Despite being a financial powerhouse, Blackstone has faced challenges in its initial foray into growth capital, experiencing less-than-ideal performance. And Andre Iguodala has been on CNBC talking about his success as a venture investor, and he has now started a VC fund.
Is Blackstone, one of the smartest names in finance, struggling in VC and Iguodala, a famous name in basketball without the financial record of Blackstone, doing well in VC?
Is Blackstone Struggling?
One key reason for Blackstone’s performance could be that it takes time, even for the best investors, to build networks and break into the Top 20 VCs, who are said to earn about 95% of VC profits. Few VCs do well because:
· VCs need home runs and there are few home runs – about 1/ 100,000 ventures.
· VCs need profitable exits via strategic sales or initial public offerings. Few ventures have IPOs. And for profitable strategic sales, corporate buyers need to pay very high prices, which may be one reason that 70% to 90% of corporate acquisitions are said to fail.
· Top 20 VCs invest at the venture stage that offers them the highest potential returns with lower risk. Andy Rachleff, a successful VC, notes that the Top 20 VCs finance after evidence of the Value Model (Strategy Aha) and before proof of the Growth Model (Leadership Aha) for better value and reasonable risk. After Leadership Aha the venture’s potential is evident and all VCs want to fund, which puts entrepreneurs in control, and allows entrepreneurs such as Jan Koum (WhatsApp) and Mark Zuckerberg to dictate terms, which increases valuations and reduces annual returns.
· Even the best VCs cannot tell which of their venture investments will succeed. After being an early investor in Instagram, Marc Andreessen’s company invested in a competitor and avoided a later round of Instagram funding. The competitor folded. Instagram became a unicorn.
If Blackstone wants to become an elite VC, it needs to incorporate the secret of the Top 20 VCs — finance more unicorns early.
Iguodala’s high-profile VC portfolio
Iguodala has invested in billion-dollar home runs like Zoom and Robinhood, according to his CNBC interviews. Very few VCs outside the Top 20, and even fewer angels, have invested in multiple billion-dollar home runs. So, did Iguodala invest:
· After Venture Takeoff as a Celebrity VC: Many growing ventures want celebrity VCs for publicity value, just as many VCs invest in proven home runs to publicize them to the press.
· Before Takeoff But after Strategy Aha (Value Model) like the Top 20 VCs: That would be impressive. How did he break into the Top 20? What is his secret?
· Before Proof of Potential like an Angel: Very, very few angels succeed due to the elevated risk before Aha. If Iguodala invested at the angel round, he is indeed a financial wizard.
And it raises some key issues that can benefit all entrepreneurs:
· How does Iguodala succeed in VC when few do well?
· What are his criteria if he was investing like an ordinary angel?
· How does he analyze ventures to find home runs?
· What is his portfolio IRR?
· Can these celebrity interviews add detailed strategies used by Iguodala and other celebrity VCs that can benefit entrepreneurs and other VCs?
If Iguodala is not just a Celebrity VC, this advice would be worth its weight in gold for all.
Lesson for Entrepreneurs
Should you seek and accept VC from celebrity investors and lower-tier VCs?
· Celebrity investors would be a great addition due to their PR value. If they can offer advice that works, great. But if VC advice were that good, why do ~80% of their ventures fail?
· Lower-tier VCs will dilute your interest – but may not add much value. Do you want to take that risk or do you want to learn unicorn-skills, takeoff without VC and control your venture.
MY TAKE: It would be great if our media were not so superficial, or influenced by PR agencies, or gullible as they were with entrepreneurs like Sam Bankman-Fried and Elizabeth Holmes who were touted as venture geniuses. Can they add details when they promote a certain financial viewpoint, expert, or expertise?
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