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I disagree. A lifestyle business is not acceptable for a VC model - they only invest in businesses that operate in large markets and can take these markets by s
by coffeemug 17y ago
I disagree. A lifestyle business is not acceptable for a VC model - they only invest in businesses that operate in large markets and can take these markets by storm. My guess is that the founders realized that they cannot create a scalable business by charging for the products - not enough people would be willing to pay for them. However, they could take the market by storm if their products were free. From a VC's point of view this makes perfect sense because a lifestyle business (despite how great it is) does not justify a VC investment.
- _delirium 17y agoI can see that viewpoint, although it does sort of play into the old stereotypes of VCs. Ditch a proven revenue stream and give the product away for free? Sure, we'll make it up on volume!
- coffeemug 17y agoWell, I hear what you're saying, but I think more often than not people are simplifying it. The way VCs operate is really a consequence of liquid financial markets. If I have a large amount of capital, I can invest it into treasuries and get a small return at zero risk (zero in a sense that if the U.S. government defaults the entire world economy will go to hell anyway). So, it just doesn't make any sense for people to invest into high risk low return businesses, and lifestyle startups tend to fall into this category. It seems that the decision has been made implicitly by the way modern financial markets are structured, and hasn't really been made by the VCs themselves. This is why I'm a bit skeptical of the "new breed" VCs that have a different business model (invest less money into companies that potentially target smaller markets). It just doesn't make any sense from the financial perspective.