Unfortunately, this is a naive way to look at the world if you’ve taken VC cash. Lean startup guru Steve Blank has summed this up well – When you take money from a VC, their business model becomes your business model (see blurb).
The best way to see this is with data (surprise).
On this front, Mark Suster of Upfront Ventures has a great deck (also see The Blurb) which walks through VC economics. Go through the deck but here’s a 2 graph summary.
First, let’s understand what success as a VC looks like. A VC with a fund size of $300M targets delivery of a 4x return to its investors, i.e. $1.2B.
Note 1: For those unfamiliar, VC funds also have their own investors called Limited Partners (LPs). Just as startups kiss up to VCs for their cash, VCs do the same with LPs. If you ever go to an LP conference, you’ll see plenty of this.
Note 2: If possible, avoid LP conferences. In my experience, most are boring as isht.
Ok back to the VC economics.
So now you see what your VC investor is after in this case.
Let’s say the VC invests $2M in your startup for 20% of your company. And they invest an additional $8M over the next several years to maintain their ownership of 20% as you raise more. They’ve funded you to the tune of $10M.
And let’s say you exit for $800M.
Not really for the VC.
That $10M investment by them is now worth $160M (20% of $800M). As the graph from Mark shows below, that’s only half of their fund and only 13% of their needed return of $1.2B.
So that’s why VCs care about the billion-dollar exits and unicorns. Once you take their cash, you need to as well.
Grocery store of the future
We put together a market map of 65 startups across 16 categories focused on serving grocery businesses. These startups offer products ranging from sensors to track shopper routes throughout the store, to virtual reality to design more attractive product displays.
This week in Uber
According to TC this weekend, Uber’s engineers developed more secret software. This time, it was to spy on Lyft drivers.
Two things of note:
Uber’s secret software code names are great
Most startups develop less software than Uber’s engineers develop secret software. These guys are prolific.
Infamous copycat shop Rocket Internet used to catch a lot of flak within tech circles for being unoriginal and copying others’ creations.
That also largely appears to be Facebook’s playbook with Snap.
But when FB has done it, the reaction appears to be more benign. People joke about it and FB is the punchline of some clever Tweets but the vitriol that Rocket used to get doesn’t seem to happen.
It’s been interesting to observe the difference in views.
In any case, this battle between FB and Snap will certainly be interesting to watch.
Product innovation is key for corporations, but it doesn’t always work as planned. We updated our list of the biggest product flops of all time from Google+ to bicycles by Smith & Wesson.
Cheetos lip balm — still a favorite.
Healthcare on fire
We looked at private market trends among healthcare companies leveraging artificial intelligence. AI in healthcare currently dominates all other industrial applications of AI in terms of equity deals, raising $1.8B across 270 deals since 2012.
The Industry Standard
CB Insights data is the most trusted by those in the industry and the media. A few recent hits.