Economic returns of VC-backed companies follow a power law distribution. This means that the vast majority of the returns for the VC are at the "fat head" of the distribution. The "long tail" does not impact returns, for the VC.
However, for the founder, those returns in the tail can be life-changing. It takes a $5B exit for YC to care. But a $5M exit can be real money for the founder.
So the correct math, from the perspective of the founder, is not "what % are unicorns" but rather "what % sell for more than capital invested" and that number is likely to be closer to 50% than 1%.
I’ve been on the acquirer side of $50M exits and from what I’ve seen almost no one makes any money in those situations. It is usually a deal done in desperation and everyone is diluted to the brim.
I mean, N=3, but I've made decent money on smaller exits.
The relevant metric is not exit price, it's ratio of exit price to pref stack; i.e. raise $40M and sell for $50M, founder is worse than if they raised $2M and sold for $10M.
The $5M exit is more likely for a founder who isn't raising VC money, and instead who's following Vassallo's principles and running a bootstrapped business.
I had not realized that PG and his family moved to England.
I also recently moved from California to England, so would be fascinated to learn more about the genesis of PG's move. (As an aside: I sometimes hear my kids late at night trying to convince their friends back in California to ask their parents to move here. Anecdotally it does feel like many families are considering it. Of course I have an availability bias here.)
Does anyone know of any essays or interviews where PG discusses his decision to emigrate?
>In the summer of 2016 we moved to England. We wanted our kids to see what it was like living in another country, and since I was a British citizen by birth, that seemed the obvious choice. We only meant to stay for a year, but we liked it so much that we still live there.
Grow really fast. It’s fairly one-dimensional: if you are growing at +50% month/month, then you will be able to raise substantial rounds with minimal dilution.
If you are not posting exponential growth, then you will likely give up more and more control with each subsequent round.
I have a year-old startup and this is the first major Internet outage we've had to deal with... was really awesome to have your play-by-play and definitely changed our incident response (for the better!). Thank you so much.
Quick note about secondary financings. Not targeted at you per-se as much as the large quantity of HN comments that seem to not understand the nuance.
You can't include primary and secondary financings in the same total, because you would be double-counting. That would be like measuring a public stock on its total volume traded, not its market cap.
For example:
- Investor A invests £100M into Uber for 1M shares
- Investor B buys those 1M shares from Investor A for $400M
- Investor C buys those 1M shares from Investor B for $500M
There has been "$1B in fundraising" but:
(a) only $100M went to Uber and;
(b) the market cap of those shares is $500M
I don’t think anyone would say that there was 1B in fundraising. They’d say there was 100MM in fundraising. The market cap of those shares is indeed price * shares outstanding. But that’s not enterprise value either.
Any pointers on the most polite but firm way to defer speaking with investors when you're not ready to raise?
We just raised Seed, and get 5-10 inbounds per week asking about Series A. I usually write something like:
"Thanks for the note. We recently closed our seed round and are not looking to raise at the moment. But we will definitely reach out when that changes."
Hopefully that's not too curt/dismissive? Thanks in advance for any tips.
That's a great response. If the investor is someone you do want to get to know, it doesn't hurt to set some time 3-6 months into the future for a short chat.
Economic returns of VC-backed companies follow a power law distribution. This means that the vast majority of the returns for the VC are at the "fat head" of the distribution. The "long tail" does not impact returns, for the VC.
However, for the founder, those returns in the tail can be life-changing. It takes a $5B exit for YC to care. But a $5M exit can be real money for the founder.
So the correct math, from the perspective of the founder, is not "what % are unicorns" but rather "what % sell for more than capital invested" and that number is likely to be closer to 50% than 1%.