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"Companies are unfundable until they are oversubscribed" - Naval Ravikant

2 points by vccafe 14y ago

Why is it that VCs are mostly followers rather than leaders? Why do so many companies (including Google, Groupon) get turned down when they pitch to VCs in the early stages?

mariusfermi 14y ago
VCs like to take risk, but risk at the investment level of potentially millions is a lot harder to leverage or hedge when you only have 2 options. Invest or don't invest. Big players in the stock market, hedge funds, banks etc have the ability to hedge and leverage risk with different processes such as short selling and many other tactics. A VC will think like an investment bank but have limited potential to save themselves in a moment of bad judegement. School yard mentality too, once its clear everyone is getting involved, due diligence shows that there is some sort of hype building then they follow - it takes a lot to be the first especially in a playground of Silicon Valley and startups. (I have never dealt with any form of VC therefore this is my judgement and idea going from the mass amount of reading I've done)
jamesmcbennett 14y ago
Why do all VC's need to be leaders? I think some do, but remembering this 3min talk by Derek Sivers http://www.ted.com/talks/derek_sivers_how_to_start_a_movement.html http://www.ted.com/talks/derek_sivers_how_to_start_a_movemen... about leaders and followers, we need more followers than leaders. Once a lead investor is established, bring on the followers, startups need traction with investors too of which not everyone can be there first. The question becomes which investors are known leaders and which ones are followers.
- jamesmcbennett 14y ago
  Also interesting email conversation on timing in investment between Paul Graham and Fred Wilson. Not so simple.. http://www.paulgraham.com/airbnb.html http://www.paulgraham.com/airbnb.html
1123581321 14y ago
It's hard to tell what will become successful. VCs, like any other kind of investor, have a limited amount of time and insight into what will make something successful. Even discovering an investment opportunity doesn't come equally easily to all firms. As in any industry, there are those who find/do things for the first time, and those who hear about the first group and jump in. Finally, the competency disparity between leaders and followers isn't as big as it seems. Many of the leading firms won a lucky bet and now make money simply by attaching their name to a project. Or, they are connected and can create income and offers for their investments while the follower firms don't have those advantages.
ig1 14y ago
Different VCs look for different things, even if you've got a great startup in the transactional space a VC which primarily focuses on marketplace/network plays isn't going to be interested. There are dozens of factors that go into a VCs decision, everything ranging from the age of their active fund to how well the relevant partner gets on with the founders. Not every deal is right for every VC. Also you need to be careful of survivor bias, for every Groupon that succeeds there might have been a hundred that looked identical to it at seed-stage but ultimately failed.
vccafe 14y ago
Via Twitter: Tom Samodol ‏@tomsamodol @ediggs Because VCs are lazy. Lemming effect: scared missing on next big thing, so they all plough into the same start-up
vccafe 14y ago
via email (anonymous): "From my experience only the best European investors that have the confidence to go first, so you need to find the combo of the right firm and the right partner if you dont want to get stuck in a waiting game." Feel free to chime on Quora too: https://www.quora.com/Venture-Capital/Companies-are-unfundable-until-they-are-oversubscribed-Naval-Ravikant-Why-is-that https://www.quora.com/Venture-Capital/Companies-are-unfundab...
vccafe 14y ago
From Twitter: Naval Ravikant ‏@naval @ediggs not about VCs being followers but rather that outcomes are nonlinear - so funding is as well. The problem with pithy quotes :-)

2 points by vccafe 14y ago

Why is it that VCs are mostly followers rather than leaders? Why do so many companies (including Google, Groupon) get turned down when they pitch to VCs in the early stages?

mariusfermi 14y ago

VCs like to take risk, but risk at the investment level of potentially millions is a lot harder to leverage or hedge when you only have 2 options. Invest or don't invest. Big players in the stock market, hedge funds, banks etc have the ability to hedge and leverage risk with different processes such as short selling and many other tactics. A VC will think like an investment bank but have limited potential to save themselves in a moment of bad judegement. School yard mentality too, once its clear everyone is getting involved, due diligence shows that there is some sort of hype building then they follow - it takes a lot to be the first especially in a playground of Silicon Valley and startups. (I have never dealt with any form of VC therefore this is my judgement and idea going from the mass amount of reading I've done)

jamesmcbennett 14y ago

Why do all VC's need to be leaders? I think some do, but remembering this 3min talk by Derek Sivers http://www.ted.com/talks/derek_sivers_how_to_start_a_movement.html http://www.ted.com/talks/derek_sivers_how_to_start_a_movemen... about leaders and followers, we need more followers than leaders. Once a lead investor is established, bring on the followers, startups need traction with investors too of which not everyone can be there first. The question becomes which investors are known leaders and which ones are followers.

jamesmcbennett 14y ago
Also interesting email conversation on timing in investment between Paul Graham and Fred Wilson. Not so simple.. http://www.paulgraham.com/airbnb.html http://www.paulgraham.com/airbnb.html

1123581321 14y ago

It's hard to tell what will become successful. VCs, like any other kind of investor, have a limited amount of time and insight into what will make something successful. Even discovering an investment opportunity doesn't come equally easily to all firms. As in any industry, there are those who find/do things for the first time, and those who hear about the first group and jump in. Finally, the competency disparity between leaders and followers isn't as big as it seems. Many of the leading firms won a lucky bet and now make money simply by attaching their name to a project. Or, they are connected and can create income and offers for their investments while the follower firms don't have those advantages.

ig1 14y ago

Different VCs look for different things, even if you've got a great startup in the transactional space a VC which primarily focuses on marketplace/network plays isn't going to be interested. There are dozens of factors that go into a VCs decision, everything ranging from the age of their active fund to how well the relevant partner gets on with the founders. Not every deal is right for every VC. Also you need to be careful of survivor bias, for every Groupon that succeeds there might have been a hundred that looked identical to it at seed-stage but ultimately failed.

vccafe 14y ago

Via Twitter: Tom Samodol ‏@tomsamodol @ediggs Because VCs are lazy. Lemming effect: scared missing on next big thing, so they all plough into the same start-up

vccafe 14y ago

via email (anonymous): "From my experience only the best European investors that have the confidence to go first, so you need to find the combo of the right firm and the right partner if you dont want to get stuck in a waiting game." Feel free to chime on Quora too: https://www.quora.com/Venture-Capital/Companies-are-unfundable-until-they-are-oversubscribed-Naval-Ravikant-Why-is-that https://www.quora.com/Venture-Capital/Companies-are-unfundab...

vccafe 14y ago

From Twitter: Naval Ravikant ‏@naval @ediggs not about VCs being followers but rather that outcomes are nonlinear - so funding is as well. The problem with pithy quotes :-)