4 ms·

I have a question: is this good or bad for the Series B investors? I'm not sure the answer is as obvious as it seems. 2X return overnight is great for angels,

by motti_s 15y ago

I have a question: is this good or bad for the Series B investors? I'm not sure the answer is as obvious as it seems. 2X return overnight is great for angels, but is it good for VCs? From what I understand (correct me if I'm wrong), once VCs have an exit, they can't reuse the proceedings for a subsequent investment. Thus, since VCs like Sequoia are probably looking for 10X returns, they just ended up with a chunk of their fund that underperformed. True or false?

rscale 15y ago
I'd think this would be great for their IRR, because this means they had a capital call a month or two ago, and will be returning double the capital very, very shortly thereafter. I have trouble seeing how it'll hurt their IRR.
dpark 15y ago
> From what I understand (correct me if I'm wrong), once VCs have an exit, they can't reuse the proceedings for a subsequent investment. Why wouldn't they be able to use the funds for a later investment? Isn't that what VCs do in general? (Genuine question; not being snarky.)
- motti_s 15y ago
  I believe that most funds are structured in a way that the VCs have to pass the proceedings (minus their cut of course) to their LPs (investors).
  - joshu 15y ago
    Correct. However many funds do not distribute returns that are less than a certain amount (1.5x is typical, I think)
    - motti_s 15y ago
      So in you opinion, assuming that Sequoia had to distribute the "overnight" 2X to their LPs, was that a good investment for them?
      - joshu 15y ago
        I think VCs are looking to provide bigger returns than this.
  - dpark 15y ago
    Thanks. I wasn't aware of that.
- rscale 15y ago
  No, VCs generally don't recycle their wins. A VC fund is at it's heart a company that is expected to live for ten years; first raising capital, then investing the capital, and then spending it's final years collecting the proceeds of the exits, as the successful investments get acquired or IPO. Note: VC firms will have many different funds, each with different origination years, so while the fund might last a very long time, the individual funds are not supposed to remain illiquid forever.
  - joshu 15y ago
    They are often able to recycle low returns. I think 1.5x and lower is typical.
    - rscale 15y ago
      Am I correct to think it's 1.5x, and within the investment period (first few years of the fund)?
    - deleted 15y ago
      [deleted]
  - dpark 15y ago
    Thanks. I wasn't aware of that.
loverobots 15y ago
If you invest $20 million and get $40 Million a week later you are extremely happy. If you invest $15K and get $30K, meh...cause you were probably hoping for life-changing money. So context is everything. Not to mention that Instagram was more than an idea or a famous founder at the time of investment so there was less rick of losing everything.

by motti_s 15y ago

rscale 15y ago

I'd think this would be great for their IRR, because this means they had a capital call a month or two ago, and will be returning double the capital very, very shortly thereafter. I have trouble seeing how it'll hurt their IRR.

dpark 15y ago

> From what I understand (correct me if I'm wrong), once VCs have an exit, they can't reuse the proceedings for a subsequent investment. Why wouldn't they be able to use the funds for a later investment? Isn't that what VCs do in general? (Genuine question; not being snarky.)

motti_s 15y ago
I believe that most funds are structured in a way that the VCs have to pass the proceedings (minus their cut of course) to their LPs (investors).
- joshu 15y ago
  Correct. However many funds do not distribute returns that are less than a certain amount (1.5x is typical, I think)
  - motti_s 15y ago
    So in you opinion, assuming that Sequoia had to distribute the "overnight" 2X to their LPs, was that a good investment for them?
    - joshu 15y ago
      I think VCs are looking to provide bigger returns than this.
- dpark 15y ago
  Thanks. I wasn't aware of that.
rscale 15y ago
No, VCs generally don't recycle their wins. A VC fund is at it's heart a company that is expected to live for ten years; first raising capital, then investing the capital, and then spending it's final years collecting the proceeds of the exits, as the successful investments get acquired or IPO. Note: VC firms will have many different funds, each with different origination years, so while the fund might last a very long time, the individual funds are not supposed to remain illiquid forever.
- joshu 15y ago
  They are often able to recycle low returns. I think 1.5x and lower is typical.
  - rscale 15y ago
    Am I correct to think it's 1.5x, and within the investment period (first few years of the fund)?
  - deleted 15y ago
    [deleted]
- dpark 15y ago
  Thanks. I wasn't aware of that.

loverobots 15y ago

If you invest $20 million and get $40 Million a week later you are extremely happy. If you invest $15K and get $30K, meh...cause you were probably hoping for life-changing money. So context is everything. Not to mention that Instagram was more than an idea or a famous founder at the time of investment so there was less rick of losing everything.