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Venture capital is much more of a Ponzi scheme than the community cares to admit. For every spectacular case like Theranos, how many cases are there where early
by vannevar 9y ago
Venture capital is much more of a Ponzi scheme than the community cares to admit. For every spectacular case like Theranos, how many cases are there where early investors at the top of the pyramid are able to take money off the table at the expense of later investors who never make it back? Technically, the company may still be viable, and might be acquired for some fraction of the total invested. But the mechanism that the VCs leveraged for their profit still resembles a classic pyramid scheme, where it is money from later investors ("the greater fool") that lines their pockets, and not profits from a successful business.
- scribu 9y agoCould you give some specific examples where a startup was sold at a loss and some of the investors actually got out more money than they put in? I know that when a public company goes bankrupt, the investors with preferred stock can, at best, get back all their money, but they can't make a profit.
- lovich 9y agoVCs can invest money with garunteed payments greater than 1x. It doesn't mean that if the company sells for less than their investment they'll get their money back, but if they put in 1x and are garunteed 2x and first in line to get paid, when the company gets sold for 3x the VC gets their 2x and all the other investors/employees get to pull from the leftovers
- mikekij 9y agoI think you're referring to liquidation preferences, which actually make VC investments the opposite of a pyramid scheme, in which the latest investors get their money back first, at the expense of the earliest investors. (Those earliest investors are frequently the entrepreneur's grandmother.)