Tl;dr: Venture investors bet on potential. Other investors bet on what exists
There is a lot of hope and rainbows. It’s about potential.
There are irrational expectations on owning markets and growing like weeds. Investors are making the bet on the team doing what they “hope” will happen.
They are doing a lot of other investments concurrently and don’t need many to work, they just hope one is amazing! Failure is encouraged in venture investing.
Numbers founders show are only useful to illustrate the team are worth the valuation. Frankly, investors are only asking to check founders can make a model and their forecasts aren’t a complete joke. Unless they are doing late-stage investing, a model is an afterthought.
There is a typical banker like common sense.
Show me your numbers. You want to see 3 statement financials.
Investors probably do traditional valuation methodologies such as a discounted cash flow, perhaps followed by a CoCos and CoTrans analysis.
These investors are potentially thinking about buying the company, improving it, and then flipping it. If they are putting in some cash then they think in terms of IRR and NPV and when the exit will happen as that is important.
Most of these guys are doing maybe one investment before they do another so that deal matters.
The big PE investors do whatever to not lose money. They do not lose money.
How to tell?
This blog is a mass simplification. The easiest way to tell the difference is the questions that are asked.
Venture investors care about how big you can get.
Non-venture investors care about your cash flow statement.
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