Comments on: A reminder on the economics of venture capital

By: Bankruptcies and the French VC Model | satisfy my soul

Bankruptcies and the French VC Model | satisfy my soul — Tue, 09 Feb 2010 16:59:35 +0000

[...] Brisbourne crafted a clear and cogent post yesterday about the economics of venture capital. Nic also references a similar blog post citing Bill Bryant, a former entrepreneur and now one of [...]

By: brisbourne

brisbourne — Tue, 09 Feb 2010 15:36:23 +0000

Pretty much. It is still worth putting the numbers down so the assumptions are explicit, but spending too much time on them is a mistake.

By: jkaljundi

jkaljundi — Tue, 09 Feb 2010 15:18:28 +0000

Which means you still don't go into specific exit numbers with early-stage startups, it's more of a gut feeling.

By: brisbourne

brisbourne — Tue, 09 Feb 2010 15:14:38 +0000

For me the best way to argue for exit value is to show how a company will play a leading role in a good sized and strategically significant market niche. That can be done at the outset.

By: jkaljundi

jkaljundi — Tue, 09 Feb 2010 14:51:29 +0000

Which brings to a question, how much effort should startups pitching to VC's put into trying to prove the potential future exit value. Isn't that even more unknown than the next 2-3 running financials and business plans? It also differs by idea – seed – round A,B,C etc phase, the further you are, the more you can talk about exit value. But what about the early phases? The 10 times multiple is still something for any startup to remember.

By: brisbourne

brisbourne — Mon, 08 Feb 2010 17:51:51 +0000

I do my best…

By: Matthew Craig-Greene

Matthew Craig-Greene — Mon, 08 Feb 2010 15:39:58 +0000

The process of investment is only ever going to be so different, regardless of what is being invested in what and by whom. It is always incumbent on the potential recipient of the investment to to convinvce the potential investor that chances of a favourable outcome are favourable. The difference lies in what might constitute a favourable outcome. And how tangible any assessment of that outcome can be. Investing in a fund, a Limited Partner not only accepts the risks that the VC itself accepts upon making an investment with an entrepreneur; the LP also submits to the risk that the VC may not have the appropriate skillset within its team to suitably identify the right opportunities. And that's why successful fund raising always has the skills of the VC team at the heart of its pitch. An LP will need t be impressed with the calibre and track record of the team and then see that parlayed seamlessly into the strategy of the fund. Of course, sufficient effortto position the opportunites and inefficiencies exploited by the fund's strategy is vital, too. An LP should feel not only that the VC represents the perfect team to execute the investment strategy; the LP must also be convinced that the strategy is the perfect fit to the team.

By: Justin Pirie

Justin Pirie — Mon, 08 Feb 2010 15:26:36 +0000

You'd have thought if the fund raising process for VC's was so similar to that of raising money from VC's they might show more humility to Entrepreneurs…