That was a wonderful explanation on how venture capital works. However a small additional detail that you missed, Gene's money is actually not her own, she manages the funds of many people who have invested their money. If gene actually invests her own money, she would become an angel investor!
Forget Genie and Jack! I am writing this comment to give a standing ovation to the person drawing the illustrations on a whiteboard!! drawing those "chips" all over the board needs a lot of patience! great job!
Venture capital firms are companies that raise money from rich people, rich families, corporations, and retirement funds. They then take that money and invest it in high-risk but potentially high-returning fast growing small private companies. As such, venture capital funds tend to think a lot about risk and reward in their investment decisions. On one hand, they often won’t be the first check into a company, because they are risking their investors’ money. On the other hand, they want to partake in opportunities that could potentially be very high reward - perhaps even returning $10k to the $1 in very great outcomes. This tends to favor scalable technology product companies (software, biotech / pharma, etc) over services companies like consulting businesses or retail / brick and mortar, which scale much more slowly (or not at all).
Actually, that's not correct. Jeanny, asa VC, wouldbve had "particpation rights", and as a result, wouldve got the first $500k (@ !1X participation) or $!m (@2X participation), as a return of her investment capital. Only then would Jack & Jeanny share the resulting $14.5m (or $14m),. So Jack would get $5.8m or $5.6m. But in reality, no VC would want 60% of a venture on such terms. Firstly, they would likely be in breach of governing rules around % of ownership. And secondly, should the business require additional capital at some point, no other VC would touch them on the basis that Jeanny gave (and Jack accepted) such bad terms. VC's dont want a controlling interest - rarely do they want to run a company; that is against their charter with their own investors (known as LP's). As entrepreneurs, you should make sure you do your own homework and never accept such simplistic stories as reality.
This is an absolute delight. I had the pleasure of reading something similar, and it was an absolute delight. "The Hidden Empire: Inside the Private Worlds of Elite CEOs" by Adam Skylight
I'm infatuated with this. I recently enjoyed a similar book, and I was truly infatuated with it. "The Hidden Empire: Inside the Private Worlds of Elite CEOs" by Adam Skylight
Nice video but the numbers are wrong. Like all venture capital investors, Jeanie, has a liquidation preference, so Jeanie gets her $500,000 back first, before sharing the remaining proceeds with Jack. In fact, if she operates as the average venture capital investor, Jeanie will likely want more than $500,000 out first. She'll want 1.5X-2X her investment before sharing with Jack. For round numbers, let's say Jeanie wants 2X her initial investment, so she will take the first $1m from the proceeds of the company sale. As Jeanie invested only $500,000, Jack will get 40% of the remaining $14m, ie.$5.6m. There's no way that Jack would walk away with $6m as all venture investors have some form of liquidation preference. Note: if Jeanie invested $7.5m at a 2X liquidation preference, she takes the first $15m and Jack comes out of the sale with nothing.
If you have a company that makes something technologically unique that every smartphone around use, and sell your company for 15 mil, you get an award for the worst business deal of a decade.
Lol this guy😅 they can agree to a 10% of loyalty profits, or a fixed amount of sales, be carful for venture people read the agreements and think it over... They can really take your company unless if you buy them out of the investment, after all they are investors they are not entrepreneurs... They just invest money in people's passions look at all the shark tank people some might call them entrepreneurs but in reality they are investors. Then you hear stuff in the news about a investor losing a lot of capital from a bad deal then people fill bad don't these people are sharks! Me I'm a entrepreneur.
Or someone that is an entrepreneur and builds a venture capital firm as well. Who respects their passion and wants to invest in them so they can grow as a person and make money together. Someone who is both a VC and an entrepreneur, like me.
That was because people bought houses they couldn't afford, and refinanced to buy cars they didn't need with money they couldn't pay back. If people are stupid enough to think that their dumpster they live in will "appreciate" in a never ending trend, they shouldn't blame other people for that. Nobody forced them to borrow. They made bad decisions and they should handle the consequences like grown-ups. Anything else would be saying to people "I'm a child and you shouldn't have given me money".
That chip presumably went into every cellphone. Even at a dollar a chip that is hundreds of millions. But she sold it for only 15mil I understand stand it is an example, but you could make it realistic.
Very GOOD VIDEO...Out of $15,000,000 ,Jeanie should take her $5,00,000 1st which were invested earlier as capital....then only they can distribute the remained amount in decided manner. $15,000,000 - $5,00,000( Jeanie's investment) = $14,500,000. $14,500,000 ...it can be divided by decide proportionate 60% and 40% ...for Jeanie ,it would be $8,700,000 and for jack $5,800,000. Jeanie will get total = $5,00,000 + $8,700,000 = $9,200,000.
Yup. Arthur Rock said in "Something Ventured" that he got Intel the initial $2.5 million for .. Wait for it .. 50% of the company :) Hell, even I can find 2.5 million dollars.. But that's the point: They funded successful AND unsuccessful companies. I could find that money on the one condition that it's a SURE thing, unlike VCs who lose money many times on ventures. Imagine .. Genentech was started with 250k and sold to Roche for $46.8 Billion. Nice :)
That was a wonderful explanation on how venture capital works.
However a small additional detail that you missed, Gene's money is actually not her own, she manages the funds of many people who have invested their money.
If gene actually invests her own money, she would become an angel investor!
Tnx
Exactly
thank u for pointing this out!
OMGOMG UR A LIFE SAVER!!! SO THATS THE DIFFERENCE BETWEEN ANGEL INVESTORS AND VCS!! TYSMM
Forget Genie and Jack! I am writing this comment to give a standing ovation to the person drawing the illustrations on a whiteboard!! drawing those "chips" all over the board needs a lot of patience! great job!
This is really easy to understand, thanks. Its so far the best explanation i have gotten online.
Venture capital firms are companies that raise money from rich people, rich families, corporations, and retirement funds. They then take that money and invest it in high-risk but potentially high-returning fast growing small private companies.
As such, venture capital funds tend to think a lot about risk and reward in their investment decisions. On one hand, they often won’t be the first check into a company, because they are risking their investors’ money. On the other hand, they want to partake in opportunities that could potentially be very high reward - perhaps even returning $10k to the $1 in very great outcomes. This tends to favor scalable technology product companies (software, biotech / pharma, etc) over services companies like consulting businesses or retail / brick and mortar, which scale much more slowly (or not at all).
Nice...it helps me..to understate venture capital
Most investment lose money. 9 out of 10. Their goal is to take the company public.
Thank you. Quick, precise and very engaging explanation.
I have been watching the early seasons of Silicon Valley without knowing about what a VC was. Thank you for explaining!
One of the best explanation ever i heard
Simple wonderful explanation
It's now 2019 and Jack can consider crowdfunding.
Actually, that's not correct. Jeanny, asa VC, wouldbve had "particpation rights", and as a result, wouldve got the first $500k (@ !1X participation) or $!m (@2X participation), as a return of her investment capital. Only then would Jack & Jeanny share the resulting $14.5m (or $14m),. So Jack would get $5.8m or $5.6m.
But in reality, no VC would want 60% of a venture on such terms. Firstly, they would likely be in breach of governing rules around % of ownership. And secondly, should the business require additional capital at some point, no other VC would touch them on the basis that Jeanny gave (and Jack accepted) such bad terms.
VC's dont want a controlling interest - rarely do they want to run a company; that is against their charter with their own investors (known as LP's).
As entrepreneurs, you should make sure you do your own homework and never accept such simplistic stories as reality.
Very well explained 👍🏻
Jack is risking little to nothing, doesn't seem like a bad deal...
Thanks a lot.This helped me so much before my economics final.
When I see such video I understand that it will be short and useful.
simple and speed explanation of concept
Wonderful! I understood this easily!
Jack And Gene.. :) 2 minutes of Brilliance :)
Thanks for helping.
Gr8 Work.
jack is not smart
s3v0 Jack is smart enough to design the chip, but not financially smart to keep his profit.
Jack was smart enough to come up with the idea. But Jeanie was the one who had the resources to develop and produce the chip
Jeremiah Noar exactly
So basically if you want to decide whether you should go further or not with the company you should always hold the majority share.
Pretty much. Yeah
Very well presented. Thanks for sharing.
Learn so much, So much value
This is an absolute delight. I had the pleasure of reading something similar, and it was an absolute delight. "The Hidden Empire: Inside the Private Worlds of Elite CEOs" by Adam Skylight
Thank you so much it was simple,precise and extremely useful
realistically that is a horrible deal but good on jack for pursuing his dreams!
great work
Thanks for this beautiful explanation
Well understood
Thanks for this video... it was well explained and simplified
So Jack skipped the Angel Investor and went straight for the Venture Capitalist, receiving funds closer to what an Angel would give?
Jack just invented a potato chip
awesome video!
Thankyou very much Mam you clear the concept easily and saved time ❤
I'm infatuated with this. I recently enjoyed a similar book, and I was truly infatuated with it. "The Hidden Empire: Inside the Private Worlds of Elite CEOs" by Adam Skylight
Nice video but the numbers are wrong. Like all venture capital investors, Jeanie, has a liquidation preference, so Jeanie gets her $500,000 back first, before sharing the remaining proceeds with Jack. In fact, if she operates as the average venture capital investor, Jeanie will likely want more than $500,000 out first. She'll want 1.5X-2X her investment before sharing with Jack. For round numbers, let's say Jeanie wants 2X her initial investment, so she will take the first $1m from the proceeds of the company sale. As Jeanie invested only $500,000, Jack will get 40% of the remaining $14m, ie.$5.6m. There's no way that Jack would walk away with $6m as all venture investors have some form of liquidation preference. Note: if Jeanie invested $7.5m at a 2X liquidation preference, she takes the first $15m and Jack comes out of the sale with nothing.
Who would sell a company that required a $7.5m investment for only $15m?
+Kristoffer P People who know the company most likely won't grow much more
A venture capitalist who wants to cash out.
Wow beautifully explained ...!!
Nice video ..it helps me
Simple awesome explanation!
The dredge
Jack can come to me, I will take 30%
Coolest and Simplest Explaination.
This was perfect, thank you
Superb explanation sis great job keep going 😁
Smart Jenni, lucky jack😎
Well Explained 😊✌
great explanation
Excellent
Very creative
He sold his soul to the devil and the price was cheap !
Life goes on :)
Gof Damit bri , you woke up good visuals with that sentence 😂😂
Better dont work right? Fucking communist
This was so simple.
Best
If you have a company that makes something technologically unique that every smartphone around use, and sell your company for 15 mil, you get an award for the worst business deal of a decade.
Bravo !!! Bravo !!!
very helpful
Finally i got the topic very nicely explained!
If a financier tells you when are you going to sell the company, get up and leave - Tim Cook
Big Parts
10 years old 😮😮😮😮
Thank
Ruby red emerald city
Are we supposed to ignore how genie got to be a venture capitalist in the first place and who’s money that really is?
Genie probably stakeholder of The VC.
60% yea fuck that at most 10%-20% not 60% the entrepreneur is doing all the work I wouldn't give up control of a start up that easily.
Facts
Brilliant!!!!!!!!
what about the profists from sales of the chip? how are they devided?
Lol this guy😅 they can agree to a 10% of loyalty profits, or a fixed amount of sales, be carful for venture people read the agreements and think it over... They can really take your company unless if you buy them out of the investment, after all they are investors they are not entrepreneurs... They just invest money in people's passions look at all the shark tank people some might call them entrepreneurs but in reality they are investors. Then you hear stuff in the news about a investor losing a lot of capital from a bad deal then people fill bad don't these people are sharks! Me I'm a entrepreneur.
Or someone that is an entrepreneur and builds a venture capital firm as well. Who respects their passion and wants to invest in them so they can grow as a person and make money together. Someone who is both a VC and an entrepreneur, like me.
That was because people bought houses they couldn't afford, and refinanced to buy cars they didn't need with money they couldn't pay back.
If people are stupid enough to think that their dumpster they live in will "appreciate" in a never ending trend, they shouldn't blame other people for that.
Nobody forced them to borrow. They made bad decisions and they should handle the consequences like grown-ups. Anything else would be saying to people "I'm a child and you shouldn't have given me money".
Sharts
Mickey D's
2minutes of full of golds and gems
Thanks, good info!
well explained
If Gene's share is 60%=500k, what does 40% of Jack's share consist of in equity?
That's not as easy as it sounds but great job.
Nikhil R Teltumbade good insight video explanation
Sir amar450doLar ase 143dolar woddouomara ase kivave taka pabo
Wait a minute... If the bank agreed, they will give u the money?
Diamonds gemini
Where can I find Gene
Know whom you are borrowing from and don't accept less than ideal terms.
simple and best !
Jack and Genie sitting in a tree... C-H-I-P-P-I-N-G !!!
FREEDOM FINANCE FUND 🤠
Thank you!
That chip presumably went into every cellphone. Even at a dollar a chip that is hundreds of millions. But she sold it for only 15mil I understand stand it is an example, but you could make it realistic.
60% is too much for the VC. They usually don't take majority shareholder position.
Exactly
She took much because Jack’s Credit Rating is not what it should be so it’s basically like a loan but higher interest.
Jack is what they a call in Monterrey, a Puñetas
what lmao
✔️✅
Very GOOD VIDEO...Out of $15,000,000 ,Jeanie should take her $5,00,000 1st which were invested earlier as capital....then only they can distribute the remained amount in decided manner. $15,000,000 - $5,00,000( Jeanie's investment) = $14,500,000.
$14,500,000 ...it can be divided by decide proportionate 60% and 40% ...for Jeanie ,it would be $8,700,000 and for jack $5,800,000.
Jeanie will get total = $5,00,000 + $8,700,000 = $9,200,000.
5m not 5mm..
GANPAT MISAL
Thank you ♥♥♥♥
Cellulite 🤣😂
He shouldve told Gene he wants 50 %
He should have told Gene to go f herself and did it on his own with an outsourced firm in China lol
This is how big corporates exploits hardworking and intelligent engineers.
In deed JACK Is Smart! Jack didn't have 6 Million before this deal! Leap and make or be greedy and lose out!
Blackhills golds a pretty penny. Dreadful
Bad deal, but atleast he has money to invest on his own now.
I'd rather say 5 trillion $
If I'm Jack I will pay 25 % share to buy it from venture specialist then I have 65% ownership rights
this is jack
Yup. Arthur Rock said in "Something Ventured" that he got Intel the initial $2.5 million for .. Wait for it .. 50% of the company :)
Hell, even I can find 2.5 million dollars.. But that's the point: They funded successful AND unsuccessful companies. I could find that money on the one condition that it's a SURE thing, unlike VCs who lose money many times on ventures.
Imagine .. Genentech was started with 250k and sold to Roche for $46.8 Billion. Nice :)
I AM JACKS BROKEN PROMISE.
thank u
Didn’t properly explain
A chip that increases signal reception 😂. What is the receiver for in the phone 🤣.
Lol @ Matt Smith