8 Comments

In a world of startups, how do we measure success? Perhaps it’s more about the exit strategy than the initial investment.

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I am confused, why can't 1st round VC write off their dud and just sell their top performer for more money? are you saying that because it sounds nicer to fund investor?

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Unfortunately, optics do matter - as much as money, if not more. As mentioned, selling at a loss compared to complete write-off make not make much of a difference financially but gets the VC to show an 'exit'. Also, in all likelihood - it won't be at a substantial loss; more like between 0.7-1.2x of the VC's original investment. The IRR would be a drag hence exit even at a loss but ideally close to the inv. value.

For every subsequent fundraise, the VCs hit-rate assumes more importance; significant no. of total write-offs are viewed negatively - his decision-making comes into question as to why did he held onto his bet if it wasn't clearly working. Simplifying some issues here - it isn't easy for the VCs to pass on duds but they have better leverage esp. in a scenario where founders/minority investors want to continue operating the company... can always bargain to take some capital out via secondaries say during bridge rounds via a new incoming investor...

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Touché

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Exactly, it seems odd they'll prefer better optics over more money

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Will appreciate if you could add some reasoning on why the bundled offer will be on a discount!

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If I'm a buyer and I want to buy 2 out of 10 companies that you own, but you want me to buy all 10, that is an added expenditure for me. I will have to do paperwork for those 8 companies, meet the founders, pay lawyers, bring them into my monitoring pipeline, etc.

I will essentially be paying more so that you have better optics. So I'll pay less to cover the added cost of acquisition and maintenance. Not a whole lot, but a bit for sure..

Keep in mind that these aren't listed companies where a buyer can just buy some stock and quietly let it sit in their portfolio. More companies = more work.

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How can regular people go into investing in companies like this ?

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