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Investors ride a baby roller coaster
Wanting variety
Cristina Cordova left Notion wanting to work on many things at once, after ten years at startups with no break in between. She would leave one company on a Friday and start the next on a Monday. Investing at First Round looked like a way to get that variety, since a partner works with many companies in many capacities.
Smaller highs and lows
It turned out not to be the right fit. An investor stays fairly high level and doesn't go deep on any one company. The highs are smaller because the accomplishment belongs to the founders who are working on the company. The lows are smaller too, since the next investment might be the billion-dollar company if this one isn't, so you don't feel it as much.
Back to startups
She still wanted to angel invest and be part of many companies' journeys, but being a full-time investor didn't give her the feeling she was after. That is what sent her back toward startups.
Why do investors feel failures less than founders?
A venture investor typically holds stakes in many companies at once, so any single company is a small part of the portfolio. Venture returns are often described as following a power law, where a small number of investments produce most of a fund's gains. Investors expect most companies to fall short and plan around that. A founder has only one company, and every outcome lands on it.
How do venture funds earn their money?
Venture funds usually charge a management fee on the money they manage, commonly around two percent a year. They also keep a share of the profits, called carried interest, which is often twenty percent. The fee covers salaries and operations, while carry is paid only if the fund's investments succeed. The structure is widely called two and twenty.
What makes a seed-stage firm different from later funds?
Seed firms invest at the very beginning, when a company may have little more than a team and a prototype. They write small checks, take many bets, and often work closely with founders on hiring and early strategy. Later-stage funds invest larger sums in companies that already have revenue and customers. First Round Capital, founded in 2004, focuses on the seed stage.
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