What do people think about Jet.com? Is it a multi-million dollar blunder or the next Amazon?

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JASON LEMKIN

I think what Jet.com is, is what VCs call “Star Fracking”.  Ok, they don’t say ‘fracking’, but you know what I mean.

VCs in very large firms are looking for huge returns deploying huge amounts of capital.  That’s a tough combo.  Put differently — they are looking for potential Decacorns ($10b+ exits), not just Unicorns ($1b +).

How the frack do you find and invest in Decacorns?   Unicorns are rare enough as it is 🙂

Well, investing in someone that already had an exit for $500m+ (like the Jet.com founders) or $1b+ (like Josh James at Domo), etc. is a comfortable way to take that risk: Amazon Announces $545 Million Acquisition Of Diapers.com

Is it a good risk?  Maybe not.  The fundamentals almost certainly never support the valuations in a “Star Fracking” investment.

And many veteran VCs will quietly tell you the historical data at least does not support this thesis.  Lightning often does not strike twice.  And if it doesn’t … Stars raise huge amounts of money.  Huge amounts these days.  So as a VC you don’t just lose .  You lose a lot.

But as an investor hunting Decacorns, you have to back folks that both have at least some chance to pull it off, and have already have enough success that they won’t sell for $400m or $1b this time.  ‘Cuz who wouldn’t sell for ONE BILLION DOLLARS?

This approach certainly worked well for Workday, for example.  After Dave Duffield was forced to sell Peoplesoft for $10 billion to Oracle — he wasn’t gonna sell again.  And Workday is now worth $15 billion.  With plenty of potential upside.

And Star Fracking deals can be easier to get through partnerships.  Who wouldn’t want to back a Unicorn CEO on her next adventure?  (Even if the price is kinda scary — or even nonsensical).

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Published on October 25, 2015
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