Counting other people's money is one of America's favorite spectator sports. The Forbes 400 list is eagerly awaited each year, and has become so popular that people try to get (or, for someone I know, stay off) the list. I confess to participating in the sport myself at times. But, as the saying goes, if you're going to do a job, do it right. And I've found that many people overestimate the actual returns on many venture investments.
Let's take an example. I invested in Company A at a $2.0 million post money valuation (typical of the way us seed stage investors can make SOME money). The next round was completed at $12 million post money. Wow! 6x! Not quite. It was a round of $4 million at $8 million pre money. So 8/2 = 4x!! still not bad. But wait, the VCs in that round demanded that there be a 15% option pool, or $1.8 million of the 12, so the actual premoney was $6.8 million. Only a 3.4x on my investment - wonderful outcome at this stage, but not 6x.
Of course the same thing happens in each successive round, and it gets harder and harder to calculate unless you use the one true measure - price per share. The term sheet may also have multiple preferences, so that if a company is sold for less than a whole lot of money, some investors get 1.5 or 2 times their per share price back first, which leaves even less for the earlier investors.
So, yes, I have made a nice living at this business of investing way too early, but if you're counting - give me the honest count.
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