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How does "call us back when you get to series A" entail "none of the risk, all of the upside"? The risk is that the fund has to pay a higher valuation for the s
by dhaivatpandya 11y ago
How does "call us back when you get to series A" entail "none of the risk, all of the upside"? The risk is that the fund has to pay a higher valuation for the same company, they might not callback, etc. and the upside is that you're...not taking on the risk right now?
Secondly, for tech hiring, a few bad hires can ruin a company. But, angel investors and small funds generally invest in a wide range of startups knowing full-well that most of them won't succeed. But, one success is all that's needed to 10x the value of the fund. Given the payout probability and payout value of startups, it's a pretty different game from tech hiring.
- solve 11y agoExtremely inefficient markets. Traditionally, VCs have been able to collude together to prevent startups from increasing in valuation "too fast". Unlike more efficient and less manipulated markets, which tend move in fast discontinuous jumps, VCs have been able to slow the top-performing companies to a slower exponential curve. Because they've typically been able to slow this curve, waiting until the next round usually hasn't caused them to lose nearly as much upside loss as it would, were the market more efficient. With IPOs being pushed back, and more sophisticated IB investors moving into much earlier rounds now though, this is finally starting to change. Keep this in mind whenever you hear VCs shouting "bubble", just because some top startups aren't following the smooth exponential curve in valuations, that any competent trader or economist could tell you should never exist in an efficient market.