Quote:
Originally Posted by johnnyloadproductions
Angel investors, venture capitol, et cetera, like Y combinator probably want $70 million (or 100x) for their $120k. Idea was to invest in 10 startups and have 9 fail but 1 goes through the roof. The best investors have a 50% win on their investments.
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This is false from my experience. Times have changed dramatically. A few comments on this paragraph
#1 I think the failure rate is much higher than 9 in 10. 19 in 20? 29 in 30? It's high.
#2 I don't think any investor in startups has a 50% win on investments in the past 2 years. Why? Because startups now start raising money on an IDEA. Which is completely crazy. 10 years ago you had Facebook, Twitter, Tumblr raising money when they already had proven the business model and had millions of users. It's a very different marketplace right now.
#3 100x is a dream result. I don't think anyone goes into an investment thinking this is a 100x deal. I may be wrong but it's crazy. I've been told this is what you expect when investing in carefully vetted and picked investments.
Make 20 investments.
16 will blow all the money and it's gone.
3 will break even and give you your money (or value) back.
1 will be the home run that pays for it all.
So assume 10k investment in 20 companies. $200,000 invested. $160,000 lost. $30,000 recovered. Then if the home run is 20+ times return you are ahead of things overall. The key (again this is all from what i've researched and been told) is that when you have that 10k home run you then make sure you followup and continue investing in the followup rounds basically doubling down. That's when you go big i guess. For example I have one of my investments that I was in on the companies first round valued at $5,000,000. A year after that investment I was invited into the next round valued at $30,000,000. So clearly company is making big moves and doing the right thing. My initial investment's paper worth already covers this new round. But I would never have got into this round had I not invested the first round. If the company continues their progress I should be able to continue to get in before others not to mention hopefully a pretty sweet exit at some point
#4 YC Funding. I have a very different feeling about the YC funders view their investments. These are guys that have play money on their hands. They killed it on twitter, facebook etc. So these guys now blindly invest in every YC company every term. My thinking is it's a little bit of them giving back, it's a little bit of them pushing the startup economy and it's a lot them gambling and making sure they are in on the next BIG BIG BIG thing. The next Billion $ thing.