How A VC Loses Money

from the by-investing-poorly dept

We’ve already spoken about the extent of venture capital losses in the past year, but is looking at some of the specifics of why venture capitalists are losing money. The concept is pretty straight forward: they’re buying high, selling low. Sine valuations were shooting through the roof, and VC firms had billions of dollars just sitting around, many started investing in later stage rounds at ridiculous valuations. Following the market collapse even the VCs shares are underwater. Yes, this is pretty obvious, but until recently most VC investments weren’t at such ridiculous high valuations, so even on stocks that dropped following an IPO, they could recoup some profit – since they would buy in at pennies (or less) a share. The other problem is that normally a VC just needs a single home run in the IPO market to offset their losses from other portfolio companies. This past year, the concept of a home run IPO has pretty much disappeared.

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