1. Isn’t it a bold assumption to presume EBITDA positive in 5 years? Conscious it’s profitability > growth currently though
2. Aren’t these positions held for longer? 5 years of a 10 year fund that likely will double dip on its best companies sounds short
3. Do you think founders will give one VC firm/fund 20%+ at such an early stage when they need to give to multiple VCs and angels? Feels unlikely?
4. Finally, $80m return (you’ve ignored dilution ahead of exit) would likely only be interesting for funds < $200m? With larger fund sizes, sounds like they’d not be interested in this?
See this article is totally based on the assumption to give the flavour of VC Valuation Method to founders and early investors. Based on your question,
1. Yes, it is a bold assumption to presume EBITDA positive in 5 years. Many startups do not become profitable for several years, or even decades. However, if the startup has a strong team and a viable business model, it is possible to achieve profitability within 5 years.
2. It is not uncommon for venture capital firms to hold their positions for longer than 5 years. In fact, many firms will hold their positions for 10 years or more. This is because it can take time for a startup to reach its full potential.
3. It is unlikely that founders will give one VC firm/fund 20%+ at such an early stage. Founders typically want to keep as much control of their company as possible. However, if the VC firm is willing to offer a significant amount of capital, the founders may be willing to give up a larger percentage of ownership.
4. Yes, $80 million return would likely only be interesting for funds < $200 million. With larger fund sizes, a $80 million return would represent a relatively small percentage of the fund's total capital. As a result, larger funds may be more interested in investing in startups that have the potential to generate much larger returns.
Interesting read! Few Qs
1. Isn’t it a bold assumption to presume EBITDA positive in 5 years? Conscious it’s profitability > growth currently though
2. Aren’t these positions held for longer? 5 years of a 10 year fund that likely will double dip on its best companies sounds short
3. Do you think founders will give one VC firm/fund 20%+ at such an early stage when they need to give to multiple VCs and angels? Feels unlikely?
4. Finally, $80m return (you’ve ignored dilution ahead of exit) would likely only be interesting for funds < $200m? With larger fund sizes, sounds like they’d not be interested in this?
Thanks again!
Thanks Joseph!
See this article is totally based on the assumption to give the flavour of VC Valuation Method to founders and early investors. Based on your question,
1. Yes, it is a bold assumption to presume EBITDA positive in 5 years. Many startups do not become profitable for several years, or even decades. However, if the startup has a strong team and a viable business model, it is possible to achieve profitability within 5 years.
2. It is not uncommon for venture capital firms to hold their positions for longer than 5 years. In fact, many firms will hold their positions for 10 years or more. This is because it can take time for a startup to reach its full potential.
3. It is unlikely that founders will give one VC firm/fund 20%+ at such an early stage. Founders typically want to keep as much control of their company as possible. However, if the VC firm is willing to offer a significant amount of capital, the founders may be willing to give up a larger percentage of ownership.
4. Yes, $80 million return would likely only be interesting for funds < $200 million. With larger fund sizes, a $80 million return would represent a relatively small percentage of the fund's total capital. As a result, larger funds may be more interested in investing in startups that have the potential to generate much larger returns.
I hope this will help you!