4 ms·
Too early to say. VCs get paid when they can sell their stock, not when the company makes a profit. Business making money != VCs making money. (Also, VC-backed
by gyardley 15y ago
Too early to say. VCs get paid when they can sell their stock, not when the company makes a profit.
Business making money != VCs making money. (Also, VC-backed business making money != founders making money. Your VC probably isn't going to let your company issue a dividend, which is how you'd get those profits out.)
The $100MM is probably a 'minimum revenue to plausibly take the company public and get paid' figure.
- citricsquid 15y agoSo my understanding of raising money is completely wrong, the only part that matters to investors is if the company goes public or is sold?
- dfriedmn 15y agoNo, it's not wrong - but as always it's complicated. VC's have a relatively short time horizon within which they need to provide a return to their LP's, and their returns typically are driven by a few outsized successes (>7-10x). Sometimes entire funds can be made because of one mega-hit, and that always seems to be on people's minds when considering cos. Dividends aren't ideal for returning a fund, and investors are often nervous about deals with a capped upside.
- brandnewlow 15y agoVCs just don't do divdends. Why take money out along the way when you can invest it into the company to get a bigger exit?
- maaku 15y agoNot saying VCs dont' think that way, but sometimes throwing money into a company wont have the slightest effect on size of exit.
- donw 15y agoIn the category of 'potentally stupid questions', why can't VCs also make money from dividends?
- citricsquid 15y agoThis is my confusion too. I was under the impression that was the normal way that VCs made their money and companies going public or being sold is the outlying (but most desirable) result.
- il 15y agoVCs don't want your dividends, they want you to deploy that capital into growing the company.
- donw 15y agoAt early stages, I can completely understand this. Consider Craigslist. Fantastically successful business, makes hundreds of millions of dollars a year using less people than you'd need to run a McDonalds. Growing this kind of company is not capital-intensive beyond a certain level. So, should you end up building a Craigslist, why would the VC firm want an exit, rather than a continuous (and large) flow of checks from dividends?
- il 15y agoCraigslist is a horrendously mismanaged business. I wouldn't be surprised to see AirBnB dwarf Craigslist soon- that's the kind of company VCs want to invest in, not something like Craigslist that has been stagnating for years.
- prodigal_erik 15y agoAirBnB started out by attacking Craigslist as well as the commons. They probably will win; I'm continually disappointed at how eagerly we reward bottom-feeders.
- DennisP 15y agoCraig isn't optimizing for profit. He's optimizing for maximum user benefit, and letting the users decide what benefits them the most. Mostly they want free classifieds without paid advertising attached, so that's what he gives them. In a few cases, the users wanted to pay for classifieds, and those users are the only reason Craigslist makes money. Judging Craigslist by the standards of a profit-seeking business is entirely missing the point.