Funding Innovation: Difference between revisions
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Banks would fund low risk, if there is security/collateral. VCs fund risk. And that means that with partial ownership (dilution) - investors make it big year after year. | Banks would fund low risk, if there is security/collateral. VCs fund risk. And that means that with partial ownership (dilution) - investors make it big year after year. | ||
A venture capital firm makes money, about 20% of what it invests. There is a second parasitic loss involved - the actual person who puts in money as the limited partner. If dilution is 40% on a company that makes millions, it means millions year after year for doing nothing. | A venture capital firm makes money, about 20% of what it invests. There is a second parasitic loss involved - the actual person who puts in money as the limited partner. If dilution is 40% on a company that makes millions, it means millions year after year going to the limited partner for doing nothing. | ||
Revision as of 19:59, 2 July 2022
VC funding means scoring big on a few winners. Investors become part owners. There are fund managers and limited partners providing the cash. They do not build the business, but are enabling, parasitic costs. It will in general be unfair - losers ride but can be killed, and winners make a killing.
Banks would fund low risk, if there is security/collateral. VCs fund risk. And that means that with partial ownership (dilution) - investors make it big year after year.
A venture capital firm makes money, about 20% of what it invests. There is a second parasitic loss involved - the actual person who puts in money as the limited partner. If dilution is 40% on a company that makes millions, it means millions year after year going to the limited partner for doing nothing.