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A Different Approach to VC

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33 pointswslh12 comments

Yeah I don't think you can do non-VC VC because you need to have good odds of the crazy return. You can do non-VC investing, but you have to take far smaller risks in order for the far smaller returns to be OK.

If I need to make 10x over 10 years there are a bunch of ways to do that.

1. lose nothing, make 25% a year, every year

2. lose nothing, make 10x on a single investment of 100% of the fund

3. lose nothing, make 90x on a single investment of 10% of the fund

4. lose everything except a 100x investment of 10% of the fund

5. lose everything except a 1000x investment of 1% of the fund

6. lose everything except a 10000x investment of 0.1% of the fund

Most VC exists somewhere between 3 and 6. This "build the cashflow and business fundamentals" strategy probably exists more in the region of 1-2 and maybe up into 3 a little bit.

Now if only you have a sure way of getting 25% yearly when the initial investment is above 6 digits.

I'm not, nor do I have any interest in being a VC/Angel etc...but it seems to me that there might be a good strategy in an "Index Fund" approach. Something like putting in 10-100k with little diligence or reporting requirements across 1000 startups.

Whatever works works, whatever doesn't won't but in theory you would hit the growth numbers of the "High Tech Startup" network.

You would run into an adverse selection issue where only low quality startups would want an index fund investor while high-growth ones would seek investments from top-tier investors. The index fund approach works best in public markets.

Fred's blog is great, but this post is really a link to Bryce's blog post: http://bryce.vc/post/130071493425/my-xoxo-talk

Perhaps just go read Bryce's post, which was Fred's intent.

That's not really fair. In this post, Fred announces that he agreed to invest in Bryce's fund.

I guess. I figured since all of the comments were about Bryce's post and none about Fred investing in it, there's be a better conversation if people read Bryce.

it's great to see indie.vc and its new approach to investments in companies; i think the challenge is that most vc models are based on a power-law (and i'm not yet sure how that fits with indie.vc's model)

Except companies with cashflow are very different.

given that all vcs play the same game they also align themselves in a power law distribution (from the market pov)

in other words - they all play the same game - of making the best one look best

A different approach would be refusing to invest in anything that is simply an imitation of a success or a high valuation.

So, literally and pathologically investing in things that are not proven to have a good return?

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