[blazespin]

It depends on your team/product. Are they going to build, max, a 1B business? Sure, than 10x is fine. Do they have potential for a 10B - 100B business? Than 100x return makes sense, because land grab and consolidation will likely be an aspect of the business - which requires significant capital and therefore returns.

[pieterhg]

As OP said, very few companies are in this realm. While many people assume this is the status-quo, it's not anymore.

[AndrewKemendo]

The whole point of venture investing is that you are playing in that realm. You won't get far in venture fundraising if you are stating that you would take a <100M exit. Regardless of how rare.

[rhizome]

The whole point of venture investing is that you are playing in that realm

Or at least you think you are. Have you heard of Engineer's Savings Time? It's the tendency for engineers to underestimate the amount of time it will take to complete a task, and it's based on the difficulty of estimating on one hand, but also ego on the other. This is reversed for the same reasons in the investor world: overestimating the amount of business power a company has.

They're both subject to the impossibility of predicting the future, but contrary to decades of thinking and writing going into software estimation, it seems like relatively less effort has been dedicated to revenue/profit estimation. Of course, when I put it in those words it appears possible I just have a blind spot, but I think the problem remains.

[AndrewKemendo]

I think what you describe is common, if not just part of the way everything works. So, not a blind spot, but also not something to dwell on. The in-determinant nature of forecasting - especially with respect to revenue/profit estimation - is almost moot when you're trying to determine if a nascent company is going to be able to make 200M a year in 7 years time. That's why you see so many of the factors for venture funding following well worn qualitative pathways: Tons of users, market size, stickiness, monetization capability, founder grit etc...

They are proxies for expectations based on past experience, given the glut of quantitative measures that aren't strongly correlated.

In the end, you're playing in the unicorn league if you think you are.

[rhizome]

Maybe, but that circular logic doesn't help establish legitimacy. And if we can agree on that, then where does the investor industry's legitimacy lie? "We have the money, by various mechanisms, and everything else is a fairy tale?"

[AndrewKemendo]

What is legitimacy? Sounds itself like a fairy tale.

[sillysaurus3]

If this were true, YC's batch sizes would be getting smaller, since they only invest in companies that could become as big as Airbnb or Dropbox. But the batches are getting bigger.

Maybe this is true for investors outside of YC's deal flow, though. That would have some interesting implications.

[soniman]

Somebody made the point in another thread that YC has become a staffing firm for the YC investees that actually are able to scale. So ultimately the cost to YC of all those investments turns out to be pretty small.

[jkuria]

I think they do this to maximize the surface area for success. Investing in more companies but keeping the bar high, increases the likelihood of finding the AirBnBs and DropBoxs. After all, the cost of funding each company is miniscule in the grand scheme of things.

[sillysaurus3]

True, but the assertion was that nowadays very few companies are capable of reaching Airbnb-size valuations. YC is probably far more qualified to judge this than we are, and since their batches are getting bigger, the assertion seems false.