When a High Flying Startup Implodes. As MultiBillion Dollar Private Companies Shrivel, What Their Investors Aren’t Saying About These Losses.
As more high-flyer private companies find theirshinetarnished, investors (or adjacent VC-explainers) remind us that it’s unfortunate but actually a non-issue, so please, let’s move on and not rubberneck the pileup. Wait, what? Losing tens of millions of dollars (or more) is no big deal? Don’t people get fired for that?
The basic math suggests they’re, well, correct, at least if you’re just looking at first order impacts. In most cases, any single company represents a very small percentage of a venture fund’s total size (hold aside this is also because firms have been increasing their AUM at astonishing velocity). In fact, losing money on a meaningful percentage of startups isn’t just expected, it’s potentially evidence that you’re taking enough risk to hit some of the power law winners which will pay back your LPs many times over!
As cofounder of an early stage venture fund myself, I’m here to tell you that while these statements are accurate, they’re also misleading when trying to understand the broad impact these implosions may have upon a firm. Before you start tweeting ‘Man in the Arena’ quotations to me, my experience here isn’t limited to sideline punditry — although Homebrew has yet to be involved in any Unicorn->Zero events, I can think of two investments where we were “all in” across the seed, A and B rounds, only to see the companies ultimately return 0x, losing us almost $10m combined.
Look, I’m not picking on any specific company or firm, but rather this is what happens coming out of a pretty crazy few years. If a venture partnership is around for long enough they’ll end up experiencing all types of highs and lows, some self-induced and others almost nearly out of your control. It’s part of the business. But as an industry we’ve become experts at content marketing the shit out of our wins, the shiniest versions of what venture and startups can be. It’s my POV we learn much more together by sharing honestly and broadly as a community, even if the “why we invested” blog post from a few years ago sounds dumb in hindsight.