The Business of Venture Capital. Mahendra Ramsinghani
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Название: The Business of Venture Capital
Автор: Mahendra Ramsinghani
Издательство: John Wiley & Sons Limited
Жанр: Личные финансы
isbn: 9781119639701
isbn:
yet you do not know what tomorrow will bring.
What is your life?
For you are a mist that appears for a little time and then vanishes.2
So this book weaves in lessons from these three areas — managing risk, service to founders, and above all, developing a framework of values.
AND WHO AM I TO WRITE THIS BOOK?
There are no experts (nor will there ever be) in the world of venture capital. It's like the list of top Hollywood stars or top-performing mutual funds — each year, you have someone new at the top. In this constant churn, we are all learning this craft, and apprenticeship is the name of this daily practice. Those at the top are humbled by the forces of the unknown: risk and uncertainty. In recent times, their own arrogance and exploitative behavior have brought their downfall. And those at the bottom of the pyramid are striving — a combination of luck, some skill, huge networks, and the advantages of market timing lift them up.
Jorge Luis Borges wrote, “I am all the writers that I have read, all the people that I have met, all the women that I have loved; all the cities that I have visited, all my ancestors.”3 With all that and more, being a storyteller at heart, exposure to this business makes it easier for me to share the lessons. Having tasted all three layers of the founder-GP-LP cake as a practitioner in Silicon Valley and having invested in over a hundred companies over the past decade, I have made a lot, lost a lot, and learned a lot. These lessons, some very expensive ones, are offered in this book. In my quest to learn the nuances of this business, I have compiled insights of proven investors from firms like A16Z, Benchmark, First Round, the Foundry Group, True Ventures, Sequoia Capital, and Union Square Ventures, to name a few. I have also woven these with the wisdom of investment giants like Warren Buffett, Charlie Munger, and Nicholas Nassem Taleb because their observations can be applied to most parts of our business and life. And finally, I sprinkled in some wisdom from philosophers and Nobel Laureates (like Bob Dylan).
Having co-invested with some of the best-in-class, and occasionally with the pseudo-intellectuals, opportunists, and carpetbaggers, you experience the people problem in our business. You never know the true nature of a person until you reach the extremes of success or failure. Big exits drive greed. Failure gets everyone scampering away. Blame is pinned on some macro-event, China, or circumstance. Amidst these roller-coaster rides, I learned two things well: (a) how to avoid the self-serving and the greedy and (b) where I could not avoid, I mastered the art of projectile vomiting.
As Rudyard Kipling wrote in his poem, “If”:4
If you can make one heap of all your winnings
And risk it on one turn of pitch-and-toss,
And lose, and start again at your beginnings
And never breathe a word about your loss…
Yup, I've experienced a bit of that. So those are some good reasons why I'm qualified to write such a book.
If you feel the ROI on this book has not been to your high expectations, dear reader, I am sorry I have wasted your time with this rambling repository of riffs, anecdotes, and generally available kitschy stuff. And yes, I'm happy to refund you a full amount. Or make a donation to a charity of your choice. For all others who get featured on that Forbes Midas List after reading a page or two of this book, do feel free to send me a few points of that carry. I'm saving up to buy a winery in Hawaii as I approach my retirement years. Aloha to health, happiness, harmony, peace, abundance, and carry.
WHAT SHOULD YOU KNOW ABOUT THIS BUSINESS OF VENTURE CAPITAL?
It's not as easy as it looks. And not as hard as you might think it is. But I'm sure you expect a bit more than that. So here are seven pointers:
1 The VC business is changing, growing, and even maturing a bit. There are over a thousand VC firms managing about $400 billion in assets under management (AUM). This has doubled in the past decade, which is a good thing. Money is flowing in this asset class, and our business is about deal flow and cash flow — and with LPs pouring in the cash, VCs can continue to make investments. In any given year, 200+ funds raise their capital, and the average fund size raised is now at $200+ million. The largest VC fund raised was Sequoia Growth at $8 billion. The $100 billion Softbank Vision Fund is in a league of its own — more capital than all venture funds combined, promising trillions in return. Such a leap in the punctuated equilibrium of funds is a once-in-a-lifetime event, where it leaps 100X over the average fund size of $1 billion. A billion no longer brings a sense of awe, but a $100 billion fund might be trending alongside #respect and #unicorns. With COVID pandemic, we are forced to make investment decisions without much face-to-face interactions. I am sure such a shift will eliminate a lot of meeting room theatrics, posturing, and above all — the nonsensical CEO assessments, where VCs make leadership judgments in a few hours and are always wrong.
2 Veni, Vedi, VC. Let's conquer and disrupt everything. The final frontier is death. Brave scientists and founders, armed with capital, have raised capital to mine asteroids, live on Mars (the planet, not the chocolate factory), and solve for every problem — existent or imagined. One startup was launched so that we could just say “yo” to each other. It raised a few million and then died. Investment thesis have expanded from software and technology domains, to new promises and fertile lands. Like nomadic farmers, VCs are rushing into new territories — artificial intelligence, robotics, blockchain, finance and insurance technologies, and an alphabet soup of buzzwords that include 5G and IoT, sprinkled with quantum, edge-computing. The opportunity set is broad. GPs have a hard time focusing — we are all kids in this global candy shop of innovation. This is the best time to be in the business of VC.
3 More money = more competition = higher entry valuations = lower returns. With additional flows of capital, we are reminded of the basics of economic theory. Supply and demand, prices and elasticity — as VCs chase risk-adjusted returns, the valuation curves in later-stage companies have started to bend dramatically. Or let me put it another way — valuations have become crazy pricey. And as one side goes up, another goes down. This impacts potential for generating returns. Increased valuations have got very little to do with higher acquisition values or superior exit outcomes — it's merely a function of more money chasing a few good opportunities. So as the competition heats up, we need to improve sourcing skills, engage with founders via disciplined processes, and understand how we can deliver higher probabilistic outcomes. Boy, this game just got a lot more serious. So it's time to hone your investment skills.
4 Honing your skills beyond term sheets and balance sheets is important. Are you good at probability? Playing poker? Nerdy enough to bet on technology trends? How do you want to play — are you fiercely competitive? Or are you like Peter Thiel, who likes monopolistic hidden gems and operates like a chess grandmaster? He is also good at probabilistic betting and snagging big outcomes — his $500,000 investment in Facebook generated a 10,000X return. Even his $1.5 million bet on Donald Trump's election campaign paid off big time, while CRV, an East Coast venture firm, blazoned its website home page with “F*ck Trump” on election day. So as an investor, you have to decide which part of the playground you want to play in. Business, finance, politics, power — or a mix of all. This will define your investment thesis or strategy and help you to hone your areas of focus. With pandemics, trade wars, and geopolitical shifts, new opportunities continue to arise, and the world is indeed your oyster. Try to make sense of all these trends and then СКАЧАТЬ