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It took me a long time to figure this out, because no one tells you, but it's actually very simple. There are two ways people raise money in Silicon Valley: 1.

by staunch 11y ago

It took me a long time to figure this out, because no one tells you, but it's actually very simple. There are two ways people raise money in Silicon Valley: 1. Traction (rapid week-over-week growth, significant press) 2. Reputation (elite background, connections) It's very easy to get some initial traction for these local services businesses, so investors fall for them easily. They lose money on every transaction but will make it up in volume ala Kozmo.com, Pink Dot, etc. Despite the fairytales, no one actually invests in technology startups based on their products in Silicon Valley. Really, no one. Oculus VR is a great example of the kind of business that investors had no interest in. They reluctantly jumped on the bandwagon very late, and only after it had lots of traction. Very few investors were interested in SpaceX or Tesla. That's how bad Silicon valley investors are at what they do. It's an industry ripe for disruption (see: YC).

gmarx 11y ago
I like this comment but I'm unsure how to parse the penultimate paragraph. What counts as "their products in Silicon Valley"?
- staunch 11y ago
  The false narrative told in Silicon Valley is that VCs are in a constant search to fund new innovative technology products. That they consider it their job to actively seek out great new products to fund. In reality, they sit around waiting for winners to emerge and then try to pounce (traction). Or they back people that have such prestigious credentials no one will blame them if it fails (reputation). Palmer Luckey could have gone door-to-door with the Oculus Rift prototype and not a single investor in Silicon Valley would've been interested (product). Without reputation or traction, he had nothing they valued. It's actually a very exciting situation because it means there's huge untapped potential waiting to be unlocked. YC has tapped into this just a little bit.
  - jorgecurio 11y ago
    this has been my suspicion that it's a game of hot potatoes where the goal is to pass it to the next sucker for profit. Almost like a Ponzi scheme where the last guy to buy the company bears all the risks, often the public IPO market, while the train of VC and underwriters have already made their money. The guys who work for VC has to make number of investments and it's not like investing in the stock market, it's far far riskier and uncertain (hence the huge returns). So it makes sense that they would gravitate towards low risk bets by betting on momentum to piggyback on. This explains why there's crowding towards 'hot & flashy' startups on techcrunch and not as much to individuals focused on technological innovation. This crowding naturally leads to unicorns with unsound valuations that I've been qustioning. The comments on HN after some hiatus is starkly different than those of 2014 or 2015. In 2014 I said the bubble will pop and I was ridiculed and downvoted to hell. In 2015 more people agreed and now majority of the comments are people ringing alarm bells now. I think the coming years where unicorns drop left & right, we will also witness the beginning of the end for Twitter & Facebook and towards a decentralized, peer to peer, cryptographic replacement.
- pcmaffey 11y ago
  >It's actually a very exciting situation because it means there's huge untapped potential waiting to be unlocked. YC has tapped into this just a little bit. Very much agree. The root problem stems from people's inability to independently measure value. They rely on external signals (traction, reputation, etc), because believing in a team and product independently is hard work. It's a leap of faith, where you have to believe in yourself first. Most people would rather run with the herd. That said, there are more and more people who don't follow that pattern. As they become successful and turn to investing and supporting the next generation, I think we'll see a lot more daring ventures come to light.
deleted 11y ago
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by staunch 11y ago

gmarx 11y ago

I like this comment but I'm unsure how to parse the penultimate paragraph. What counts as "their products in Silicon Valley"?

staunch 11y ago
The false narrative told in Silicon Valley is that VCs are in a constant search to fund new innovative technology products. That they consider it their job to actively seek out great new products to fund. In reality, they sit around waiting for winners to emerge and then try to pounce (traction). Or they back people that have such prestigious credentials no one will blame them if it fails (reputation). Palmer Luckey could have gone door-to-door with the Oculus Rift prototype and not a single investor in Silicon Valley would've been interested (product). Without reputation or traction, he had nothing they valued. It's actually a very exciting situation because it means there's huge untapped potential waiting to be unlocked. YC has tapped into this just a little bit.
- jorgecurio 11y ago
  this has been my suspicion that it's a game of hot potatoes where the goal is to pass it to the next sucker for profit. Almost like a Ponzi scheme where the last guy to buy the company bears all the risks, often the public IPO market, while the train of VC and underwriters have already made their money. The guys who work for VC has to make number of investments and it's not like investing in the stock market, it's far far riskier and uncertain (hence the huge returns). So it makes sense that they would gravitate towards low risk bets by betting on momentum to piggyback on. This explains why there's crowding towards 'hot & flashy' startups on techcrunch and not as much to individuals focused on technological innovation. This crowding naturally leads to unicorns with unsound valuations that I've been qustioning. The comments on HN after some hiatus is starkly different than those of 2014 or 2015. In 2014 I said the bubble will pop and I was ridiculed and downvoted to hell. In 2015 more people agreed and now majority of the comments are people ringing alarm bells now. I think the coming years where unicorns drop left & right, we will also witness the beginning of the end for Twitter & Facebook and towards a decentralized, peer to peer, cryptographic replacement.
pcmaffey 11y ago
>It's actually a very exciting situation because it means there's huge untapped potential waiting to be unlocked. YC has tapped into this just a little bit. Very much agree. The root problem stems from people's inability to independently measure value. They rely on external signals (traction, reputation, etc), because believing in a team and product independently is hard work. It's a leap of faith, where you have to believe in yourself first. Most people would rather run with the herd. That said, there are more and more people who don't follow that pattern. As they become successful and turn to investing and supporting the next generation, I think we'll see a lot more daring ventures come to light.

deleted 11y ago

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