Hacker News Reader

Comment by chadash | Hacker News Reader

How do you plan to do due diligence? With YC, the strategy seems to be to throw a bunch of money at a bunch of early startups and hope one of them has a $1B+ exit. For arguments sake, let's say they are putting down 200 investments knowing 1 or 2 will provide (basically) all their returns. So 99% can fail and they are fine. But if I'm investing in a Mittelstand, I'm not looking for unicorns. It's more like I want 100 out of 200 businesses to return 10x and boom, I've got a great overall return. The problem is that I'd imagine you need a lot more due diligence for this, since you need more consistent (but smaller) winners. I would think it's hard to consistently find great businesses, particularly if you are investing at the 0 revenue stage, which your posts says you want to do.

View on HN

Pre-Mittelstand investing is also driven by power-law 100x+ returns.

Let's say the deal is $100K for 10-20% of pre-revenue/pre-product pre-Mittelstands.

You will get 100+ out of 200 businesses that are >1X+, 20+ that are 10X+, and 2+ that are 100x+.

So I'd do diligence like YC - wide open applications, largely focused on the team, one or two interviews max, global focus.

But how would you exit? VCs exit via an IPO or an acquisition. The whole point of the Mittelstand is that they do neither. Do you somehow force the owner to buy you out? What if they don't have the liquidity, how does this work?

I very strongly suspect that if investors could be getting returns of '20 that 10x+ and 2+ that are 100x+' as you say, they would already be doing so, and we wouldn't have to be theorizing about it. The fact that VC has for decades only existed for software & pharma and not, like, a new type of cable harness or industrial process or anything else in the physical/manufacturing world should probably tell us something

These $10M-$1B revenue businesses are great buyout targets for corporate and private equity firms, and these companies are increasingly going public at the higher range. (About 1/3 of PE exits last year were via IPO).

I dig into the data here: https://neilthanedar.com/we-need-a-middle-class-for-startups...

Mittelstands are allowed to partially or fully exit.

PEs do invest in Mittelstands at $10M+ revenue. But there's not a great market yet for pre-Mittelstands, which is where I'm focusing here.

If they exit they wouldn’t be Mittelstands anymore. They would just be regular mid sized companies that were sold off.

You will get 100+ out of 200 businesses that are >1X+

This seems implausible.

Reply on news.ycombinator.com