In the years I’ve done publicity for tech products, companies, and personas, I’ve been fairly direct with clients that I am looking for a path to profitability and a sustainable business. While there are companies that I’ve worked with that are pre-revenue (IE: trying to work out how to make a good business that people will pay for), I’ve been fairly blunt in rejecting companies that burn money.
Everything in the article is true but never talks about where this apparently "stupid" money comes from . It ignores the fact that for past 15 years or so effective interest rates have been zero and there is no way for capital to grow above 1 or 2 percent simply investing in bonds or even the stock market. Say you are worth 500 million dollars, if you take 100 million dollars of that you can leverage it into a billion dollars at no cost and invest into a 100 million into 10 startups. All you need is one of those 10 to actually be a good idea or attract enough publicity to get other investors to follow and pay off with a bllion dollar return. Your 100 million investment has now made a return of, what?, 1,000% percent and you still had 400 million that was never at risk.
Here in Australia a couple of grocery delivery services flashed and burned their ludicrous business plans most recently. Send, some idiotic start up, decided they could delivery groceries in 10 minutes. An impossible task due to traffic, urban sprawl and many other reasons. Still managed to suck up ludicrous amounts of VC money before burning out.
I think it's mandatory for investment money to only come from the biggest idiots around. Look at the stupid crap WeWork douchebag is doing now.
Right after the 2001 dot-com crash, I was hired into the executive team of a dot-com roll up of existing software businesses. The idea was get enough similar business and move it onto a new SaaS platform, then surround the platform with services. It was an OK strategy if and only if there would be another funding round at a higher valuation. Then the dot-com crash happened, and no one was in for up rounds.
The VC firms organized a down round, crushing out all of the prior holders. Then they had the executive team move HQ to a cheaper location and replace itself with operators (like me) instead of M&A names. (I admire the level of organizational loyalty those guys showed. They eventually got paid.)
The strategy of the new team was to undo the expensive commitments that the prior team made, resolved the hairy problems from acquisitions, sold off assets that didn’t make sense, then prettied up the best assets and sold it. We tripled the money invested in the down round.
I think VC firms need to be thinking like that again.
I think everything you’ve written is correct, but I suggest one caveat: isn’t it good that these companies transfer money from Saudi Arabian and other venture funds to actual workers? Yes, being laid off sucks ass (I know from experience), but having had a job for that year or two is better than not.
Also, a lich can also be a necromancer, so that conflation is fine.
How many Stanford GSB, Sloan, Wharton, HBS, and other hi-class business sheepskins are involved in these plops? I don't believe for a second that these dudes and ladies aren't taught about profitability, viability, or sustainability.
How do the venture capital guys who put forth the money get returns if the company isn't profitable? Where do the returns come from? Please excuse my ignorance
Great article! The point that funding without evidence of a sustainable growth plan is valid (genuinely surprised this is true though - but have very little experience in the VCworld). However, I don't really know how else you would grow a company quickly to beat out "the competition" - which always seems to exist (the threat of not being the first is terrifying ahah).
Uber's pricing strategy was to mainly make the platform super attractive for customers (I believe paypal did a similar thing to get people on their platform). If they had not done that, and come up with a viable plan to sustainably grow the business - would they have lost out market share to someone like Bolt? (assuming generating a sustainable business plan is difficult given so much uncertainty during the initial growth phase).
Me, a dumbass, when reading about all of these delivery startups: Why will these guys succeed when Kozmo.com failed despite aggressively redlining zip codes?
Everything in the article is true but never talks about where this apparently "stupid" money comes from . It ignores the fact that for past 15 years or so effective interest rates have been zero and there is no way for capital to grow above 1 or 2 percent simply investing in bonds or even the stock market. Say you are worth 500 million dollars, if you take 100 million dollars of that you can leverage it into a billion dollars at no cost and invest into a 100 million into 10 startups. All you need is one of those 10 to actually be a good idea or attract enough publicity to get other investors to follow and pay off with a bllion dollar return. Your 100 million investment has now made a return of, what?, 1,000% percent and you still had 400 million that was never at risk.
Here in Australia a couple of grocery delivery services flashed and burned their ludicrous business plans most recently. Send, some idiotic start up, decided they could delivery groceries in 10 minutes. An impossible task due to traffic, urban sprawl and many other reasons. Still managed to suck up ludicrous amounts of VC money before burning out.
I think it's mandatory for investment money to only come from the biggest idiots around. Look at the stupid crap WeWork douchebag is doing now.
https://www.news.com.au/finance/business/retail/send-grocery-delivery-company-spent-11m-in-8-months-worrells-liquidators-report-reveals/news-story/f09dbdc6bbd4c0f7b3d0724a118ac02c
Right after the 2001 dot-com crash, I was hired into the executive team of a dot-com roll up of existing software businesses. The idea was get enough similar business and move it onto a new SaaS platform, then surround the platform with services. It was an OK strategy if and only if there would be another funding round at a higher valuation. Then the dot-com crash happened, and no one was in for up rounds.
The VC firms organized a down round, crushing out all of the prior holders. Then they had the executive team move HQ to a cheaper location and replace itself with operators (like me) instead of M&A names. (I admire the level of organizational loyalty those guys showed. They eventually got paid.)
The strategy of the new team was to undo the expensive commitments that the prior team made, resolved the hairy problems from acquisitions, sold off assets that didn’t make sense, then prettied up the best assets and sold it. We tripled the money invested in the down round.
I think VC firms need to be thinking like that again.
I think everything you’ve written is correct, but I suggest one caveat: isn’t it good that these companies transfer money from Saudi Arabian and other venture funds to actual workers? Yes, being laid off sucks ass (I know from experience), but having had a job for that year or two is better than not.
Also, a lich can also be a necromancer, so that conflation is fine.
Love this. But until we drain the massively overblown pool of dumb money chasing unsustainable, imaginary, returns, how does this ever end?
How many Stanford GSB, Sloan, Wharton, HBS, and other hi-class business sheepskins are involved in these plops? I don't believe for a second that these dudes and ladies aren't taught about profitability, viability, or sustainability.
How do the venture capital guys who put forth the money get returns if the company isn't profitable? Where do the returns come from? Please excuse my ignorance
What an article. Surely, there can be only so many good ideas? I guess the echo chamber of Silicon Valley isn’t done churning out the next big thing.
great article - also reminds me of a 'nathan for you' episode or something
Great article! The point that funding without evidence of a sustainable growth plan is valid (genuinely surprised this is true though - but have very little experience in the VCworld). However, I don't really know how else you would grow a company quickly to beat out "the competition" - which always seems to exist (the threat of not being the first is terrifying ahah).
Uber's pricing strategy was to mainly make the platform super attractive for customers (I believe paypal did a similar thing to get people on their platform). If they had not done that, and come up with a viable plan to sustainably grow the business - would they have lost out market share to someone like Bolt? (assuming generating a sustainable business plan is difficult given so much uncertainty during the initial growth phase).
Me, a dumbass, when reading about all of these delivery startups: Why will these guys succeed when Kozmo.com failed despite aggressively redlining zip codes?