Why content is an investment for VCs, not an expense
Venture capital is a power law game.
For every 10 to 20 bets a firm makes, there is the expectation - nay, the hope - that one bet will generate outsized returns, cover losses, and generate target returns to investors.
Y-Combinator - the world’s most iconic startup incubator, has incubated over 4,000 companies since 2005.
Yet, about 200 of these companies, or 5%, represent its Top Companies, the unicorns, and near-unicorns that generate most of its returns.
But get this. If you removed just three companies from these top graduates, Airbnb, DoorDash, and Stripe, more than half of said returns would be wiped out (below)!
That’s the enormous cost of missing out.
Cost of Missing Out (COMO)
Sometimes VCs miss the big winners by design - they saw the deal, they did their DD, and decided to pass.
But for most VCs, they never saw the deal to begin with.
It’s estimated that the top 2% to 5% of venture firms capture 95% of returns globally - and that’s because the top firms have well-established and reputable brands and networks that get them access to the best deals.
But what about everybody else?
They can pound the pavement at conferences, spending tens of thousands of dollars to shake hands, exchange business cards, and leave with a dopamine and human-interaction fueled sense of accomplishment and optimism, only to find that most people they met won’t return their emails.
Or they can do what the smartest brands are doing - publish compelling content that positions that firm well, gets it in front of its target audience, and inspires the best founders to want to work with them.
The ROI on Content
Content is an investment, not an expense.
Here’s some simple math to drive that point home.
You run a $20M seed fund.
You run a content strategy that generates one inbound deal.
Premoney valuation: $9M
Your investment: $1M
Post money stake: 10%
This startup grows 10X over five years before being acquired.
Assuming no dilution, your $1M investment is worth $10M at exit. Your firm’s carry is worth $2M.
So, is spending $50,000 to $100,000 a year during your investment period worth it?
It’s hard to argue otherwise.
In the above example, if you spent just $200,000 over three years on content, it would have repaid itself 10X in carry alone.
Content is Enduring
Unlike conferences and advertising spend, which are one-and-done efforts that stop working as soon as you turn the tap off, content is forever and has a compounding effect the more you do it.
The more compelling content you publish, the more you get elevated by algorithms and your growing audience, creating a virtuous loop.
The greater your online visibility, the stronger your brand and the more quality inbound deal flow you will generate.
Not only that, but a strong online presence will also help your firm attract investors (LPs), partnerships with other VC firms and industry figures, and media opportunities.
Content can also help partners build a personal brand that they can take with them wherever they go.
So given all of this, why is your firm not doing content?
Lacking the time, resources or know-how?