Does venture success depend on multiple on invested capital rather than absolute size of the outcome?

Harry Stebbings · Feb 27, 2023

Billion or two-billion dollar exits don't meaningfully move fund returns when your stake only returns $10-20M.

Mathematically such outcomes are too small relative to fund size to matter.

Scope: framed as a point about fund math, not about founder outcomes

14:10 20VC: How Multi-Stage Funds Changed The Game For Seed Rounds, Why Signalling Risk is BS, The Three Most Important Variables for Founders When Raising Rounds & A Debate on Portfolio Construction: Does Ownership Matter with David Tisch

Sam Lessin · Aug 11, 2023

Seed math only works at small fund sizes — $50M to $100M — because at mega seed fund scale even a $2B return is just a 3x

Fund size determines whether an outlier return is fund-returning; at mega scale the math breaks

22:28 20VC Roundtable: NEW FORMAT: Why the Seed Investing Model is Broken, How to Make Money at Seed Moving Forward; Who Wins and Who Loses, Why Venture Value Add Platforms are BS and Failed and Why There Will be an IPO per Week in H2 2024

Harry Stebbings · Jan 22, 2024

An 800M-to-1B outcome is not what funds are made on, especially at Bessemer's fund size

Even at ~15% ownership it doesn't return the fund in a lot of cases

Scope: scoped to large funds

25:58 20VC: Why Small Markets are Better Than Big Markets, The Biggest Delusion of Early Stage VC, Why AI Investing is like a Horserace and Why The Most Ambitious Companies Growing the Fastest are not the Best Investments with Adam Fisher, Partner @ Bessemer

Logan Bartlett · Aug 29, 2022

At growth stage, investing decisions should be driven by multiple on dollars rather than by an ownership percentage requirement

Far-out home runs like Stripe, Twilio and Snowflake generate returns that far exceed what owning 12% of a typical company could produce

Scope: higher ownership does make the 3-5x with 10x upside easier; early-stage teams do focus more on ownership

31:38 20VC: Is Now Really the Best Time to Be Investing? WTF is Happening at Growth Stage Investing? Why VCs Have Gotten Lazy Over the Last 2 Years? Investing Lessons from Hitting with Braze and Missing with Snowflake with Logan Bartlett, Managing Director @ Re

Harry Stebbings · Jan 22, 2024

What matters in venture investing is multiple on invested capital, not the absolute size of the outcome

He would rather enter at a $6M valuation and sell for $700M than enter at $200M and sell for $5B

Scope: contra the conventional view that venture is only about multibillion outcomes

25:25 20VC: Why Small Markets are Better Than Big Markets, The Biggest Delusion of Early Stage VC, Why AI Investing is like a Horserace and Why The Most Ambitious Companies Growing the Fastest are not the Best Investments with Adam Fisher, Partner @ Bessemer

Harry Stebbings · Nov 30, 2022

Dismissing a company because it can only be a $5-10B outcome rather than $50B is wrong — a $5-10B company is a huge success

44:10 5 10 billion outcomes are still huge successes not dismissable failures

Jason Lemkin · Nov 30, 2022

Most investors who dismiss $5-10B outcomes cannot do their own fund math

Owning 2% of a $10B company out of a $100M fund cannot produce the 10x fund they claim to be underwriting

44:23 Investors who dismiss 5 10b outcomes often cannot justify their own stated fund return math

Harry Stebbings · Jan 16, 2023 · hedged

Roughly 97% of the money invested into Uber will never return 1x given the quantum of capital deployed, which is why capital efficiency is paramount

The sheer amount of money that went in is too large relative to any plausible return

17:07 Massive capital raises like ubers produce poor fund level multiples despite large outcomes

David Tisch · Feb 27, 2023

A billion or two-billion dollar outcome is a worthwhile investment to sign up for, even if it isn't the target outcome for the fund.

It is a life-changing outcome for a lot of people including the founder, provided they didn't raise egregious capital and get heavily diluted; those journeys are what he's in the business for.

14:23 Billion to two billion outcomes are worthwhile even if not fund returners since they change founders lives