Let’s take a quick look at company lifecycle and where VALUE can be found: In bold are the stages where you can usually get the best value / deals.
Also, you can always get ‘value’ investments with good use of preferences. Ie: a 3X liquidity preference can guarantee you the first 3 times your money out of the company. If the company doesn’t raise money after yours it doesn’t matter if the company sells for less than the price you paid since you get the liquidity preference. Note: this is a dangerous way to invest and in a hot deal, liquidity preference could be 1X and non-participating which just means you get your money out first. Still you can see a lot of value through structure. Warren Buffet specializes in structured securities.
- 1. Startup: helping launch an idea either as operator or idea stage investor.
- Seed Stage: This is your typically 500k-2MM to launch a business. This stage depends on price and belief in management team.
- 3. Bridge Stage: Product but not product market fit. This requires your belief in the direction of the company and is best done when you can bring in the relationships to get product market fit to work.
- Series A: First institutional round. You can still find value here if its priced right and this is really driven by how hot the deal is and how hot the market is. In some markets Series A can be super high, othertimes low.
- Series B/C: Growth Capital. Going from a product in market to one scaling. Usually priced high and risky.
- Series D: Late Stage: Low risk, much lower return. This is a financial investment at this stage, looking for lower risk, lower returns, more capital placement.
- Flatline: At any stage a company can flatline in growth and no longer be sexy. At which time you can likely buy a venture backed company cheaply.
- 8. Distressed: Once a company is dropping, falling then you can usually buy a company very cheap, sometimes even free. Many fortunes are made in distressed assets. This is the toughest part of the cycle and just as risky as a pure startup though there is a lot of value available. If you look at this in terms of breakup value, what is the sum of the parts and go for companies that have assets and potential, you can get a lot of value for your money.