I think I actually learned this lesson from my failure to build a billion dollar startup with Labdoor (this story is in the post). We would've been better off raising less money and going for profitability earlier. Labdoor made it to the middle class the hard way, and I'm trying to help others avoid some of my pain.
Thanks Neil - I certainly do not mean to disparage your success or work done with your writing. I think part of my comment is driven by the need for someone on HN to post something cynical.
I think there is just some mental fatigue that happens when you read about other's success - maybe this is an unhealthy reaction, I do not know.
> I think I actually learned this lesson from my failure to build a billion dollar startup with Labdoor
Failing to build a billion dollar startup does not exactly disprove the “massively succesful” point that GP made. Unless your criteria for “failure” is completely ridiculous.
> top-tier VC returns by building a portfolio of Mittelstand businesses
I’m not sure this is true. You could get good relative percentage returns, but in terms of absolute returns, I’m not sure the math is there. Meaning, if you invest $1M in a smaller company and get a 20X return, that’s pretty good. But smaller companies won’t have much more need for investment capital. So, your absolute return is limited to $20M.
Now, if you have a larger company that needs $100M in investments (over multiple rounds), but still gets a 20X return, that’s a $2B return.
You have the same relative rate, but a massive difference in absolute numbers. To get the same absolute return, you’d need 100X more companies in a portfolio, which is just not manageable. Even with a 2X return in a $100M investment, you’re still way ahead in absolute terms. ($100M >> $19M)
What I think you’re really trying to argue for is that there needs to be smaller VC portfolios with smaller expectations. I think this is possible, but it’s more difficult to hedge bets with smaller expected returns.
It seems like the question is talking about large, zero-revenue startups. Ecomom definitely doesn't fit here, since they were collecting over $1M/month in gross revenues. Of course, they were discounting so much that each order had a negative margin, but that is a different story.
I think the most dramatic example of this (other than WhatsApp) is Snapchat.
The brighter highlights are intended to be the most important points.
Is that confusing? I can change the shade of the lighter highlights.