14 ms·

Yes, the numbers are absurd. I feel sorry for LPs in any seed fund run by somebody who is handing out $10 million valuations. As for the $1 billion exit, accor

Yes, the numbers are absurd. I feel sorry for LPs in any seed fund run by somebody who is handing out $10 million valuations. As for the $1 billion exit, according to CB Insights, in 2013, 19 tech companies went public or were acquired at a billion-plus valuation. That represents slightly more than 1% of all exits. Over 70% of the exits were under $200 million. So any angel banking on billion dollar exits would probably be better off going to Vegas.

akharris 12y ago
See Paul's comment above - not really sure why this is absurd. The vast majority of venture returns are in the extreme long tail outcomes.
- 7Figures2Commas 12y ago
  The rule of thumb is that 20% of a venture fund's investments produce 80% of the returns. Outside of the top performing funds, those returns are generally not eye-popping. The economics of a seed stage fund differ from a traditional venture fund. Stakes are a lot smaller and the number of portfolio companies is a lot larger. Maintaining a stake can be difficult, even with pro rata rights, because the cost of participating in future financings can be too high. Valuation is absolutely crucial to successful startup investing at the seed stage. A seed stage fund that hands out $10 million valuations like candy is not likely to be very successful. Based on the percentages, a seed stage fund that has several hundred companies in its portfolio is still unlikely to see a billion dollar exit. According to CB Insights, 45% of exits in 2013 were at valuations under $50 million. Do the math. If you invest at bloated valuations at the seed stage, you're not statistically likely to produce great returns when all is said and done, even if you are better than most at selecting companies that have liquidation events (most don't obviously).

14 ms·

Yes, the numbers are absurd. I feel sorry for LPs in any seed fund run by somebody who is handing out $10 million valuations. As for the $1 billion exit, accor

by 7Figures2Commas 12y ago

akharris 12y ago
See Paul's comment above - not really sure why this is absurd. The vast majority of venture returns are in the extreme long tail outcomes.
- 7Figures2Commas 12y ago
  The rule of thumb is that 20% of a venture fund's investments produce 80% of the returns. Outside of the top performing funds, those returns are generally not eye-popping. The economics of a seed stage fund differ from a traditional venture fund. Stakes are a lot smaller and the number of portfolio companies is a lot larger. Maintaining a stake can be difficult, even with pro rata rights, because the cost of participating in future financings can be too high. Valuation is absolutely crucial to successful startup investing at the seed stage. A seed stage fund that hands out $10 million valuations like candy is not likely to be very successful. Based on the percentages, a seed stage fund that has several hundred companies in its portfolio is still unlikely to see a billion dollar exit. According to CB Insights, 45% of exits in 2013 were at valuations under $50 million. Do the math. If you invest at bloated valuations at the seed stage, you're not statistically likely to produce great returns when all is said and done, even if you are better than most at selecting companies that have liquidation events (most don't obviously).