Timelines for VCs and Angels

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So many pitch events and founder hangs happening this month. Here’s the schedule:

• April 22 – Batter Up Tulsa

• April 24 – Batter Up Singapore

• April 24 – Batter Up Boston

• April 28 – Founder Friends SF – with Humphrey Yang

• May 12-14 – Camp Hustle (for investors)

See behind the curtain by joining the events team in your city.

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📰 Today's Edition

We all know that angels and VCs are different beasts.

• Angels invest their own cash… while VCs raise capital and invest that money.

• Angels invest into whatever they want (startups, real estate, stock market)… while VCs have to invest in whatever they promised to invest in.

• Angels are usually happy with any return on investment… while pre-seed and seed-stage VCs are aiming for 50x to 100x returns.

But both are chasing the same dream: making buckets of money.

There’s a non-obvious factor that impacts that underlying goal: the timeline.

Yeah, you heard me. Timelines. Not the sexiest topic, but trust me, it's important.

The Ticking Clock: Angels vs. VCs

Angel investors are like that cool aunt who says, "Hey, no rush on paying me back for that car loan. Whenever you can, sweetie." They've got all the time in the world. Their money, their rules.

VCs have a harder deadline. Ten years. That's the magic number.

Sometimes they can stretch it a bit – maybe a year or two. But generally speaking, the lifespan of a fund is 10 years.

🤓 Note: when a fund “closes” it doesn’t mean the whole company shuts down.

It just means that a specific pool of money has been fully deployed and the returns have been distributed (or changed ownership).

We wrote a whole thing on how funds exit here, if you’re curious.

Ok, so why does any of this matter to you? Because the timeline dictates how VCs operate.

A VC's Order of Operations

VCs have an order of operations, and it goes something like this:

1. Years 1-3: Deploy capital

2. Years 4-7: Nurture those investments

3. Years 8-10: Get returns (hopefully)

Here's where it gets tricky. Let's say a VC invests in a startup in year 5, and it exits in year 10. Champagne for everyone, right?

Not so fast.

Big exits take a long time. So a startup that exits in just 5 years is probably not exiting for very much. A VC might see a 5x or 10x return on that investment.

It’s not very much money to a fund that probably also invested a ton of money into startups that are returning absolutely nothing.

VCs need to see 50x or 100x returns to make fund math work.

So when they get small returns, like 5x or 10x, they don’t return that to their LPs. Instead, they re-invest it into another startup and hope for a massive return.

But VCs can’t invest into a startup in year 10 of their fund… because the fund's about to close shop.

So that money is basically worthless to a VC.

Meanwhile, our angel investor friends aren’t on any timeline at all. They can reinvest their returns whenever they darn well please.

Investments That Don't Make the Cut

So, what kind of startups might a VC pass on, even if they're absolutely brilliant? Let's break it down:

1. The "Rome Wasn't Built in a Day" Startups: Think deep tech that needs 20 years to IPO. VCs need results before their fund turns into a pumpkin.

2. The "Inception" Companies: Startups that plan to invest in other startups. By the time the invested startup sees returns on their own investments, a VC fund would have closed shop.

3. The "Good, But Not Earth-Shattering" Returns: A solid 10x return in 5 years? Sounds great, right? Not for a VC. It’s too small of a return to be significant, and they can’t reinvest the money. Womp womp.

Know Your Timeline, Know Your Investor

So, what's the takeaway here?

If you're pitching to VCs and getting a lot of “no”s, take a step back. Ask yourself:

1. Does my startup's timeline align with a VC's 10-year window?

2. Am I offering returns that are not just good, but "knock-your-socks-off" good within that timeframe?

3. Is my technology so cutting-edge that it might take longer than a decade to really shine?

It's not always about how brilliant your idea is. Sometimes, it's about how well it fits into an investor's ticking clock.

And if it doesn’t match a VC’s timeline? Well, there's always that cool aunt... I mean, angel investor, who's got all the time in the world.

Timelines be timelining,

Kera from Hustle Fund

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