The math really helps me understand how VC thinks. Thanks for writing it up in such a clear way.
It leads me to wonder: if all VCs think this way and everyone is chasing the unicorn, shouldn't that create a void in the financing market for all the 'not unicorn but still a decent business' startups? Who's filling that void?
Thanks, Selina, and great question! Definitely, not all VCs think like that, as there are other factors at play as well and each fund is a bit different.
For example, VCs with impact in their thesis may prioritize lives positively impacted over pure financial returns. Then there are also VCs that have strategic investors on their cap table (i.e. LPs) that have a specific theme or technology in mind, thus the VC would also take that into account over financial returns.
The size of the fund also matters. If it's a micro fund - $10M or below, then the deals/returns of their investments also don't need to be extraordinary in order to generate the returns. There is this saying that a VCs fund size is his strategy.
In terms of who's filling the void. At early stages: Business angels/syndicates, micro-VC funds, niche-VC-funds (sector-specific, like healthtech or deeptech), accelerators. Later stages: PE Funds, Banks, Corporate VCs, Family Offices, etc.
My recommendation would be for a founder to always ask a VC about the thesis, size of the fund, average ticket size, etc. Knowing this a founder can calculate quickly approximately what kind of deals the VC is looking for.
The math really helps me understand how VC thinks. Thanks for writing it up in such a clear way.
It leads me to wonder: if all VCs think this way and everyone is chasing the unicorn, shouldn't that create a void in the financing market for all the 'not unicorn but still a decent business' startups? Who's filling that void?
-Selina
Thanks, Selina, and great question! Definitely, not all VCs think like that, as there are other factors at play as well and each fund is a bit different.
For example, VCs with impact in their thesis may prioritize lives positively impacted over pure financial returns. Then there are also VCs that have strategic investors on their cap table (i.e. LPs) that have a specific theme or technology in mind, thus the VC would also take that into account over financial returns.
The size of the fund also matters. If it's a micro fund - $10M or below, then the deals/returns of their investments also don't need to be extraordinary in order to generate the returns. There is this saying that a VCs fund size is his strategy.
In terms of who's filling the void. At early stages: Business angels/syndicates, micro-VC funds, niche-VC-funds (sector-specific, like healthtech or deeptech), accelerators. Later stages: PE Funds, Banks, Corporate VCs, Family Offices, etc.
My recommendation would be for a founder to always ask a VC about the thesis, size of the fund, average ticket size, etc. Knowing this a founder can calculate quickly approximately what kind of deals the VC is looking for.
Amazing content. Thanks for sharing! Raphael