Venture Capital 101: Why VCs are backing other startups and not yours - E684

"VCs are hunting for Olympic gold medalists. They don't look at you and say, 'Wow, you are a good, fast runner who is working very hard and has a wonderful underdog story.' They want to know who is truly going to become number one, or has the potential to become number one. Everybody else is irrelevant. VCs are hunting for home run returns because these home run returns will compensate for the losses of everybody else." -Jeremy Au

"Venture capital is an even more specialized version of private equity because there is much higher risk. They're going to invest in 20 companies, taking a minority stake of often around 20%. Out of the 20 investments they make, they expect one to two of them to generate a 20 to 100x return. Those one or two home runs will generate a massive set of returns that counterbalance the losses from the other 18 companies." -Jeremy Au

"As a startup, you go through something called the 'valley of death' because you don't have revenue and are losing money doing R&D. You may raise money from angels, incubators, or family, friends, and fools. Then, founders raise money from early-stage VCs, later-stage VCs, and eventually IPO on platforms like the New York Stock Exchange, NASDAQ, or the Singapore Stock Exchange." -Jeremy Au

In this session, Jeremy Au breaks down the mechanics of venture capital, exploring how VCs evaluate founders and why they are singularly focused on finding the next unicorn. From the historical origins of venture capital with Georges Doriot to the critical differences between normal distribution and the power law, Jeremy explains the high-stakes math driving VC investments. Listeners will get an inside look at how funds are structured between Limited Partners (LPs) and General Partners (GPs), and map out the entire startup financing cycle—from surviving the "valley of death" with early angel checks to successfully IPOing on global and regional exchanges.

00:00 VC Evaluation & Finding Unicorns: Why VCs look for companies that can double revenue yearly and become ten-year unicorns.

01:17 The History of Venture Capital: Georges Doriot, the "father of venture capital," and the 5,000x ROI of the Digital Equipment Corporation.

03:37 Venture Capital vs. Private Equity: Understanding the difference in risk, control, and expected returns across asset classes.

04:54 Power Law vs. Normal Distribution: Why startups and VC returns mimic Olympic sports and pop music rather than a traditional bell curve.

09:43 VC Fund Organization: How capital flows from Limited Partners (LPs) to General Partners (GPs) and finally into startups.

11:06 The Role of Limited Partners: Why sovereign wealth funds, university endowments, and family offices invest in high-risk VC funds.

13:06 VC Collaboration & Competition: How top-tier venture firms navigate competing against and partnering with one another.

13:26 The Startup Financing Cycle: Surviving the "valley of death" and raising capital from Family, Friends, and Fools (FFF) to an IPO.

Watch on YouTube: https://www.youtube.com/watch?v=0P5NbJFiZFs&list=PLl9u6ECOP8_7scb97PE3whKu4yJVizIOd

Listen on Spotify: https://open.spotify.com/episode/4YFrejSoVzIHZG0S0dcDrO

Keywords: Venture Capital Evaluation, Startup Financing Cycle, Power Law in Startups, Unicorn Startups, Southeast Asia VC, Limited Partners and General Partners, Angel Investing vs VC, History of Venture Capital, Tech Entrepreneurship