Fundraising Acceleration Is the New VC Investment Thesis | Hacker News Reader

Fundraising Acceleration Is the New VC Investment Thesis

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40 pointsAndriusWSR20 comments

fund·rais·ing ac·cel·er·a·tion (vc-speak)

the act of investing in a company at an exorbitant valuation today that it might or might not be able to justify at some unknown point in the future

example usage: Marc didn't want to wait until Slack had enough revenue to support a billion-dollar valuation, so he used fundraising acceleration to lock in an investment at a billion-dollar valuation today

see also: insanity, investment bubble, greater fool theory, simulated time travel

I really want to know what a16z's IRRs are and how they're going to do in a down market. Do any public pension funds have to disclose that data?

In the same tone, there's a stock XYZ at $1. I think it will go to $10 in the next year, so instead of buying in at $1, I buy at $8? Wow. On Wall street, this is called "dumb money".

This is also called the "efficient market hypothesis", and is a cornerstone of basic equity valuation. The idea is that if you have information that a company's stock is sure to rise in the future, it is rational for you to pay any amount up to the point at which you believe it will be valued in the future to acquire it now. And so the stock price will instantly reflect all public information about the future prospects of the stock.

You may call it "dumb money", but if so, then all money is dumb.

Grandparent mentions "greater fool theory", which is perhaps a clearer counterpoint to your (quite correct) point.

It's also worth saying that upside risk is typically coupled with downside risk (which is something you're hinting at) -- the wider market has the probability of failure built into its current pricing. So, somewhat perversely, even if you don't think it'll have a billion dollar valuation with probability exceeding that of the market, it can become a better investment simply by increasing the probability of > $0 outcomes (by reducing that downside risk). Demonstrating that with a pivot seems like actually good evidence.

I wouldn't make the same investment, but there are a couple angles to discuss here.

there is a lot of uncertainty in valuing a startup. Conditional on this uncertainty, if I think it is worth 10, then absolutely, I should buy every share I can at 10 or below. The question is, is my valuation method correct. On average, since it is known that VC underperform the market, especially, the larger funds - the answer is probably, not quite :)

"This absolute laser focus on the winners has led to the current data revolution in venture investing, where firms hire teams to scour the web for signs of startups breaking out, all in the hope of catching the next winner before any other firm realizes what is happening."

Next up, the black hat version of this. People who help companies fake the signals. Assuming this isn't already happening.

This is already happening. I've known startups from top accelerators paying for visitors from stumbleupon to show as a signal of "growth".

It is going to be very interesting to see what happens with these JOBS ACT investment restrictions loosening. The novice investors will not be able to catch this stuff.

Slack's marketing is genius. The whole play on making Email look bad is brilliant and many startups are following suit.

But to be quite frank Slack is making things a whole lot worse (for me only perhaps?). It's super distracting. I have to add a new app to my workflow (while maintaining email). And Slack is much more demanding (end up checking it much more the email). Too many notifications and msgs. It isn't as ground-breaking as they want us to believe.

I wonder how long it will take for others to feel the same way I do? (maybe I'm the outlier?)

Mr. Butterfield is doing a stellar job leading the wheel. Congrats!

It's not just you, I might also be crazy. I find "if it's not something you're willing to write me an email about, it's probably not something worth bugging me about" a useful filter.

The difference in the requests I get over IM-type platforms vs emails (or even ticket trackers and the like) is pretty big. For whatever reason, most people don't want to bother writing an email, so they'll actually do more investigation on their own before sending one...

> What might look like a frothy bubble though, is in fact a much more fundamental change in the way venture capitalists perceive investments... Some might call this a bubble, but Slack is literally the embodiment of the fundraising acceleration thesis.

"This time is different."

[Nothing against Slack: great idea, great team, great execution after a pivot. Kudos to them for their success so far.]

You know, when people start developing elaborate theses about how Everything Has Changed and There Are New Rules and This Time, Seriously, No Really, This Time Is Different ... it's time to start worrying.

Slack feels like IRC with a cleaner interface, attachments, and user-accounts. You can even connect to it with IRC clients if you choose.

Regarding VC investments ... What prevents VCs from simply inventing wealth? That is, what is preventing a VC from investing $X dollars at an absurd valuation just to amplify the perceived value of their own investment? This chart perfectly shows the investment versus the valuation: http://graphics.wsj.com/billion-dollar-club/

In a thinly traded market this is basically what happens. Domain names provide a good comparison if you've followed that market at all in the past 15 years. The art market as well. In some cases blatent manipulation. You may be able to expirment yourself, identify a very rare set of collectibles, may be a comic book which rarely shows up for sale on eBay. Buy it every time. Hunt down all available copies of it. Eventually you will own all copies and the price history. Liquidating it all at a profit is a whole other event.

The danger zone for these valuations is what if the company doesn't really have something thats going to last? We assumed that with Facebook, because of all the social networks that came before. So far we are wrong. We assumed this would be the case with Zynga and so far were right. What if some of these software startups end up being more like games and less like things that stick around a long time?

Complicated subject. Lots of exceptions. Certainly the role of the network effect is playing a huge role in these valuations. The scary thing is that in order to justify these valuations founders will have to become more aggressive in pricing and billing practices. We are greatly benefiting from dirt cheap software right now, the assumption being its more important to grow the network and reach that critical mass before the competiton. What happens when all of these SaaS companies decide its time to cash in and raise their prices? (and by raise prices, more like do tricky things to maximize how much you are spending, vetern marketers know all about how to pull that one off.)

Thanks for the response. Sometimes it feels like in their quest to find the next unicorn, VCs are taking the short-cut and gluing horns onto horses.

One can argue that Slack is overpriced, but writing like this is silly:

"To put it another way, if Slack had the same annual revenues as LinkedIn at $1.5 billion in 2013, it would be valued at almost $140 billion and become one of the most valuable technology companies in the world."

The Price to Sales ratio doesn't stay constant. It's out of whack in startups on the assumption that the startup grows into it. Comparing Price to Sales of a startup versus a mature firm is just plain stupid.

So this is some kind of PR fluffery from KPBC I guess? Count the number of times the author uses this awkward and meaningless "fundraising acceleration" fabrication ...

I still don't understand where slack differentiates from hipchat.

HipChat was already acquired. As was Yammer. So they aren't VC relevant any more. Products often stagnate once acquired anyway.

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