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I think the video is pretty accurate. Venture capital is a game of outliers; the mode and median return is -100%. As a result, failures do not haunt venture capitalists, but missed opportunities do.
It operates like a black hole, the more billion dollar valuations you create the more mass you attract. The question that needs to be looked at is; are we seeing a higher rate of billion dollar valuations? I would wager that we are actually seeing a lower rate of billion dollar valuations even though we have more than ever.
A "billion dollar" valuation on a VC-backed startup isn't the same as a billion dollar valuation on a publicly traded company, because investors in the former almost always have a liquidation preference. (Do you have a liquidation preference on any stocks you own? Didn't think so). The valuation of these startups is actually somewhere between the liquidation preference, and the value of the common. The value of the common is the valuation that gets disclosed and makes the headlines, but it can be 10x or so the value of the liq pref. Obviously that's a big range. That's not to say these investments aren't without risk. They are very risky, but VCs can make 50, 100, or 200% on their money with a company that doesn't exit anywhere near the value of the common.
Tech Startup (Originally Posted: 11/24/2008)
What are the steps you have to take if you and a friend have a great idea for a tech company along the lines of youtube and google? do we incorporate first?
Get a basic version out and get users/traffic first... if you get bigger and get to the point where you're hiring employees you may want to incorporate, but getting traction is the most important part and what you need to do first.
I've seen countless friends and others who try to raise money / take care of all the "paper work" without actually having a product/service to show anyone - and most of them have failed because they didn't focus on the most important part - actually making something people want.
If you're working on this with a friend, you may want to form a partnership and get the details of that set, but in most cases S/C-corp is not worth it until you have not only an idea but proof that people want it and are either making money or in a position to raise money.
but you can incorporate for next to nothing.
I don't know why this would hinder your chances at success...
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