I miss capital efficiency. It seems like you were our best friend just yesterday.

Were you a myth? A lie? A justification by VCs to explain away their lack of capital to invest? A rationalization by entrepreneurs to explain away their inability to raise capital?

Do you remember all the blog posts about how companies needed so much less money? All the articles about how capital efficient businesses were a result of AWS, better software development tools, easier starting points, better scaling technologies, and lots of other things.

Do you remember when it was “all software, all the time?” There was no discussion of hardware, or any need to build hardware companies. Internet of Things wasn’t yet a buzzword. If you had any notion of manufacturing in your business VCs would immediately say “you can’t build scale and value like a software-only company.”

This was all just five years ago. Oh how things change.

Was it just bullshit? Or is it actually a parallel universe of happiness?

I’m going to assert it’s a parallel universe of happiness based on the successful companies in our portfolio that I would categories as capital efficient. We have a bunch of them. And we’ve learned that it is a lot easier to make a 10x return on capital on a company that has only raised $10m then it is to make a 10x return on capital when a company has raised $100m.

And we like that. We aren’t afraid of going for a 10x (or more) return of capital on companies that have raised a lot more money, but when a company can become cash flow positive on a small amount of capital (say $5m – $10m) and grow over 100% year-over-year without raising another nickel of equity, well that’s a silent killer .

If you want a few more discussions about this, I did a quick search on “venture capital capital efficiency ” and came up with:

• The myth of capital efficiency
• The Most Capital Efficient U.S. Venture Capital Tech Exits of 2014
• ‘Capital Efficiency’ doesn’t exist
• “Venture Capital Efficiency” and fundraising success

Seems like our little corner of the universe might need an episode of Mythbusters .