From Michael Tsai's 2016 post, What Itโ€™s Like to Take on Venture Capital Investment:
Matt Henderson:
This is fascinating insight into the, I suppose unsurprising, mindset of many venture capital investors. Theyโ€™re not looking for a profitable business; instead, theyโ€™re looking for growth that provides the opportunity for a 100x exit. And their expectation is that you, the founder, will work to achieve that at any cost. And since their investment also brings the expectation of participation and inclusion in the running of the business, any company owner considering taking on investment would be well advised to make sure at the outset that everyoneโ€™s on the same page in terms of objectives. [emphasis mine -mfn]
If you don't understand this about venture capital, you're completely missing the boat. It's also why so many startups seem to make really dumb long-term decisions to help tomorrow's bottom line -- they're beholden to people who want to exit and profit personally, not wait around and slowly collect from a profitable company.

If you save and save while you work a 9-5 and open a family restaurant, you hope that investment brings in enough cash that you can live off of that income. You don't want to drain the investment. You want to have it pay for itself and you. That requires profit.

That's not what venture capital does. These investors are looking for a profitable exit, not a long-term investment. They're looking to flip the house so that they can take that capital and flip another, not collect rent for 50 years. They're looking to sell quickly so that they can buy again, not sit and collect dividends.

And that's smart for them. If you can invest $X and get back 10% of that $X at 100x, then you've already got 10x the cash you had before, ready to do it again. That is, if you give someone a dollar, even if they throw 90ยข of it away immediately, and they take that dime and come back to give you $11, you still made $10 in spite of that 90ยข dying a painful death! (Kudos if you see that I mixed numbers there.)

There are very few companies that can appreciate at 10,000% (100x) over seven or so years. And those that do almost certainly can't do it again. Venture capitalists win by finding just one company with mad growth. Then they get the heck out. The bonanza's over.

You don't care about profit. You just care about getting out LOTS more than you put in and keeping the ball rolling. And for companies that aren't going to explode, you want to cut your losses quickly and stop wasting your time "helping" them (and that really is where the venture folk really have their limiting reagent -- time. If you're making 2x on their investment, that's great in the grand scheme, but they'd just as well you failed so that they can take their time and, more importantly, attention elsewhere). That money's gone -- not that venture won't take back 2x, because they will, happily. But if there's no 100x in their future, why keep pushing good money after average? They'll take the 2x now and then go look for 100x somewhere else.

That's how lots of big money's made, folks. You invest, you find the cash cows, you milk 'em, and you get out to do it again. (And it's also why they require obscene percentages of companies for cash before you've proven yourself to be a good conventional investment.)

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