This is wrong on many levels. Firstly funding over a billion dollars is not remotely intimidating to the large VC funds who understand about capital intensive businesses and managing the investment lifecycle.
When you put together very large sums of investment you don't have a 100x expectation for return. The institutionals which will take on later stages of this financing just want to outperform the other investment options they have for that amount of casH (not that many).
Your 20Bn upside for Hyperloop is very low. If done to scale and over the long haul it's a very big opportunity. Even then I know of no investors - ZERO - who wouldn't take a 20x return on a billion dollar placement.
Finally. Instagram. Really? An outlier like that is what you're going to base your idea of investment on. Look at VC returns. They take a portfolio strategy for a reason.
It's a common misunderstanding that VCs want to put small amounts of money to work for huge returns. They'd much rather put much bigger amounts of money to work. It's how they're structured. Do they want the odd moonshot Instagram in their? Sure. They'll take it. But they'd take 1billion -> 20billion over 1million -> 1billion every day.
"Even then I know of no investors - ZERO - who wouldn't take a 20x return on a billion dollar placement."
Sure, if there was any sort of guarantee it would work. When there's a serious chance of throwing your money into a black hole where cash goes to die, then I'm not sure the upside is worth it. And even then, if you can make 1,000 investments into Instagrams for the cost of one investment into Hyperloop, I'd do that every time. "But they'd take 1billion -> 20billion over 1million -> 1billion every day." sounds wrong to me. If you have the $1B to invest, wouldn't you want to spread that out, make 1,000 $1M investments? I'd imagine your return would be better with that than an outside shot you could hit 20x your money on one investment.
Right. But no investment has a guarantee of working. There aren't 1,000 Instagrams in tech. There are roughly 10-15 moonshot investments made a year out of thousands. So you can't find 1,000 instagrams.
Investment doesn't scale like that. You can "imagine" return would be better but it isn't is it? Look at VC returns. If you make 1,000 investments of $1million how many do you think make it to being a billion dollars vs just losing your money? How many of those investments need ZERO more capital along the way - if they need more capital you either get diluted out or you're putting a ton more cash in.
Instagram is a ridiculous outlier to build an investment strategy on. How many other Instagrams have you heard of this year? Yeah... not 1,000.
People investing in Hyperloop type investments don't put all their money on one investment either. If you're an investment manager at a pension fund having to find places to park $500BILLION you cannot be managing million dollar investments, they're meaningless. Even an Instagram doesn't move the needle. You have to place lots of billion dollar bets.
funding over a billion dollars is not remotely intimidating to the large VC funds
I think the idea is that some of the companies in the $1 billion fund will succeed and others will fail. But, funding a single company/public works project to the tune of $1 billion would give some pause.
Not really. Funding comes in stages. No VC with a billion dollars in their pocket is making one bet. But for folks with a lot of money to put in this is not unusual for lifecycle.
Look at the actual amounts raised through multiple rounds by - not just the initial seed investment the time they IPOd by any big tech name of the last decade or two: Google, Cisco, Facebook... hell look how much Groupon burned through.
The idea that you cannot raise a billion dollars if you can deliver a return on it greater than capital markets would otherwise provide is nonsense.
When you put together very large sums of investment you don't have a 100x expectation for return. The institutionals which will take on later stages of this financing just want to outperform the other investment options they have for that amount of casH (not that many).
Your 20Bn upside for Hyperloop is very low. If done to scale and over the long haul it's a very big opportunity. Even then I know of no investors - ZERO - who wouldn't take a 20x return on a billion dollar placement.
Finally. Instagram. Really? An outlier like that is what you're going to base your idea of investment on. Look at VC returns. They take a portfolio strategy for a reason.
It's a common misunderstanding that VCs want to put small amounts of money to work for huge returns. They'd much rather put much bigger amounts of money to work. It's how they're structured. Do they want the odd moonshot Instagram in their? Sure. They'll take it. But they'd take 1billion -> 20billion over 1million -> 1billion every day.