Great post, Ryan. I read it a couple of times and really enjoyed the content!
A few questions:
1. For Buckets 2 & 3, have you seen VCs and founders negotiate a win-win wind down? So that the company is sold, and the VC chooses not to take their entire 1x liquidation preference, to incentivize the founding team to go along with the sale? It seems to be more of a win-win in an unfavourable scenario, than going to zero. I've read that some VCs will do that, especially for founders whom they believe in, partially to preserve the relationship to invest in their next start-up. Have you seen this in action?
2. Again for Buckets 2 & 3 companies that should be sold, wouldn't VCs have board control by Series B to push through a sale?
3. For Seed/Series A investors that look for fund-returners, wouldn't a lot of point solutions with solid initial traction fall into Buckets 2 & 3 and become uninvestable? They either can't cross the chasm to continue their growth rate or become strategic acquisition targets of a platform company if they achieve solid growth.
PS: The Fred Wilson blog was an interesting read! He was arguing even back in 2007 that capital efficiency is key, especially as a start-up is experimenting what business model works, and that you should only scale when you've found a model that works.
Maybe another reason for the power law would be the nature of exits for VC investments? In light of the fact that most exit routes are by way of IPOs and only a small percentage of Seed ~ Series A companies will go IPO, it's either a large return from IPO or no return at all.
Love your article, but just wanted to know your thoughts on this.
Great post, Ryan. I read it a couple of times and really enjoyed the content!
A few questions:
1. For Buckets 2 & 3, have you seen VCs and founders negotiate a win-win wind down? So that the company is sold, and the VC chooses not to take their entire 1x liquidation preference, to incentivize the founding team to go along with the sale? It seems to be more of a win-win in an unfavourable scenario, than going to zero. I've read that some VCs will do that, especially for founders whom they believe in, partially to preserve the relationship to invest in their next start-up. Have you seen this in action?
2. Again for Buckets 2 & 3 companies that should be sold, wouldn't VCs have board control by Series B to push through a sale?
3. For Seed/Series A investors that look for fund-returners, wouldn't a lot of point solutions with solid initial traction fall into Buckets 2 & 3 and become uninvestable? They either can't cross the chasm to continue their growth rate or become strategic acquisition targets of a platform company if they achieve solid growth.
PS: The Fred Wilson blog was an interesting read! He was arguing even back in 2007 that capital efficiency is key, especially as a start-up is experimenting what business model works, and that you should only scale when you've found a model that works.
Maybe another reason for the power law would be the nature of exits for VC investments? In light of the fact that most exit routes are by way of IPOs and only a small percentage of Seed ~ Series A companies will go IPO, it's either a large return from IPO or no return at all.
Love your article, but just wanted to know your thoughts on this.
Great article, at the end of the days, for entrepreneurs who are there to make it:
-Get a strategy and business as sound as possible
-Execute in speed and get product-market fit
-Raise the money at a reasonable valuation
-Spend well and allocate the resource to the right places
-Balance growth with unit economics profitability