> So it's not as apparent that maybe a business isn't generating real value.
Of course, it's also not as apparent if your business is generating real value. If you were looking to make an investment, wouldn't you look for a business with proven value over a business with hypothetical future value?
Not if you're a VC. The whole point is to see value where it's not obvious, because it hasn't materialized yet.
If there isn't a huge spread between the obvious present value of a business and its /potential/ value, then you can't make an investment where you expect a 4x-5x return. Those kinds of returns only show up when there's a lot of uncertainty around both the current value AND the future value (and most of the value of a new VC business comes from the discounting of its future value, rather than a calculation based on its current performance.)
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> So it's not as apparent that maybe a business isn't generating real value.
Of course, it's also not as apparent if your business is generating real value. If you were looking to make an investment, wouldn't you look for a business with proven value over a business with hypothetical future value?
Not if you're a VC. The whole point is to see value where it's not obvious, because it hasn't materialized yet.
If there isn't a huge spread between the obvious present value of a business and its /potential/ value, then you can't make an investment where you expect a 4x-5x return. Those kinds of returns only show up when there's a lot of uncertainty around both the current value AND the future value (and most of the value of a new VC business comes from the discounting of its future value, rather than a calculation based on its current performance.)