 3y ago
    What tripped me up with real estate agents is how socially skillful they are. It's a survival skill, so as a cohort they're all anomalously good at building rapport and, from there, trust. If you don't know what you're doing, and what they're doing, and you rely on them as the domain experts, there's a pretty decent chance you're not going to be happy with the outcome. Their incentives aren't perfectly aligned with yours, and if you're not providing a structure to engagement, they are, and that structure will serve them. But the flip side of this is that what feels like mercenary behavior is also useful for the actual job of making real estate transactions happen, so if you optimize for the most trustworthy, least self-interested real estate agents, you're also not going to get the best outcome (and you're going to bounce off of lots of non-altruistic real estate agents in the process). It's going to leave you with grim feelings about the entire business about real estate. Which: fair enough! There's lots not to like about it. But you, personally, as a consumer of real estate services, will feel better and have a better experience if you learn to understand and adapt to how real estate actually works. And a lot of mercenary real estate agents are perfectly lovely people, just doing what it takes to do a job well. As with real estate, so with investing, I suspect. Great example: every VC you meet is going to tell you they're interested in investing and that they want to move the process forward, and they'll keep giving you hoops to jump through as long as you let them without ever intending to invest. That's incredibly aggravating, until you know what's going on and learn to read the room. I'm not good at any of this stuff and would get gutted like a fish trying to raise a round myself, but I've had the benefit of seeing it done well firsthand now, and talking to others who've done it well, and it makes a lot more sense to me now.

rattray 3y ago

Probably closer to 100/1, or worse - that's the gamble you (should) know you're taking if you accept venture capital. It's not for everyone, but eastdakota is right that it's not for nobody.

antupis 3y ago
It is tool and there is cases where you need to use that and some case where it is just stupid to use it.
tptacek 3y ago
If it was 100/1, no VC would stay afloat, right? The math here isn't that hard to work out; it tracks the portfolio logic of the funds themselves.
- adrianN 3y ago
  It is my understanding that VCs only stay afloat because the payoff in case of success is huge enough to offset many failures. And I guess many VCs also don't stay afloat forever.
  - DeathArrow 3y ago
    It is my understanding that most VCs expect only one in ten businesses to succeed, but that one is enough to offset the loss and ensure a profit.
  - ymolodtsov 3y ago
    This is correct. For small and medium funds, a single successful portfolio company can return their entire fund with some multiple on top of this. The reason you invest in 30-40 companies instead of one is because you don't know which one it'll be. I've seen this from the inside, I liked the company a lot but I'd never suspect it'd become the most obvious success for us.
- rattray 3y ago
  The "fairytale" cases (IPO) are quite rare, but acquisition is a little less rare, and help support the portfolio.

conradfr 3y ago

Your VC founded business can fail without being an horror story though.

eastdakota 3y ago
Indeed! And an honorable failure — where you learned a ton, tried your best to succeed, but it just didn’t work — is a terrific outcome. We acquihire “failed” startups quite regularly. The founders of those companies have often turned into some of our best senior engineering and product leaders. And some of them go on to then leave after learning from us to give a startup a go again. Success or failure aren’t the bad startup outcomes. The worst startup outcome is The Slog. The Slog sucks. I have several friends stuck in The Slog. Symptoms: you’re growing just barely enough to hold things together (call it 10–20% YoY on <$200k in revenue per employee). You keep thinking the next big thing is just over the horizon. You have a handful of customers who say they love you but won’t buy any more from you. Every once in a while you get some press or show up on HN saying you’re cool. THAT is the recipe for disaster. You can wake up and realize 10 years have passed and you have nothing (economically, educationally, or emotionally) to show for it. It’s possible both with bootstrapped and VC-backed startups. The Slog is the worst startup outcome. Bad VCs can definitely make The Slog worse. There’s so much money in the system there’s almost always someone who will put more in, even if on worse and worse terms. Good VCs, on the other hand, can help get you out of The Slog. They can counsel you when it’s time to give up. They can introduce you to potential acquirers. And while it may not be a huge financial win for you or them, it’s a much better outcome than slogging on indefinitely.
- rtp4me 3y ago
  If you are inclined to share your VC experience, you might want to reach out to the founder of Dioxus. As a recent YC 23 “winner” and recent (ex)employee of CloudFlare, I’m sure the founder would love to get your personal take on VC funding. I also understand they’re working on a product that CloudFlare could possibly use…
- mwcampbell 3y ago
  One perspective that's missing here is that of the users that are presumably benefitting from the company's product(s). The users would probably prefer that the company keep slogging than that it get acquihired and the "failed" product get killed. I recently read _The One Device_ by Brian Merchant, and I'm reminded of the story, told in that book, about how FingerWorks sold out to Apple. The FingerWorks users got screwed when Apple discontinued FingerWorks product development and put the team to work on developing multitouch for the iPhone instead. Now, the iPhone has several assistive technologies of its own (FingerWorks developed products for people with RSI), but the death of the FingerWorks products was still definitely a loss. So in my own company, as long as I have the power to do so (I have a cofounder, so it's not entirely my decision), I'll keep slogging rather than shut down a product that is benefitting users.

JumpCrisscross 3y ago

> What's the ratio, though??? 10/1? 20/1? 50/1? About the same as the ratio of successes to failures in a VC portfolio.