ElephantBanjoGnome wrote:
The problem I think Cavey is describing is that valuations are enormously speculative and not representative of fixed, tangible assets, and demonstrable profit and performance history. That apportioning such high valuations to entities with very little to show for it is a very risky thing to do, and reminds me of the dotcom bubble that eventually burst. You have to wonder if these whizzkid startups are going to realise their alleged worth in the long term. Myspace certainly didn't.
Which is why in a VC fund you have a portfolio of many companies, and expect 95% of them to fail. The 5% that don't pay enough to the investors to enable the risk to be taken. I once received quite a cheery phone call from a fund manager about a company that had collapsed, shedding £25,000 per hour in its final throes ($18 million was written off), but that money really didn't matter, as it was more than made up for from someone buying another company. He was more than happy with that result. Sometimes, if you're really lucky, you get two big wins, although this is rare.
I compiled a list of $1 billion dollar IPOs in the past decade, and the number was much higher than I expected. I also analysed who was putting money into the first round of funding. This information, once complied was swapped for the setting up of a meeting with some guy about investments. It was interesting stuff.
The essence of such investments is merely winning big enough to write off the losses, and to do this providing firms with a competent and experienced board. you can't make money with small funds, and semiconduictors are so three years ago.