What’s the best way to understand investor behavior?

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
The Difference Between Large Funds and Small Funds – AVC

I have always been a “small fund” oriented investor. Both models work if executed well, but they are different. With small funds, you only need to find a few good ideas a year to get behind. That is true in hedge funds, private equity, venture capital, and probably many other asset classes. With large funds, you need to get behind every good idea every year.

What’s the best way to understand your company’s financial position?

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
MBA Mondays From The Archive: Analyzing Financial Statements – AVC

Companies can try to bury ongoing expenses in one-time charges and inflate their earnings. You don’t see that much in startups but you do in public companies and it’s a “red flag” if a company does it too often.

What’s the best way to understand investor behavior?

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
VC Fund Economics – AVC

That is 2.5% in annual management fees and 20% of the profits after the investors get their capital back. That is the exact same set of economics the USV operates on. The goal of VC fund economics is to incent the partners to focus on carry and not on current cash compensation. That means that we are focused on generating large gains on our investments and that aligns us well with the entrepreneurs we back and the investors who provide us with c… (read more)

What’s the best way to understand your company’s financial position?

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
MBA Mondays From The Archive: Analyzing Financial Statements – AVC

Working capital is the non cash current assets and liabilities of the business. When they grow rapidly in relation to revenues, it means you are financing other parts of the food chain in your industry and that’s a great way to run out of cash.

What’s the best way to understand investor behavior?

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Loss Ratios In Early Stage VC – AVC

When I was early in my career, I casually mentioned to an older VC that I had yet to lose money on an investment. He replied “that’s not good, you aren’t taking enough risk.” I have gone on to lose a lot of money over the years. And made a fair bit too. So one of the things I like to look at when I look at our funds and other VC funds that I am an investor in are loss ratios. You can calculate loss ratios by “names” meaning how many investments … (read more)

What’s the best way to understand your company’s financial position?

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
MBA Mondays From The Archive: Analyzing Financial Statements – AVC

So if monthly income and monthly cash flow aren’t in the same ballpark, look at the changes in working capital month over month. We went over this a bit last week in preparing the cash flow statement. If working capital is the culprit soaking up the cash, you need to look at two things.

What’s the best way to understand investor behavior?

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
The Role Of Personal Chemistry In Investment Selection – AVC

Venture capital investing is not like angel investing or public stock investing. We don’t make a lot of small bets (angel investing) and we can’t easily get in and out of our positions (public market investing). We make big concentrated bets in a handful of carefully selected companies and hold these positions for between five and ten years on average. We sit on the boards of these companies and become business partners with the founders and mana… (read more)

What’s the best way to understand your company’s financial position?

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
MBA Mondays From The Archive: Analyzing Financial Statements – AVC

If someone asks you how much cash you have in your business, or a business you are analyzing, and you can’t answer that to the last accounting period (at least), then you failed. There is no middle ground. Cash is that important.

What’s the best way to understand how your VC thinks about your business?

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Venture Capital Returns – AVC

Early stage investing is hard. You lose more than you win. And when you win, you need to win big. Later stage investing is a bit easier. You can pick winners in that business more easily. But so can everyone else. Each deal is an auction and the winner pays the highest price. So the next time you are bidding one VC against another, maybe you can feel just a bit of empathy for us. We are in a tough business, trying to make a buck to live to fight… (read more)