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Venture capitalists these days go on social proof largely because of their career incentives. You don't "make it" as a VC unless you get into a black albatross

Venture capitalists these days go on social proof largely because of their career incentives. You don't "make it" as a VC unless you get into a black albatross deal early, and there's one of those per decade. That's why all the horrible note-sharing and co-funding goes on. All the VC resources are chasing the career needs of the agents, not maximizing return on investment (which is impossible to predict anyway). Someone is going to win big by working with the mid-risk/mid-growth "lifestyle" businesses (that currently make most of their money consulting) but it's not going to happen in VC-istan, nor will it be in Silicon Valley or New York. Boston has a shot; I'd also say Austin, Seattle and Chicago are in the running.

rdl 13y ago
There are angel investors in Silicon Valley (and elsewhere) who focus on smaller but less risky wins. It's not a horrible strategy, I think, if you make only a few investments and do it for reasons other than getting rich. (If I were in a position to invest, I'd be happy investing in businesses which were sustainable/profitable but not the next $500mm exit IFF I wanted the beneficial side effects of those businesses. Even down to the scale of a single individual, sort of the "patronage" model. I think it's entirely reasonable that a single person could accomplish great solutions to small to midsize problems, like say a good zerocoin implementation. Sadly, I'm not right now, and probably won't be for several years.) Plenty of angels seem happy with longer term or potentially ongoing revenue streams -- the kind of people who invest in restaurants, dry cleaners, consultancies, etc. Seems like it only makes sense if you really like the industry/product or the team, though.
sp332 13y ago
I think that's "black swan", but I like the idea of a black albatross :)
n00b101 13y ago
> Someone is going to win big by working with the mid-risk/mid-growth "lifestyle" businesses I don't think that's what this Tesla video was about though. Quite the opposite, it explicitly laid out the need for large capital outlays, etc.
- 3327 13y ago
  I had a meeting with Accel last year and pretty much went exactly like this video.
fearless 13y ago
Isn't the entire premise of venture capital that you only make money off the big winners? Assuming lifestyle businesses fail at similar rates as venture-backed companies, the way to maximize returns is to invest in the companies with the biggest potential upside. In other words, how many $10/month SaaS companies would it take getting acquired to match the return of your average $300M VC-backed exit? Don't say 37signals. 37signals is an outlier in the same way Instagram is an outlier. The existence of either of these proves nothing. By definition a mid-growth business will NEVER generate the returns needed to sustain a venture fund. I don't think it's fair or the most beneficial to society that VCs only invest in high-risk, high-potential businesses. But that's the only way the math could work. You can't argue with math. The only exception would be funds like YC that can invest very small amounts at very low valuations and make money from acqui-hires.
- ucee054 13y ago
  Assuming lifestyle businesses fail at similar rates as venture-backed companies Why would you make such an assumption? You can't argue with math. I can when you get the math so wrong, like above.
  - fearless 13y ago
    Most businesses fail because they run out of money. Do you think getting an infusion of millions of dollars makes a business more likely to fail?
    - khuey 13y ago
      Lifestyle businesses are usually about a modest initial investment by the founder and then reinvesting modest profits into raising the hot air balloon a bit. VC backed companies usually start out losing tons of money and hope they achieve flight by the time they reach the end of the runway.
BecauseWeCan 13y ago
Weren't you taking a one month break from hacker news? http://michaelochurch.wordpress.com/2013/05/18/one-month-break-from-hacker-news/ http://michaelochurch.wordpress.com/2013/05/18/one-month-bre...

rdl 13y ago

There are angel investors in Silicon Valley (and elsewhere) who focus on smaller but less risky wins. It's not a horrible strategy, I think, if you make only a few investments and do it for reasons other than getting rich. (If I were in a position to invest, I'd be happy investing in businesses which were sustainable/profitable but not the next $500mm exit IFF I wanted the beneficial side effects of those businesses. Even down to the scale of a single individual, sort of the "patronage" model. I think it's entirely reasonable that a single person could accomplish great solutions to small to midsize problems, like say a good zerocoin implementation. Sadly, I'm not right now, and probably won't be for several years.) Plenty of angels seem happy with longer term or potentially ongoing revenue streams -- the kind of people who invest in restaurants, dry cleaners, consultancies, etc. Seems like it only makes sense if you really like the industry/product or the team, though.

sp332 13y ago

I think that's "black swan", but I like the idea of a black albatross :)

n00b101 13y ago

> Someone is going to win big by working with the mid-risk/mid-growth "lifestyle" businesses I don't think that's what this Tesla video was about though. Quite the opposite, it explicitly laid out the need for large capital outlays, etc.

3327 13y ago
I had a meeting with Accel last year and pretty much went exactly like this video.

fearless 13y ago

Isn't the entire premise of venture capital that you only make money off the big winners? Assuming lifestyle businesses fail at similar rates as venture-backed companies, the way to maximize returns is to invest in the companies with the biggest potential upside. In other words, how many $10/month SaaS companies would it take getting acquired to match the return of your average $300M VC-backed exit? Don't say 37signals. 37signals is an outlier in the same way Instagram is an outlier. The existence of either of these proves nothing. By definition a mid-growth business will NEVER generate the returns needed to sustain a venture fund. I don't think it's fair or the most beneficial to society that VCs only invest in high-risk, high-potential businesses. But that's the only way the math could work. You can't argue with math. The only exception would be funds like YC that can invest very small amounts at very low valuations and make money from acqui-hires.

ucee054 13y ago
Assuming lifestyle businesses fail at similar rates as venture-backed companies Why would you make such an assumption? You can't argue with math. I can when you get the math so wrong, like above.
- fearless 13y ago
  Most businesses fail because they run out of money. Do you think getting an infusion of millions of dollars makes a business more likely to fail?
  - khuey 13y ago
    Lifestyle businesses are usually about a modest initial investment by the founder and then reinvesting modest profits into raising the hot air balloon a bit. VC backed companies usually start out losing tons of money and hope they achieve flight by the time they reach the end of the runway.

BecauseWeCan 13y ago

Weren't you taking a one month break from hacker news? http://michaelochurch.wordpress.com/2013/05/18/one-month-break-from-hacker-news/ http://michaelochurch.wordpress.com/2013/05/18/one-month-bre...