The Ledger
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Solely heuristic-based private investing will die off over time
“Over time, we do think that the concept of private investing, based solely on human heuristics, that will die off over time.”
VC managers raise larger funds because management fees outweigh carry
“And the reason they move up market is that the fees for larger funds always outweigh the performance of smaller funds. The people running these funds have incentives to raise larger funds.”
Hampton Creek will suffer a massive down round
“From tech VC firms, and we're seeing, you know, the mayonnaise company with a nine hundred million dollar valuation and fifteen million dollars revenue. That math doesn't make any sense. It's offensive. They're not going to have a successful exit. They will ha…”
Direct-to-consumer is for product testing, not scaling efficiently
“Most tech VC firms look at D to C, direct-to-consumer, as a way to scale a business efficiently. That is completely wrong. It is not a channel to scale a business. It isn't certainly not a channel to scale a business efficiently. DTC is a great channel to test…”
Consumer companies have higher net margins than tech companies
“At the end of the day, consumer companies have higher net margins and are more profitable than tech companies.”
Title III crowdfunding will suffer from severe adverse selection
“I think what's more likely, to be frank with you, is that companies will fail in trying to raise from accredited investors and then turn to unaccredited investors. That's adverse selection, and that concerns me.”
VC firms operate with 30% to 50% EBITDA margins
“Think of these firms, these VC firms as little companies that effectively have EBITDA margins of 30 to 50%.”
Data-driven private investing will start outside Silicon Valley
“I think that that trend will start outside of early stage tech and outside of Silicon Valley. So it'll start first in an industry where there's a ton of data and where business models are largely the same.”
Quantitative VC models lack historical training data for early tech
“There weren't a thousand other examples where there's enough training data to train models to understand what success looks like. There might be two or four. That's a reason why I really struggle to understand how this could be successful in tech, but in other…”
Venture capital fund returns decline as fund sizes increase
“There's a lot of studies that suggest that returns go down as funds get larger in AUM. There's a ton of studies that show that.”
Consumer startups reach profitability on $4M to $8M
“These companies in the consumer space, they tend to get to profitability by raising four to eight million dollars. Not 50 to eighty million dollars, as they do in the tech space.”
Honest Company entered recapitalization due to overvaluation
“Where Honest Company is a good company, it just got stuck in a post-money trap. It got passed over for acquisition, and now it was in a little bit of recapitalization mode with Catterton because it raised too much at far too high of a valuation.”
Consumer VC requires $1M to $5M checks across many startups
“In consumer, you need to find a way to deploy one to five million dollars into each of a lot of companies. That's the answer. You can't be looking to invest in 50, seventy-five million dollars into an early stage consumer product company, you're going to get j…”
Quant fund models are the future of private consumer VC
“We think it's a different model, candidly. We think it's a model of developing systematic approach to private investing. So if you're familiar at all in the public markets with AQR, Two Sigma, Renaissance Technologies, any of the public quant funds, We think t…”
Almost all DTC brands must eventually sell offline
“It turns out that almost every DTC company eventually realizes when they get to a We got to start building our own stores or, you know, selling these products offline because the online channels are just too expensive”
Most funded consumer startups will sell below their last valuation
“Consumer companies typically it'll be a graveyard. There'll be some exceptions. Unilever bots, Dollar Shave Club, because they needed the capabilities of DTC. That'll happen a few more times, but many times they will be sold for half of the last round valuatio…”
Title III of the JOBS Act will not impact marketplace investing
“Our view is that it won't be it won't have a major impact, and we believe it will not have a major impact in part because of the costs to the companies.”
Tech companies should not use online equity fundraising platforms
“Well, first and foremost, I think tech companies, to be candid with you, shouldn't use any online platform.”
VC fund operations are identical to 20 years ago
“The way a hundred million dollar fund operates today looks basically identical to the way it operated 20, 25 years ago.”
Innovators will attack traditional venture capital profit pools
“What I think will happen is that innovators are going to attack those profit pools and the lack of innovation.”
Large CPG firms do not spend on R&D
“Innovation isn't coming from the large CPG companies because they don't spend anything on R&D. It's coming from the small ones, so they're all looking for that innovation.”
Cultural fit is a bad predictor of employee success
“I tend to find the concept of, oh, that person's just not a cultural fit to be a really bad estimate of whether or not that'll be successful.”
Once you start considering firing someone, the decision is made
“When you're thinking about whether or not to let someone go, to fire someone, the decision's already made, and that point is absolutely true. When you're having that consideration in your head, it has gone far enough, and you need to just make the decision.”
Offline retailers will prefer Instacart over Amazon as a partner
“Offline retailers need Instacart to work. Amazon is too much of a threat. Instacart is closer to a partner.”
Early consumer investments yield 3.5x returns in 4.5 years
“The returns at the earlier stage Are extraordinary. On average, about three and a half times your money in four and a half years.”
Tech investing returns over the past 15 years were very poor
“Returns in tech Investing over the past 15 years have been very poor.”
CircleUp portfolio companies average over 100% annual growth and 50% IRR
“The average company is growing at more than a hundred percent per year since raising on CircleUp, or the unrealized average IRR on CircleUp is over 50%, five zero.”
Consumer private equity has half the volatility of tech
“In addition to that, this is an asset class that's not correlated with the overall economy and has half the volatility of the tech market.”
Union Square Ventures reversed its anti-crowdfunding stance to invest in CircleUp
“Union Square had said very energetically that they would never invest into an online equity investing platform. And they met us, and they changed the Their view because they realized that we were filling a need”
Founders should avoid VCs who require 45 minutes of market education
“Targeting investors, and this is, it sounds so obvious, but targeting investors that have an understanding of the underlying pain that you're trying to solve is critical, and when you go to an investment firm that has, that needs to be educated for 45 minutes …”
Institutional LPs are compensated mostly by fixed salary
“Right now, many, not all, but many of the LPs, their compensation is almost entirely salary. The bonus based on performance doesn't really move the needle for them that much.”
USV and Benchmark are rare exceptions to VC fund bloat
“Union Square Ventures, Benchmark, or some other exceptions to what I said.”
RXBar raised only $10,000 before selling to Kellogg's for $600M
“RX Bar, a snack bar, raised 10,000 dollars to sell for six hundred million dollars to Kellogg's.”
Consumer startup valuations have dramatically lower volatility than tech
“The standard deviation of consumer company valuations is dramatically lower than the standard deviation of tech valuations.”
Consumer private equity firms only invest after $10M to $15M in revenue
“Most investors We'll only invest after a company hits 10 or fifteen million dollars in revenue.”
CircleUp shares unedited board decks with all employees every 60 days
“Everyone in the company has complete access to all the metrics. We present the board deck every 60 days, completely unedited.”
Halo Top Creamery generates hundreds of millions in revenue
“Halo top ice cream, which is now a couple hundred million dollar revenue company”
CircleUp's average check size grew from $12K to over $100K
“In 2012 when we first started the average check on circle up was 12,000 dollars and it was all from individual investors accredited investors in 2015 the average individual check was over a 100,000 dollars into a single deal on circle up and half the capital c…”
CircleUp's 2012 seed round was rejected by over 60 investors
“And raised our seed round, which Maveron and Clayton Christensen wrote the book called the innovators dilemma through his hedge fund, Rose Park. They led that back in in 2012. That was a very hard round for us to raise, to be frank with you. And I think we wen…”