A perspective basis my last 3 years in a seed VC.
(this is true especially of seed investing, but holds for the broad VC asset class)
I work at @BlumeVentures, a seed stage tech VC, and we get 3-3,500 startup pitches a year. We can fund 10-12 at best a yr. This means that we reject a lot of great startups.
Some of these startups are rejected because they are too late or early for us, and thus don’t fit our investment criteria (blume.vc/for-startups). Some are rejected because we have invested in their competitors or in similar risk buckets we dont want to add to.
Sometimes we reject very good companies, which pass all of the above criteria because there is another company ahead of it in the mental stackrank, one which we believe is even better poised to be a bigger hyperscaled startup.
Typically if you are an investment lead like me you can lead at best 2 investments a year. So if it isn’t the #1 in the stackrank at that point, the startup will be rejected. So being #1 in the VC's stackrank matters for a startup.
Now, these stackranks are fundamentally subjective. There is no objective truth to why a startup is higher than another in the stackrank. It boils down ultimately to gut / intuition honed over years of experience and supported by high quality analysis.
Another VC may have a different view & her stackrank might well be very different.
Thus, when founders ask VCs why they rejected a co, the truth is that unless it is well outside the sweet spot or is not a conflict, then it was probably because it wasn’t #1 in the stackrank.
For some reason, VCs find this hard to articulate. I don’t know why.
Often VCs may say stuff like if it was at X stage we would have done it but you are at 50% of X now, or they tell founders, when you get to revenue level Z1 reach out to us.
When founder hits level Z1 and reaches back to VC, the VC again assesses stackrank and if the startup isn’t #1 in the stackrank then they say come back when you hit Z2 and so on.
IMHO if a VC thinks you are likely to be biggest hyperscaling play in her stackrank, she will bet on you, subject to it fitting investment criteria / nonconflict. They will factor in the lower revenues in to the (lower) valuation they give you.
That they aren't doing it is a sign that you aren't top of the pops in their stackrank.
Founders who understand that VC is a relative, not absolute business, & thus look for the right VC who will back them, will do well.
This is my personal view. Others may differ. YMMV.
Fin.
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On @ClassplusApps, its recent fundraising round, and what we can learn from one of the most exciting B2B startups out there today.
A B2B startup with a consumer DNA, that any B2C co would be proud of.
On thursday, Classplus announced its latest fundraising round, toting up to $65m across Tiger, @gsvventures and existing investors Falcon Edge / AWI, @BlumeVentures
“Early stage valuations aren’t really valuations. They are the exhaust fumes of a negotiation about two things — the amount raised and the amount of dilution.”
Let us understand this.
2/23
They say that chess is a game that can be learnt in an hour, but it takes a lifetime to master. Venture valuations are similar.
Here is the simple part of startup valuations. Take capital invested, and divide by stake diluted.
I got this whatsapp message yday👇🏽fm a founder grinding it out, 1 month of runway left. But absolutely unwilling to give up.
We saw 2 great stories recently fm the ecosystem - as Meesho, Cred became🦄. Congrats to them, & let us celebrate their achievements.
But let us also celebrate the founders grinding it out without much love. Life is hard for them. It is tough mentally & not easy to keep pushing.
It takes a special grit and determination to chug along, to motivate your team on dreams and vision alone without hikes, or even delayed salaries; holding on to them when other startups and Big Tech are throwing money at them.
Barton Biggs, research guru turned hedge fund manager famously classified people into visiles & audiles (ref ‘Hedgehogging’).
Visiles absorb info via eyes (reading)
Audiles via ears (talking / listening)
(Youtube wasnt too popular then for it clearly breaks his split!)
2/18
Now I am a visile & I have struggled w podcasts:)
Podcasts are great content of course, & lots there you don't get easily in writing. But I have wondered as to why I should take out 40-50mins to listen to a podcast when in that time, I can instead breeze through 3-4 posts?
Was interesting to read (yes, i got it transcribed) the @jeremysliew + @HarryStebbings chat on 20VC where they discuss the 2012 Lightspeed round into Snapchat that Jeremy led.
What I found most interesting was this account of Jeremy Liew's persistence in trying to contact Evan Spiegel. VCs chasing founders who dont give them any bhav:)
Remember something like this for Sarah Cannon leading Index's recent round into Notion.
Liew's laws of consumer social investing!
- can this become part of pop culture?
- can this become a habit?
- is there a scalable, repeatable way to grow?
- does the founder have a unique insight that explains the success, that explains what's going on?
Useful to see
- Bitcoin
- the sudden spurt in collectibles (StockX, GOAT, Artsy, RallyRd) including NFT + the entire financialisation of everything trend
- Gamestop + WSB
as decentralised coordinated accelerated creation of value.
Let us unpack this.
Value of anything incl currency, stocks has a broad subjective basis.
That said, to ensure that we dont start questioning the value of currency or what we are buying in every transaction, we base value in some centralised authority's diktat - state / central bank / market.
That means the gatekeeper / centralised authority (who also maintains the ledger) has a fair amount of power.
Historically transactions in stock market / art / currencies have all been intermediated or coordinated through a central authority (NSE / NYSE / Christies etc.)