Instacart is a Silicon Valley winner. But any firm that invested after the Series B didn't win. According to reporting from The Information, Kleiner and Valiant, who invested in the Series C of the company in 2015, paid $13.31 for their shares. At a midpoint IPO price of $27, they stand to roughly 2x their money over the course of 8 years. That's an annualized return of 9%, which maybe on first glance doesn't look that bad, but the S&P 500 had an annualized return of 12.3% during that time. They would have been better off parking that money with Vanguard in the VOO ETF. Anyone that invested in the D, E, F, G and subsequent rounds had even worse outcomes than those at the C. Investors at the Series I stand to lose 80% of their invested capital. Y Combinator, despite being the company's first backer, also didn't profit much from this investment. This shows the core drawback of the pre-seed "spray-and-pray" model -- their original $75,000 investment only netted $8.5M in returns. That's an impressive annualized return, but unfortunately small in absolute dollars. By comparison, their most recent summer cohort of 229 companies cost the accelerator a whopping $115M in investment dollars. Oh and their follow-on investment of $30M in 2017 only generated an annualized 7% return, again losing to the S&P 500. The single biggest winner is decidedly Sequoia Capital, which invested ~$6M at the Series A. That single investment is now worth $675M. It pays to be an early investor with conviction. #Instacart #YC #Sequoia #KleinerPerkins #A16Z #IPO #VC #Startups
I was with you right until the punchline. "It pays to be an early investor with conviction." is not the right conclusion from the data you show. Kleiner was early by any reasonable definition, and as you show, it has not really paid them. The right conclusion is that in VC only the home runs matter. Even something like this, which is an outcome something like one notch below a home run - does not move the needle for the investors. Including Sequoia, by the way. Those guys don't get out of bed in the morning for a sub-1B outcome.
Great analysis. Can you share how you did the YC return math to check it?
Still time to go long - legendary companies accrue +90% of their market cap post IPO.
The YC investment was probably made out of their 2010 fund which was $8.25M so this was a fund returner. Given they probably had hundreds of the companies in the fund, even with an average market 2% unicorn production rate, the fund likely ended up with an impressive return. Unclear that it shows anything negative about broad portfolios
Yuechen Zhao I’m willing to bet you at 10:1 odds that your math on dollar return for YC’s original investment is wrong by between 5-25x (or more) 🙂 Just a 5-second check: YC has always taken 7% (and their cap has been around $2m) so even at 80% dilution that’s still $100m+ return.
Great analysis- though would say that the YC round still had 113x return despite the total dollars not being that significant in relation to the others! Works for their model and stage.
Arguably the only analysis worthy of anybody's time is why didn't they IPO (ie exit) during the great pump and dump? Any fund manager worth their salt would have realised (just like the dot com bubble) it was a once in a generation opportunity The fact they were pouring in dollars during this exit window must call into question their collective professional calability to manage money on behalf of their investors
Have the options been repriced for later-stage employees?
For folks who may not know, Andreessen Horowitz (series B) is the same VC labeled as a16z (series I). Without seeing the breakdown of series I, can’t say whether they made money or not
Head of Capital Markets | B2B Infrastructure for Private Markets
1yYeah 100x+ for YC is a real shame…. Rest of the analysis is solid but missing how that’s a bad outcome for YC?