In a recent Forbes article, Brendan Burns, a technology investor and Columbia Business School professor, discusses finding and turning around existing businesses as an alternative to the traditional startup route.
"I wanted to move fast and create a company that would capitalize on these trends—but I did not want to start a company from scratch... Instead, I decided on a shortcut that would look a lot like my work with early-stage startup turnarounds. After leaving (my previous venture) armed with trend information and working knowledge of the industry, I formed a holding company (set up sort of like a search fund), put my value investing cap on and started looking for a company to acquire."
"How were we able to do this? Simply, value investing 101. Venture investors use “venture math” —90 percent of their returns come from less than five percent of their investments. Therefore, if something does not look like it will be a home run, the rational path for the investor is to stop investing time and money, thus creating an “orphan company”. But is the company worthless? Not to me. Look at See.Me: Over five years of brand building, over 400,000 Facebook followers and over 1,100,000 email subscribers. What would it cost to build that organically? At least five years, $4.5 million and probably a lot of luck as well."
"Between 2006 and 2016 there was at least $20 billion invested in 8,000 startups. The vast majority failed to deliver on investor expectations. Was all that money wasted? I doubt it. Today there are credible alternatives to building companies and raising capital."
Read the full article in Forbes.
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