Venture Capital 101: Why VCs are backing other startups and not yours - E684
episode
BRAVE Southeast Asia Tech: Singapore, Indonesia, Vietnam, Philippines, Thailand & Malaysia Startups, Founders & Venture Capital VC (English)
16 min
1 speaker
8 chapters
transcribed 18 days ago
Transcript
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Transcript generated automatically by AI and may contain errors.
How do VCs decide if a startup can become a unicorn in the next 10 years?
VCs are looking for founders that will build Unicorn over the next 10 years. And the challenge for them is that right now, you look like every other company. You look undifferentiated, you look competitive, but but you're not really like the world. Unicorn that is a no-brainer that everybody recognizes today. Today all of us recognize Google, Facebook, Uber, so so forth as world leaders. But of course, if you watch any of the TV shows about their founding, at the very much, you know, the first few episodes is nobody cares about them, nobody pays attention to them. And so VCs always have this dynamic where they think themselves, how do I assess the founders and evaluate with which one will become that Unicorn over the next ten years.
From their perspective, the VC is always meeting you and saying, Will you become a unicorn in the next 10 years? Another way they'll try to think about it is saying, Hey, will you double in revenue this year? And will you double revenue again next year? And if you can keep doubling every year, then you can become a hundred million dollars of revenue uh over 10 years. And so VCs have to assess and provide that feedback because they're looking at the founders, the founding team, they're looking at the strategy, whether the the business model makes sense. So venture capital was invented by this person called Georges Doriot.
Who was Georges Doriot and why is he called the father of venture capital?
He is known as the father of Venture Capital. He was based in Boston and was a professor at Harvard. He's also happens to be the founder of INSIAT. So for this guy, he's a French American. And basically uh he was asked to basically set up a fund that was asked to invest in small American businesses, primarily in technology and people that were coming back from World War Two. And so he invested $70,000 in the digital equipment corporation. Now computers used to be the size of a whole room, right? DEC created computers of the size of a fridge, right? In a size of a closet. And so basically they invested about $70,000 at a point in time. And a couple of years later, he was able to sell this for $355 million at an IPO, um, which was effective.
Effectively at 5000 X ROI, uh, which is also equivalent to about 91% of net internal rate return. So basically, what nice way of saying here is that the $70,000 that he gave effectively doubled every year until it became the IPO price, right? And so it's interesting because digital equipment corporation became this billion dollar company, became the effectively the Dell.
What can we learn from the DEC story about early VC investments and massive ROI?
or Razor of his day, right? In terms of like the biggest computer manufacturer. And then eventually, because at the time it's computers, at le closet sized computers became mini computers. And then these computers became even smaller. They became microcomputers. And those computers in front of you are considered microcomputers. And so DEC, which was the Apple of his day, got killed by you know Windows and HP and Compaq and Dell and Apple, right? So it's quite an interesting story that even the David that became Goliath can Get killed by another David less than 20 years later. But this is I think one of the first few bets that we're made. And so you have to understand that venture capital is part of a broader financial ecosystem, right?
So obviously you imagine the institutions like endowments, like sovereign wealth funds. Now obviously there's venture capital that's investing in super high growth. There's obviously pack private equity funds and growth funds, and then obviously there are public equities, right? So all supply.
How does the financial ecosystem differ between private equity and venture capital?
supply of capital to the demand of capital for companies that require money to help them grow or compete or scale. And so what's important for you to know is that many of you may be familiar with private equity. So private equity is generally a fund that takes on medium risk. And basically what they do is they buy companies, right? They normally buy a hundred percent or they and they buy control of the company. They may own several companies at a time. And then their job is to turn around it, improve their management.
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Chapters
8 chapters
1
How do VCs decide if a startup can become a unicorn in the next 10 years?
0:00–1:21
2
Who was Georges Doriot and why is he called the father of venture capital?
1:21–2:29
3
What can we learn from the DEC story about early VC investments and massive ROI?
2:29–3:25
4
How does the financial ecosystem differ between private equity and venture capital?
3:25–5:40
5
Why does venture capital rely on the power‑law distribution instead of a normal bell curve?
5:40–7:25
6
How is a VC fund structured – what roles do GPs, LPs and the 2/20 fee model play?
7:25–10:09
7
Who are the limited partners and what motivates sovereign wealth funds, endowments and corporations to invest in VC?
10:09–13:26
8
What are the stages of the startup financing cycle from the valley of death to an IPO?
13:26–16:53
Speakers
1 identifiedMore from BRAVE Southeast Asia Tech: Singapore, Indonesia, Vietnam, Philippines, Thailand & Malaysia Startups, Founders & Venture Capital VC (English)
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