Post: “Why are companies starting up, raising money and shutting down not too long after? I see 2 business types: there is the business of value and there is the business of valuation…” Click the link and watch the short video.
My Comment: The VC (venture capital) business model is different, and they’re not stupid. There are 3 types of investors – income chasers (like the dividend), value pickers (like beaten down dead assets which can rise) and growth makers (big return or die trying). VC is in that last segment. That does not mean the first two do not exist. Like I always remind in Tekedia Capital: we discourage people from using money for diapers and Indomie noodles to invest in fintech, crypto startups, etc.
Most people look at the VC business model from a linear angle of a typical asset class. The VC business model does not work that way. A fund manager who runs a fund of $10m is fine, if he invests in 10 companies (each $1m), and 8 fade , with two returning $200m. He is not interested that the ten “survive” with each returning $2m each. Most people think of “singles” which are 9% return, 8%, etc. That is not how VCs think. They go for BIG return or die trying; nothing in between.
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South Africa’s Naspers might have invested in 200 companies. But the Tencent investment which turned $33m to $127 Billion takes care of the losses. Peter Thiel’s $500k in Facebook which generated $billions is all that matters for that fund. In the Igbo Nation, it takes the killing of one leopard to be called a killer of leopards.
When I was in junior secondary, I learnt that atoms can neither be created nor destroyed. But in senior secondary, a new teacher in nuclear chemistry explained that you could actually do that. Traditional investing and modern VC investing do not follow the same laws! Traditional investing is about your profit while VC is about valuation (anchored on blitz-scaled revenue growth at all costs, not profit). For those VCs, it is about domination as they do not want to share unlike traditional investing! It is that mindset that makes America tech species dominant empires in tech.
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