I respect traditional Venture Capital (VC) firms but I hate their business models. How can you find a great startup, fund it and because you are required to return money to your limited partners (“the VC’s investors”), in years, you exit even before the company begins life?
Yes, you got in when the startup was worth $200m and it went public for $2 billion. You rejoice because within a 7-10 year span, you have made say 10x returns. But wait for just 10 more years, the same startup which IPO’d at $2 billion is now worth $30 billion. But you had since gone!
What would have been bad if the VC had held its positions without any constraint of time? That way, instead of capturing value within $2 billion within a decade, it opens itself for value capture within $30 billion in the window of decades. And you allow LPs which desire to exit to go.
That is why I did not design Tekedia Capital as a typical VC firm. I did the math and discovered that more than 90% of VCs are leaving money on the table because of artificial constraints of time they created. They become operators at the center of the smiling curve instead of at the edges. For all the backers of Facebook or Tesla, the greatest winners are the investors who got in early when they went public. The VCs who exited within the first 10 years of this company life are left value on the table.
(Some funds are structured to have expiration dates, typically 7-10 years which the fund must close and return money to limited partners.)
By removing time, Tekedia Capital investors will capture not initial opportunities but also latter day opportunities in our companies. In a cambrian moment, restricting boundless opportunities by time does not seem right. Tekedia Capital will play at both the center and the edges. And we want to ring the bell in a public market, unrestricted by time.
This is my destination: in the future, and because we have no constraints of time, as our startups mature, we can stay the course and capture compounding value by taking Tekedia Capital public. That seems like a great business model even for a business that focuses on analyzing business models from startups.
Comment: Not an area I understand very well, but certainly one that I am keenly interested in. I do think it is a risk reward thing for VCs. Yes, they take the biggest risks in the life of a new business venture, but they tend to do so often with a sit on the board, and thus exercising reasonable control over how things are done. The key objective is always to hit the right traction and make the business look as good as it possibly can. After IPO, especially for overhyped (or over-pumped) companies with unrealistic valuations, what tends to happen? The statistics is that 60% of IPOs lose value, falling below their pre IPO valuation within the first 5 years. Calculating the expected loss for a VC based on these realities, I can guess, is the reason they jump out at IPO. A few firms do go on to achieve astronomical growth, but on a probability expectation basis, I think I do understand why VCs behave as they do
My response: Your data is possibly based before the innovation age. I do think there was an inflection point from 2016 as cloud computing, mobile internet and software converged. Adjusting the impact of covid-19, most tech-firms have outperformed in the public market over that 5-year window. I used that data as I made the decision to setup my firm.
What happened in 1980, 2000 , etc could have made sense then, but now, I do think the innovation age offers new opportunities with new business models. I am bullish on the promises of this cambrian moment and we are just at the early phase of it.
There is only one movement: upward!---
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