A cascade from founder self-funding through friends and family, accelerators and angels, a first VC round and later VC rounds to M&A or IPO. Each stage has an exit arrow to failure, annotated ~80% at the early stages and '80%?' at the VC stage.

Each step is a separate financing decision by a different kind of investor, and most companies leave the ladder before an exit. That attrition is why every investor prices for a few large outcomes, and why the investor you take at one rung affects your odds of reaching the next.

A line chart of average years from first funding to exit. In the late 1990s both paths took about 2.5–3 years; after 2007 IPOs typically took 6–8 years while acquisitions settled around 4–5 years.

Venture capital is locked up for most of a ten-year fund life, so a target multiple implies a much lower annual return than it appears. A 3x over eight years is about 15% a year; the same 3x over four years is about 32%.

A histogram of the stake VCs take in the first round: most deals fall between 15% and 35%, peaking around 20–30%, with a long tail beyond 50%.

Ownership is the lever a VC controls, because the fund needs each stake to be large enough to matter at exit. Relay's seed (20%) and Series A (20%) sit inside the usual band; a lead asking for much more is signaling risk or fund-size pressure.

Angels typically take weaker control rights, are less involved, rarely sit on the board and may accept lower returns for non-financial goals; VCs owe their LPs a fiduciary duty to maximize returns.

The VC's duty runs to its LPs, not to the founders. That explains behavior that looks harsh, such as pushing for a sale or blocking a small exit, and it is why board seats and protective provisions come with VC money.

Two pie charts: investments by angels with no prior experience were 41% successful and 59% failed; with some prior experience, 56% successful and 44% failed.

Experience correlates with better outcomes, possibly through selection and help as well as access to better deals, so this is not proof that an experienced angel causes success. It still justifies asking how many companies an angel has backed and how they fared.

For a $100M fund with a 2% annual management fee (10 years, $20M) and 20% carry: LPs earning $150M profit requires $187.5M gross profit ($150M / 0.8), of which carry is $37.5M. Adding back capital and fees gives a gross target of about 3.1x the fund.

This is why VCs ask for far more than LPs earn. The slide states the multiple against the $100M commitment; because fees come out of commitments, only about $80M is invested, so the multiple needed on invested dollars is higher, roughly (100 + 187.5) / 80 = 3.6x under the same carry convention.

A histogram of 1,101 liquidated VC funds (Preqin data): about 30% of funds lost money, and fewer than 20% returned 2.5x net or more.

The LP target on slide 42 is a hurdle most funds miss. GPs compete for capital on the record of their best funds, which pushes them toward bets that can be very large.

Horsley Bridge data on US venture investments, 1985–2014: about half of deals return less than 1x, while deals returning more than 10x are about 6% of deals and about 60% of total returns.

A fund's result is set by its few largest winners, so each investment is judged by whether it could be one of them. A company likely to return 3x safely can be a rational pass.

An illustrative portfolio: 55% of deals return 0x, 20% 1.5x, 15% 3x, 5% 7x and 5% 40x. Contributions sum to 0 + 0.3 + 0.45 + 0.35 + 2.0 = 3.1x, the target gross multiple, with the 40x bucket supplying 2.0x. The side notes add pro-rata rights and 25–40 investments per fund.

Remove the 40x bucket and the fund returns about 1.1x. That is why a VC asks how big Relay could become, not whether it will survive, and why it values the right to invest more in the winners.

A $10M investment at a 40x target must be worth $400M at exit. At a 5x revenue multiple and $800M exit revenue the company is worth $4B, so the investor needs 10% at exit.

Required ownership at exit = required proceeds / exit value. The same logic drives Relay's Series A lead in lesson 31: 10x on $12M at a $600M exit requires 20% at exit.