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Five Years of VentureBlog
A little over five years ago, Andrew Anker and I started chatting about blogging. There was plenty of blogging going on already for sure. But no one in the Sand Hill crowd was thinking about it. At the time there was still a prevailing sense that venture investing was a black box and any view into the box was a bad idea. Andrew and I talked about the fact that we didn't buy that. We thought there were all sorts of things VCs could talk about that would be interesting and valuable to entrepreneurs. Andrew proposed we start VentureBlog and came up with the tagline "A Random Walk Down Sand Hill Road" -- we laughed and VentureBlog was born.
Five years ago (technically, five years ago tomorrow), Andrew posted our "Hello, World." Andrew wrote that we would chat about what we do as early stage venture investors and concluded, "Mostly, we'll figure it out as we go along. No idea if this is a sustainable idea or not, but we're going to give it a go. Enjoy!" Since that first post there have been a few different folks come and go on VentureBlog, but, for better or worse, I have stuck around and kept on writing. I have tried my best to give a view into the black box and bring a little humor to it in the process. It has been a blast.
One thing has changed for sure since we started VentureBlog. There are now dozens of VC bloggers. From Sand Hill Road (Jeremy Liew, Susan Wu, etc.) to New York City (Fred Wilson, Ed Sim, etc.) to Colorado (Brad Feld, Ryan McIntyre, etc.) to Boston (Mike Hirshland, Jeff Bussgang, etc.) to Philadelphia (Josh Kopelman, Chris Fralic, etc.?). The problem entrepreneurs have is no longer finding information, it is sorting through it. So much has been written and so much more will be written about startups and entrepreneurship and Venture Capital. And I learn a pile from all of you every day. So thank you.
As for the question of whether or not VentureBlog is a sustainable idea, I guess the answer is "yes" and "no." I have been writing with varying degrees of frequency over these past five years. It is great to have a venue to share my thoughts when something jumps out at me. And I hope to continue writing for the foreseeable future. On the other hand, in the face of superhuman VC bloggers like Fred Wilson and Brad Feld, I feel deeply inadequate. How they manage to write day in and day out while finding time to do anything else is truly beyond me. My hat's off to them. And my apologies to those of you who feel that VentureBlog is too infrequently written to be relevant. I will try harder.
I greatly appreciate the conversations we've had here at VentureBlog. And I am thrilled to see the massive ecosystem of VC bloggers that has emerged. Many thanks to those of you who continue to read, link and comment. It has been a monumental education and a great privilege. And a huge thanks to Andrew for getting this whole thing started. Here's to the next five years.
And Now a Word from your Limited Partner
Over the course of the last week, Fred Wilson has been writing about "Venture Fund Economics" at the newly-redesigned AVC. Fred has tackled topics like how venture capitalists are measured, the impact of management fees and carry on net returns, and the impact of big winners on venture returns. What's more, Fred has done the unthinkable -- he has described venture economics in the context of his own fund's specific economic terms. While he hasn't posted the economic performance of his fund to date (that is probably more naked than even Fred is willing to get), he has posted the model he and his partner Brad built when assessing the attractiveness of raising a hundred million dollar fund. The model is fascinating and brings to light the challenges venture funds face to achieve index returns, let alone the outsized returns associated with top tier venture firms. (Great stuff, Fred!)
Given the challenges faced by venture investors to drive market returns, one reasonably might ask the question, "why do limited partners continue to flock to the asset class?" Who better to answer that question than a bona fide Limited Partner. Enter Chris Douvos. Chris is the co-head of private equity investing for TIFF (The Investment Fund for Foundations). Before that he was with the Princeton Investment Company. Chris is a wildly smart, experienced investor who I always love chatting with. Give one read of his new blog and you'll understand why. In the course of discussing the intricacies of the LP business, Chris makes analogies to baseball, the lottery, greek tragedy and uses classic Chris words and phrases like "horseplay," "impish," "hotties," "livin' la vida loca!" and "Caliente!" Chris's blog is just plain fun to read. And that is saying a whole lot when you consider that Chris is talking about investing in VC and PE firms -- not exactly scintillating material by its nature.
Interestingly, in one of his first posts, like Fred, Chris addresses the challenge of venture economics. Only instead of discussing venture fund economics in the context of a $100M fund, Chris talks about the more daunting $500M fund (Chris prefers the smaller funds -- he says he likes being "long idiosyncrasy and short momentum"). According to Chris's math, a $500M fund needs to create between $12B and $17B in company market capitalization in order to deliver a 3X return (the bar Fred set for himself as well). In Chris's words:
"Here's where it gets dicey for the masses, though (and I'll make some gross simplifying assumptions): if you're an LP and investing in an run-of-the-mill $500 million fund hoping to get a 3x net return, that fund has to generate $1.75 billion in returns ($1.25B in profit less 20% carry equals two turns of profit). Of course, that's just the capital that accrues to the firm's ownership stake. Since a lot of firms end up owning only 10-15% of their companies at exit, you've typically got to gross the $1.75 billion up by a factor of between 6.67 and 10. That suggests that those firms need to create between $12 and $17 billion of market cap just to get a 3x fund-level net return to their LPs. Caliente!
Let's unpack that box a bit more: at the $15 billion midpoint of the exit range above, a firm that invests in 25 early-stage companies will have to get, on average, $600 million exit valuations for each and every one of them. That's a pretty daunting number when you consider that the typical M&A valuation has hovered in the high double-digit millions for quite some time."
It is a daunting task for sure. To deliver those returns it almost assuredly requires a huge hit or two in your portfolio. So does that mean VCs need to swing for the fences? I don't think so. As Fred rightfully points out, "There are hitters in baseball, the best hitters in fact, that hit balls out of the park when they are just trying to make good contact." (Fred and Chris share a love of the baseball analogy). The power hitters are the guys Chris is trying to back. And those are the guys who will deliver the best returns.
For more great insights into the VC and Private Equity markets, you should definitely check out Chris Douvos's blog. This is stuff no one has blogged about before, and certainly not in such an entertaining way -- another fantastic addition to the blogosphere.
And Now a Word from your Limited Partner
Over the course of the last week, Fred Wilson has been writing about "Venture Fund Economics" at the newly-redesigned AVC. Fred has tackled topics like how venture capitalists are measured, the impact of management fees and carry on net returns, and the impact of big winners on venture returns. What's more, Fred has done the unthinkable -- he has described venture economics in the context of his own fund's specific economic terms. While he hasn't posted the economic performance of his fund to date (that is probably more naked than even Fred is willing to get), he has posted the model he and his partner Brad built when assessing the attractiveness of raising a hundred million dollar fund. The model is fascinating and brings to light the challenges venture funds face to achieve index returns, let alone the outsized returns associated with top tier venture firms. (Great stuff, Fred!)
Given the challenges faced by venture investors to drive market returns, one reasonably might ask the question, "why do limited partners continue to flock to the asset class?" Who better to answer that question than a bona fide Limited Partner. Enter Chris Douvos. Chris is the co-head of private equity investing for TIFF (The Investment Fund for Foundations). Before that he was with the Princeton Investment Company. Chris is a wildly smart, experienced investor who I always love chatting with. Give one read of his new blog and you'll understand why. In the course of discussing the intricacies of the LP business, Chris makes analogies to baseball, the lottery, greek tragedy and uses classic Chris words and phrases like "horseplay," "impish," "hotties," "livin' la vida loca!" and "Caliente!" Chris's blog is just plain fun to read. And that is saying a whole lot when you consider that Chris is talking about investing in VC and PE firms -- not exactly scintillating material by its nature.
Interestingly, in one of his first posts, like Fred, Chris addresses the challenge of venture economics. Only instead of discussing venture fund economics in the context of a $100M fund, Chris talks about the more daunting $500M fund (Chris prefers the smaller funds -- he says he likes being "long idiosyncrasy and short momentum"). According to Chris's math, a $500M fund needs to create between $12B and $17B in company market capitalization in order to deliver a 3X return (the bar Fred set for himself as well). In Chris's words:
"Here's where it gets dicey for the masses, though (and I'll make some gross simplifying assumptions): if you're an LP and investing in an run-of-the-mill $500 million fund hoping to get a 3x net return, that fund has to generate $1.75 billion in returns ($1.25B in profit less 20% carry equals two turns of profit). Of course, that's just the capital that accrues to the firm's ownership stake. Since a lot of firms end up owning only 10-15% of their companies at exit, you've typically got to gross the $1.75 billion up by a factor of between 6.67 and 10. That suggests that those firms need to create between $12 and $17 billion of market cap just to get a 3x fund-level net return to their LPs. Caliente!
Let's unpack that box a bit more: at the $15 billion midpoint of the exit range above, a firm that invests in 25 early-stage companies will have to get, on average, $600 million exit valuations for each and every one of them. That's a pretty daunting number when you consider that the typical M&A valuation has hovered in the high double-digit millions for quite some time."
It is a daunting task for sure. To deliver those returns it almost assuredly requires a huge hit or two in your portfolio. So does that mean VCs need to swing for the fences? I don't think so. As Fred rightfully points out, "There are hitters in baseball, the best hitters in fact, that hit balls out of the park when they are just trying to make good contact." (Fred and Chris share a love of the baseball analogy). The power hitters are the guys Chris is trying to back. And those are the guys who will deliver the best returns.
For more great insights into the VC and Private Equity markets, you should definitely check out Chris Douvos's blog. This is stuff no one has blogged about before, and certainly not in such an entertaining way -- another fantastic addition to the blogosphere.
Five Years of VentureBlog
A little over five years ago, Andrew Anker and I started chatting about blogging. There was plenty of blogging going on already for sure. But no one in the Sand Hill crowd was thinking about it. At the time there was still a prevailing sense that venture investing was a black box and any view into the box was a bad idea. Andrew and I talked about the fact that we didn't buy that. We thought there were all sorts of things VCs could talk about that would be interesting and valuable to entrepreneurs. Andrew proposed we start VentureBlog and came up with the tagline "A Random Walk Down Sand Hill Road" -- we laughed and VentureBlog was born.
Five years ago (technically, five years ago tomorrow), Andrew posted our "Hello, World." Andrew wrote that we would chat about what we do as early stage venture investors and concluded, "Mostly, we'll figure it out as we go along. No idea if this is a sustainable idea or not, but we're going to give it a go. Enjoy!" Since that first post there have been a few different folks come and go on VentureBlog, but, for better or worse, I have stuck around and kept on writing. I have tried my best to give a view into the black box and bring a little humor to it in the process. It has been a blast.
One thing has changed for sure since we started VentureBlog. There are now dozens of VC bloggers. From Sand Hill Road (Jeremy Liew, Susan Wu, etc.) to New York City (Fred Wilson, Ed Sim, etc.) to Colorado (Brad Feld, Ryan McIntyre, etc.) to Boston (Mike Hirshland, Jeff Bussgang, etc.) to Philadelphia (Josh Kopelman, Chris Fralic, etc.?). The problem entrepreneurs have is no longer finding information, it is sorting through it. So much has been written and so much more will be written about startups and entrepreneurship and Venture Capital. And I learn a pile from all of you every day. So thank you.
As for the question of whether or not VentureBlog is a sustainable idea, I guess the answer is "yes" and "no." I have been writing with varying degrees of frequency over these past five years. It is great to have a venue to share my thoughts when something jumps out at me. And I hope to continue writing for the foreseeable future. On the other hand, in the face of superhuman VC bloggers like Fred Wilson and Brad Feld, I feel deeply inadequate. How they manage to write day in and day out while finding time to do anything else is truly beyond me. My hat's off to them. And my apologies to those of you who feel that VentureBlog is too infrequently written to be relevant. I will try harder.
I greatly appreciate the conversations we've had here at VentureBlog. And I am thrilled to see the massive ecosystem of VC bloggers that has emerged. Many thanks to those of you who continue to read, link and comment. It has been a monumental education and a great privilege. And a huge thanks to Andrew for getting this whole thing started. Here's to the next five years.
Five Years of VentureBlog
A little over five years ago, Andrew Anker and I started chatting about blogging. There was plenty of blogging going on already for sure. But no one in the Sand Hill crowd was thinking about it. At the time there was still a prevailing sense that venture investing was a black box and any view into the box was a bad idea. Andrew and I talked about the fact that we didn't buy that. We thought there were all sorts of things VCs could talk about that would be interesting and valuable to entrepreneurs. Andrew proposed we start VentureBlog and came up with the tagline "A Random Walk Down Sand Hill Road" -- we laughed and VentureBlog was born.
Five years ago (technically, five years ago tomorrow), Andrew posted our "Hello, World." Andrew wrote that we would chat about what we do as early stage venture investors and concluded, "Mostly, we'll figure it out as we go along. No idea if this is a sustainable idea or not, but we're going to give it a go. Enjoy!" Since that first post there have been a few different folks come and go on VentureBlog, but, for better or worse, I have stuck around and kept on writing. I have tried my best to give a view into the black box and bring a little humor to it in the process. It has been a blast.
One thing has changed for sure since we started VentureBlog. There are now dozens of VC bloggers. From Sand Hill Road (Jeremy Liew, Susan Wu, etc.) to New York City (Fred Wilson, Ed Sim, etc.) to Colorado (Brad Feld, Ryan McIntyre, etc.) to Boston (Mike Hirshland, Jeff Bussgang, etc.) to Philadelphia (Josh Kopelman, Chris Fralic, etc.?). The problem entrepreneurs have is no longer finding information, it is sorting through it. So much has been written and so much more will be written about startups and entrepreneurship and Venture Capital. And I learn a pile from all of you every day. So thank you.
As for the question of whether or not VentureBlog is a sustainable idea, I guess the answer is "yes" and "no." I have been writing with varying degrees of frequency over these past five years. It is great to have a venue to share my thoughts when something jumps out at me. And I hope to continue writing for the foreseeable future. On the other hand, in the face of superhuman VC bloggers like Fred Wilson and Brad Feld, I feel deeply inadequate. How they manage to write day in and day out while finding time to do anything else is truly beyond me. My hat's off to them. And my apologies to those of you who feel that VentureBlog is too infrequently written to be relevant. I will try harder.
I greatly appreciate the conversations we've had here at VentureBlog. And I am thrilled to see the massive ecosystem of VC bloggers that has emerged. Many thanks to those of you who continue to read, link and comment. It has been a monumental education and a great privilege. And a huge thanks to Andrew for getting this whole thing started. Here's to the next five years.
Five Years of VentureBlog
A little over five years ago, Andrew Anker and I started chatting about blogging. There was plenty of blogging going on already for sure. But no one in the Sand Hill crowd was thinking about it. At the time there was still a prevailing sense that venture investing was a black box and any view into the box was a bad idea. Andrew and I talked about the fact that we didn't buy that. We thought there were all sorts of things VCs could talk about that would be interesting and valuable to entrepreneurs. Andrew proposed we start VentureBlog and came up with the tagline "A Random Walk Down Sand Hill Road" -- we laughed and VentureBlog was born.
Five years ago (technically, five years ago tomorrow), Andrew posted our "Hello, World." Andrew wrote that we would chat about what we do as early stage venture investors and concluded, "Mostly, we'll figure it out as we go along. No idea if this is a sustainable idea or not, but we're going to give it a go. Enjoy!" Since that first post there have been a few different folks come and go on VentureBlog, but, for better or worse, I have stuck around and kept on writing. I have tried my best to give a view into the black box and bring a little humor to it in the process. It has been a blast.
One thing has changed for sure since we started VentureBlog. There are now dozens of VC bloggers. From Sand Hill Road (Jeremy Liew, Susan Wu, etc.) to New York City (Fred Wilson, Ed Sim, etc.) to Colorado (Brad Feld, Ryan McIntyre, etc.) to Boston (Mike Hirshland, Jeff Bussgang, etc.) to Philadelphia (Josh Kopelman, Chris Fralic, etc.?). The problem entrepreneurs have is no longer finding information, it is sorting through it. So much has been written and so much more will be written about startups and entrepreneurship and Venture Capital. And I learn a pile from all of you every day. So thank you.
As for the question of whether or not VentureBlog is a sustainable idea, I guess the answer is "yes" and "no." I have been writing with varying degrees of frequency over these past five years. It is great to have a venue to share my thoughts when something jumps out at me. And I hope to continue writing for the foreseeable future. On the other hand, in the face of superhuman VC bloggers like Fred Wilson and Brad Feld, I feel deeply inadequate. How they manage to write day in and day out while finding time to do anything else is truly beyond me. My hat's off to them. And my apologies to those of you who feel that VentureBlog is too infrequently written to be relevant. I will try harder.
I greatly appreciate the conversations we've had here at VentureBlog. And I am thrilled to see the massive ecosystem of VC bloggers that has emerged. Many thanks to those of you who continue to read, link and comment. It has been a monumental education and a great privilege. And a huge thanks to Andrew for getting this whole thing started. Here's to the next five years.
Calling All Powerful VCs (and a few weakling entrepreneurs)
In a typical breakfast with my friend Hunter Walk, we spent half the time talking about business (online video, startup finance, the advertising ecosystem, etc.) and half the time talking about nutty ideas that would be fun. One such idea is coming to fruition. We decided that it would be a great idea to have a VC vs. Entrepreneur dodgeball game. Hunter dubbed it Labor vs. Capital Dodgeball, enlisted the help of his friend Noah Kagan of OkDork fame, and we were off and running.
After some planning and a lot of effort designing the t-shirts, we are ready to rumble. We have a fantastic group of entrepreneurs and VCs signed up so far. But we still have a few slots left for the game. So if you are a Bay Area VC (or a VC visiting from out of town) who used to be a professional athlete or are an entrepreneur who used to a Dungeon Master, here's the scoop:
Labor vs. Capital Dodgeball
Friday, June 8th
Noon to 2 pm
Sky High Sports in Santa Clara
Not only will there be some serious dodgeball playing and pizza eating, but Craig and I will also be podcast from the gathering, thus making it a major media event. And best of all, the pizza, t-shirts and dodgeball are courtesy of August Capital, ComVentures, Greylock Partners, and Mohr Davidow (many thanks to Baris Karadogan, David Sze, and David Feinleib for lending a helping Amex).
I'll be training hard over the weekend with my kids. See you all on the battle field.
Calling All Powerful VCs (and a few weakling entrepreneurs)
In a typical breakfast with my friend Hunter Walk, we spent half the time talking about business (online video, startup finance, the advertising ecosystem, etc.) and half the time talking about nutty ideas that would be fun. One such idea is coming to fruition. We decided that it would be a great idea to have a VC vs. Entrepreneur dodgeball game. Hunter dubbed it Labor vs. Capital Dodgeball, enlisted the help of his friend Noah Kagan of OkDork fame, and we were off and running.
After some planning and a lot of effort designing the t-shirts, we are ready to rumble. We have a fantastic group of entrepreneurs and VCs signed up so far. But we still have a few slots left for the game. So if you are a Bay Area VC (or a VC visiting from out of town) who used to be a professional athlete or are an entrepreneur who used to a Dungeon Master, here's the scoop:
Labor vs. Capital Dodgeball
Friday, June 8th
Noon to 2 pm
Sky High Sports in Santa Clara
Not only will there be some serious dodgeball playing and pizza eating, but Craig and I will also be podcast from the gathering, thus making it a major media event. And best of all, the pizza, t-shirts and dodgeball are courtesy of August Capital, ComVentures, Greylock Partners, and Mohr Davidow (many thanks to Baris Karadogan, David Sze, and David Feinleib for lending a helping Amex).
I'll be training hard over the weekend with my kids. See you all on the battle field.
Calling All Powerful VCs (and a few weakling entrepreneurs)
In a typical breakfast with my friend Hunter Walk, we spent half the time talking about business (online video, startup finance, the advertising ecosystem, etc.) and half the time talking about nutty ideas that would be fun. One such idea is coming to fruition. We decided that it would be a great idea to have a VC vs. Entrepreneur dodgeball game. Hunter dubbed it Labor vs. Capital Dodgeball, enlisted the help of his friend Noah Kagan of OkDork fame, and we were off and running.
After some planning and a lot of effort designing the t-shirts, we are ready to rumble. We have a fantastic group of entrepreneurs and VCs signed up so far. But we still have a few slots left for the game. So if you are a Bay Area VC (or a VC visiting from out of town) who used to be a professional athlete or are an entrepreneur who used to a Dungeon Master, here's the scoop:
Labor vs. Capital Dodgeball
Friday, June 8th
Noon to 2 pm
Sky High Sports in Santa Clara
Not only will there be some serious dodgeball playing and pizza eating, but Craig and I will also be podcast from the gathering, thus making it a major media event. And best of all, the pizza, t-shirts and dodgeball are courtesy of August Capital, ComVentures, Greylock Partners, and Mohr Davidow (many thanks to Baris Karadogan, David Sze, and David Feinleib for lending a helping Amex).
I'll be training hard over the weekend with my kids. See you all on the battle field.
