This post is by Jason Lemkin from SaaStr
Click here to view on the original site: Original Post
One of the most tiring things for founders can be always being compared to Unicorns and now Decacorns. Certainly sometimes it’s inspirational. I loved it when many of the founders come out of each SaaStrAnnual saying they needed to grow faster: But the reality is as a founder there are different ways to make real money and build something meaningful. Go back to our case study of Marketo vs. Eloqua vs. Pardot here. For VCs that manage a fund any bigger than $150m or so though (which is relatively small for a VC) — there really is only one way. Unicorns. If you understand this, at least you’ll understand why VCs are the way they are. Because the (maybe semi-sad) thing for VCs is, only Unicorns make the business model work:
- Say you have a $200m VC fund (not that large, but basically our current fund, as an example).
- own investors (the LPs) are looking for gross returns (before expenses) of about 4x, so let’s call it $800m.
- You get to make about 30 or so investments from that fund.
- Well $800m (4x the fund before costs and profits/carry) / 15% ownership on average = $5.333 billion in market cap to achieve 4x gross in the fund
- So a $200m VC fund needs $5.333 billion in exits (measured by the 30 companies’ collective value when the VC can finally sell their stock post-IPO or acquisition) to hit its own investors’ expectations. In “just” a $200m VC fund.
- Multiple unicorns, in fact. Just one at a $1 billion or $2 billion market cap won’t be enough. A decacorn will be enough though
(note: an updated SaaStr Classic post) The post Why VCs Need Unicorns Just to Survive appeared first on SaaStr.
With 500 Unicorns, if you've been investing for > 8-10 years and haven't invested in one,You should quit venture capital https://t.co/Y6hZE3Qw0m — Jason BeKind Lemkin (@jasonlk) November 30, 2020