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Not trying to pick a fight but VC's I've talked to:
1) Already know what can go wrong and know how to avoid it
2) Understand operationally how to run a biz and get from A->B->C
3) Optimistically biased vs value (pessimistic view)
1) Already know what can go wrong and know how to avoid it
2) Understand operationally how to run a biz and get from A->B->C
3) Optimistically biased vs value (pessimistic view)
I am a dye in the wool value investor, but I also have come to realize:
1) Finance people can't run businesses
2) Finance/capital allocation is maybe 5% of what running a business actually is
3) It's easier for an operator to learn investing vs investor learn biz
1) Finance people can't run businesses
2) Finance/capital allocation is maybe 5% of what running a business actually is
3) It's easier for an operator to learn investing vs investor learn biz
No one bats an eye when <large cap> spends $100m to build out a new speculative division.
VC is enabling people to build out those divisions divorced from a large cap.
There's a lot of speculative stuff that makes headlines, and a lot of profitable stuff that never does.
VC is enabling people to build out those divisions divorced from a large cap.
There's a lot of speculative stuff that makes headlines, and a lot of profitable stuff that never does.
There is little reason for a private company to ever IPO anymore. You start from scratch, grow and sell. Public market investors have their pick of a bunch of monopolistic companies (moats? good?) and dowdy historic relics.
Source: Spoke to ~dozen VC's this week. Vast majority (80%) had the same "we're looking for $1m+ revenue and profits and invest at a 5x valuation, 10x absolute max" And on those terms they are value investors in private companies, esp given the growth.
Investing in a company with $1m in revenue and $50k in profit that's growing at 40% a year with a $5m valuation is cheap, esp over a 5-7yr time horizon.
What could go wrong? Plenty, but what's interesting is startups carry a equity heavy, but low liability capital structure. Vs a very debt heavy capital structure for public companies. When you don't have debt you can be flexible in a downturn.
Our big public companies all have significant liabilities, including enormous pension liabilities. What could go wrong in public equities? Let's talk a downturn and pension crisis. Suddenly investors are scooping water from the moat to put out the raging fire..
