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 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 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 investor behavior?

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
The Power Of Diversification – AVC

When you are an investor, there are days when some of your investments are doing great and some are doing badly. If you are broadly diversified, those days are easier to take. If you are all in on one investment, then those days are brutal. Entrepreneurs go all in and are rewarded accordingly when they hit it. Investors should not go all in. They should be diversified.

What’s the best way to understand investor behavior?

David Jackson (Founder, Seeking Alpha)
Conflicts of interest between startups and VCs | A Founder’s Notebook

I’ve been lucky to have superb VCs invest in Seeking Alpha. One of the things that’s helped me to maximize my relationship with them is understanding when our interests diverge. Here are two examples: It’s in their interest to push their portfolio companies to swing for the fences, even if that means raising the risk of failure. VCs rightly care about their brand, which is strongly impacted by association with successful companies with “buzz”.

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 investor behavior?

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Fund Level Vs Deal By Deal Carry – AVC

Deal by deal carry has not been common in the VC business. It is more common in private equity where the distribution of outcomes looks very differently. But with the rise of syndicates being raised on venture capital marketplaces, we are seeing an increasing number of angel and early stage investors who have deal by deal carry. As I said, there are pros and cons to both compensation models. I don’t want to say that one is better than the other…. (read more)

What’s the best way to raise money?

Sam Altman (President at Y Combinator)
Fundraising Advice for YC Companies – Y Combinator Posthaven

You should care more about good investors than good valuations. Talk to the founders of the companies that investor has funded (especially in cases when the companies haven’t worked out). You should insist on clean terms (in practice, offering messy terms is a sign of being a bad investor).

What’s the best way to choose good financial partners?

Reid Hoffman (Partner & Co-Founder at Greylock Partners)
What I Wish I Knew Before Pitching LinkedIn to VCs | Greylock Partners

Pay attention to whether they are being constructive during the pitch and financing process. Do they understand your market? Are their questions the same questions that keep you up at night? Are you learning from their feedback? Are they passionate about the problem you’re trying to solve?

What’s the best way to choose good financial partners?

Reid Hoffman (Partner & Co-Founder at Greylock Partners)
LinkedIn’s Series B Pitch to Greylock: Pitch Advice for Entrepreneurs

How do you know if an investor will add value? Pay attention to whether they are being constructive during the financing process. Do they understand your market? Are their questions the same questions that keep you up at night? Are you learning from their feedback? Are they passionate about the problem you’re trying to solve?