Chris Dixon

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The Babe Ruth Effect in Venture Capital

Chris Dixon

One of the hardest concepts to internalize for those new to venture capital is what is known as the “Babe Ruth effect. Venture Capital

Shoehorning startups into the VC model

Chris Dixon

For some entrepreneurs, raising venture capital becomes a goal unto itself, instead of what it should be: a heavy burden that only makes sense in certain cases. A startup should raise venture capital (or “venture-style” angel/seed funding) only if: 1) the goal is to build a billion-dollar (valuation) company, and 2) raising millions of dollars is absolutely necessary or will significantly accelerate growth. The best source of capital is customers.

Notes on raising seed financing

Chris Dixon

I’ve written ad nauseum on this blog (see contents page) about venture financing so hadn’t planned to blog more on the topic. These are people or institutions who commit significant capital (>$100K) and are respected in the tech community or in the specific industry you are going after (e.g. Types of capital: strategic angels (industry experts), non-strategic angels (not industry experts, not tech investors), tech angels, seed funds, VCs.

Revenue exceptionalism vs margin exceptionalism

Chris Dixon

From the investor’s perspective: the history of venture capital shows that almost all the returns are generated from big hits like Amazon, eBay, Facebook and Google. (As Three years ago, Fred Wilson wrote a great blog post called When Talking About Business Models, Remember that Profits Equal Revenues Minus Costs. The point he made was both simple and profound. The simple part is summed up in the post’s title [1].

The TripAdvisor IPO

Chris Dixon

in venture capital, sold to IAC/Expedia for $210M, and had some interesting adventures and pivots along the way. - Great startup story. Raised a total of $4.2m They started out by trying to aggregate reviews from other websites and white label their product to Expedia and other large travel websites. TripAdvisor.com was just a showcase that accidentally became a destination site. As of today TripAdvisor is an independent public company, trading at a market cap of $3.5B.

IPO 31

Founder Stories

Chris Dixon

I really like to hear “war stories&# (a term used in venture capital) but calling it that would have been disrespectful to military people who fight actual wars versus the inconsequential battles we have amongst startups and investors. Erick Schonfeld from TechCrunch asked me a few months ago if I’d be on a TechCrunch video show where we interviewed startup founders. I love startups.

Converts versus equity deals

Chris Dixon

Having learned about venture investing as a junior employee at a VC firm I was shocked. Tags: founder collective startups venture capital There has been a debate going on the past few days over whether seed deals should be funded using equity or convertible notes (converts). Paul Graham kicked it off by noting that all the financings in the recent YC batch were converts.

Size markets using narratives, not numbers

Chris Dixon

Smaller, venture-style investors like angels and seed funds also prioritize market size but are usually more flexible – they’ll often invest when the market is “only&# ~$100M). Venture-style startups are bets on broad, secular trends. Tags: startups venture capital Anyone who has pitched VCs knows they are obsessed with market size.

Money managers should pay the same tax rates as everyone else

Chris Dixon

This is the due to the fact that money managers’ “carry fees&# are treated as capital gains instead of ordinary income. As one prominent VC recently said : [H]aving those higher taxes be levied against venture capital investments in small businesses strikes me as self-defeating when it is the single largest job growth area. As Fred Wilson says: Changing the taxation of the managers will not reduce the amount of capital going to productive areas.

Builders and extractors

Chris Dixon

Given that there is a surplus of venture money, entrepreneurs and seed investors now have the luxury of choosing to work with builders and avoid extractors. Tags: founder collective startups venture capital Tim O’Reilly poses a question every entrepreneur and investor should consider: are you creating more value for others than you capture for yourself?

Howard Lindzon’s “Web is Dead” series

Chris Dixon

Tags: founder collective personal startups venture capital

The segmentation of the venture industry

Chris Dixon

The basis of competition shifted from price and basic functionality to &# style, power, and prestige “ General Motors surpassed Ford by capitalizing on this desire for segmentation. Today, the venture financing industry is going through a similar segmentation process. Venture capital has only existed in its modern form for about 35 years. Today at least four distinct types of venture financing “products&# have become popular.

Capitalism just like Adam Smith pictured it

Chris Dixon

When I worked in finance – first on Wall Street and then in venture capital – I saw that the reality was much more nuanced. Venture capital is a shining example of capitalism just like Adam Smith pictured it, where private vice really does lead to public virtue. Consider, for example, two of the largest areas of venture investment: biotech and cleantech. Tags: economics startups venture capital

Old VC firms: get ready to be disrupted

Chris Dixon

These LPs wield tremendous power, yet very few of them understand how startups or venture capital actually works. I was reminded of this recently when I saw this quote from a prominent fund-of-funds, justifying their investment in a 30-year old venture firm: “As the amount of money raised by venture firms shrinks, older firms that were around before the dot-com bubble will benefit,&# said Michael Taylor, a managing director at HarbourVest. If the U.S.

Inside versus outside financings: the nightclub effect

Chris Dixon

At some point in the life of a venture-backed startup there typically arises a choice between doing an inside round, where the existing investors lead the new financing, or an outside round, where new investors lead the new financing. Tags: startups venture capital

It’s not East Coast vs West Coast, it’s about making more places like the Valley

Chris Dixon

As I said last year : New York City has many of the same strengths as Silicon Valley – merit-driven capitalism, the embrace of newcomers and particularly immigrants, and a consistent willingness to reinvent itself. I spent the past week in California and had the honor of meeting some legendary venture investors. Tags: new york city startups venture capital I’ve written a few times about what seems to be an exploding tech scene in NYC.

It’s not that seed investors are smarter – it’s that entrepreneurs are

Chris Dixon

Tags: founder collective startups venture capital

The importance of investor signaling in venture pricing

Chris Dixon

Suppose there is a pre-profitable company that is raising venture financing. Actual venture financings work nothing like this simple model would predict. In practice, the equilibrium states for venture financings are: 1) significantly oversubscribed at too low a valuation, or 2) significantly undersubscribed at too high a valuation. Why do venture markets function this way? This investor signaling has a huge effect on venture financing dynamics.

Global Venture Capital Distribution

A VC : Venture Capital and Technology

Richard Florida published some stats on the distribution of global venture capital investment last week. SF proper and the broader bay area make up 25% of the global venture capital investment activity (~$10bn out of $42bn).

Venture Capital Returns

A VC : Venture Capital and Technology

This post is for everyone who thinks venture capital is an easy business. Here are short term and long term returns for the venture capital business over the past ten years compared to the public equity markets in the US. Venture Capital and Technology

Venture Capital is About Human Capital

Both Sides of the Table

Most VCs did well academically and had enough career success that a venture firm was willing to give them an investment role or they were able to raise their own fund. Fundamentally venture capital is about human capital. Venture Capital is a people business.

Entrepreneurial Density and Venture Capital

Feld Thoughts

Two of his latest articles talk about entrepreneurial density and venture capital. The Connection Between Venture Capital and Diverse, Dense Communities. In it, he looked at Venture Capital financing (total dollars and number of deals) on a per-capital basis. And Richard acknowledges this: “I’ll continue to track the evolving geography of start-ups and venture capital in future posts.

From Accelerators to Venture Capital: What is best for your startup?

Gust

The post From Accelerators to Venture Capital: What is best for your startup? How To Fundraise Starting Your Company accelerators angel funding incubators venture capital

Pioneering Women in Venture Capital: Kathryn Gould

Steve Blank

Kathryn has been the founding VP of Marketing of Oracle , a successful recruiter, a world class Venture Capitalist, a co-founder of a Venture Capital firm, a great board member, one of my mentors and most importantly a wonderful friend. So I started Foundation Capital in 1995.

How to Build a Startup & Understanding Venture Capital

Both Sides of the Table

And if you do happen to be lucky and find the right mountain to climb, if you find that you’ve started ascending the peak before others have found the right trail — then venture capital is for you. But you need to understand venture economics.

A Venture Capital History Perspective From Jack Tankersley

Feld Thoughts

In January, Jerry Neumann wrote a long and detailed analysis of his view of the VC industry in the 1980’s titled Heat Death: Venture Capital in the 1980’s. The key reason for the explosion in capital flowing into the industry, and therefore the large increase in practitioners, had nothing to do with 1970’s performance, early stage investing, or technology. Continental Capital*. $ 250,000. KPC&B II. $ 775,000.

Bad Notes on Venture Capital

Both Sides of the Table

On the phone … Me: So, you raised venture capital? I have never come across a sophisticated A, B or C round venture capitalist who thinks convertible notes are a smart move for entrepreneur or investor. ’ But do you want to start a relationship with your most important supplier – that of capital to fuel your business – by avoiding talking about his or her expectations in terms of rights or privileges? This week.

Q316 State of Venture Capital Update With Cooley

Feld Thoughts

This quarter they interviewed me as part of it on Quarterly VC Update: Brad Feld on the State of Venture Capital Investing. At the same time, if you are a clearly successful growth company, there is a huge amount of capital available once you’ve reached a point of clear success (often after $20m – $40m has been raised). There is a huge capital supply gap for companies that are in between early startups and companies that are successful growth companies.

Why 2017 Should be a Great Year to Raise Venture Capital

Both Sides of the Table

Recently Upfront Ventures published its outlook for the technology startup world and venture capital overall titled it “ WTF Happened to Winter ?” venture-capital startup

Something Ventured: The Founding of the Venture Capital Industry

Feld Thoughts

Last night Amy and I watched the movie Something Ventured: Risk, Reward, and the Original Venture Capitalists. I figured Amy would veto Something Ventured after 15 minutes. If you are a VC, or aspire to be a VC, do yourself a favor and watch Something Ventured right now.

Love and Venture Capital

Feld Thoughts

The post Love and Venture Capital appeared first on Feld Thoughts. Venture Capital fred wilson Jerry Colonna podcast rebootIf you’ve missed me, it’s because I spent a week in Australia. Ten days ago, after being there for a few days, I came down with salmonella poisoning. I’m finally starting to feel normal again although I’m still exhausted. This has easily been the sickest I’ve ever been.

Venture Capital Funding: A Curated List of Our Best Resources

Up and Running

Getting venture capital funding to launch your business is incredibly difficult. In fact, fewer than 1 percent of businesses that start every year get venture funding. Is venture capital right for you? 12 of the Hottest Venture Capital Firms in 2016.

Changes in the Venture Capital Funding Environment

Both Sides of the Table

There was an explosion in number of startups both because it was cheap and there was tons of available capital. Be thoughtful about from whom you raise capital.

17 Venture Capital Blogs You Should Be Reading

Up and Running

Whether or not you’re raising money for your business, getting advice from venture capitalists can be invaluable. Inside the Minds of Top Venture Capitalists: Blogs You Need to Read to Understand How VCs Think. Andrew Parker is a VC with Spark Capital in Boston.

It’s Morning in Venture Capital

Both Sides of the Table

Many observers of the venture capital industry have questioned whether its best days are behind it. They are, in fact, great news for traditional venture capitalists. The most successful of these businesses will still need venture capital to scale their businesses.

Where Do Venture Capital Dollars Actually Come From? This Visual Explains

Agile VC

Most folks reading this will know that many startups were built in part with the help of venture capital. So I wanted to dive a little deeper into what I call the startup capital supply chain. Google, Intel Capital).

Why Was Winter in Venture Capital Funding so Short?

Both Sides of the Table

It was only a year ago that many in the Venture Capital industry were predicting that “winter was coming” and to be fair the author of this post was chief amongst them. While this it total FDI as opposed to just venture, it should give you an indication of the international trend.

Forecasting in venture capital

The Equity Kicker

Good VCs need to be good forecasters. We need to predict which companies are going to succeed and second guess future trends so we can develop our firms to stay ahead of the curve. Deloitte have just published an interesting synopsis of Tetlock’s Superforecasting which gives us some insights into the types of people we need to recruit and the habits we need to cultivate to be good at the forecasting game.

Venture Capital Demystified: A Fundraising Guide for Entrepreneurs, Investors, and Lawyers

YoungUpstarts

by Jason Mendelson and Brad Feld, co-authors of “ Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist “ So, you’ve got a brilliant idea and you’re ready to launch a company.

Forbes Reveals the 2013 Venture Capital Midas List

VC Cafe

Forbes released the 2013 Midas List for Venture Capital today, proving that to be successful in VC, all you need is one big hit. Five of the top ten names on the list invested in Facebook, the largest tech IPO of 2012. [[ This is a content summary only.