4 ms·

There's another overlooked class of people in the hype/fraud cycle: normal people like you and me, via our pension funds.

by avip 8y ago

sokoloff 8y ago
I believe that is a risk that's priced into venture investing already. Not to defend the fraudsters here, but a certain amount of high-risk investments are going to end up failing because of fraud and investors knowingly bear those risks (and/or pay a money manager to smoke out and avoid those risks).
- toss1 8y ago
  True, some aspect of the fraud is likely priced in by investors at the individual investment level. But, do they price in the damage to the overall startup ecosystem, which makes a more difficult landscape for everyone to succeed, them included? E.g., an overall broader perception of fraud, smoke, and mirrors will make it harder for them to raise their next funds, and general skepticism of the startup environment, reduces the liklihood of success of all the ventures. This environment is either a virtuous circle that'll lift all boats (to mix metaphors), or the opposite...
  - mmt 8y ago
    The article states: > it is hard to distinguish among the CEO who promises the impossible because she is committing fraud, the CEO who promises the impossible because she is deluded, and the CEO who promises the impossible and then goes and does it. It seems you're suggesting otherwise, except I disagree with you and agree with the article, at least to the extent that it applies to VCs and other high-risk investors: they don't have the ability to have enough technical depth to detech technical fraud, so they have no choice but to price in that risk. > This environment is either a virtuous circle that'll lift all boats (to mix metaphors), or the opposite Just the wording makes me think this is a false dichotomy. Why can't it be neither? The environment is complex, and it's conceivable that it would lift/sink only some boats or that it's not circular.
    - toss1 8y ago
      > Hard to distinguish between fraud, delusion, and currently impossible that will get done. I agree that it's hard for the VCs to distinguish. I've also seen plenty of situations where the VCs out of their technical depth and make preventable bad calls in both directions (investing in bad tech and passing on very feasible tech). I'm just saying that it would be good for the VCs and the entire ecosystem for them to put more resources into much better vetting of technology. > This environment is either a virtuous circle that'll lift all boats (to mix metaphors), or the opposite I'm not saying that it's an absolute with all vectors pointing in the same direction. Even strongly positive or negative environments will contain outliers, counter-trend examples, etc. Even on the massive crashing days on the stock exchange, there are always a few stocks that make good gains. What I'm pointing to (perhaps badly) is the feedback loops between on one side, predominantly sound investment, growing startups bringing good new tech to market, and solid returns, and on the other side, delusional investment, scarcity of good new tech, and poor returns. The former will bring in more startup founders and investors, and the latter will become a dying ecosystem. A major problem with our industry is that in addition to the visionaries, dreamers, and hard workers, there is a lot of money which is also a magnet for scammers and a variety of toxic personalities. The better we sort the latter from the former, the better off we will all be.
      - mmt 8y ago
        > The former will bring in more startup founders and investors, and the latter will become a dying ecosystem. OK. I think I see what you're saying, that, on the whole, it's likely to be one or the other. I'd still argue that it could be neutral/stable, but I don't have any counter-argument to why that would be likely on a meaningful time scale, considering the duration of most VC funds. > A major problem with our industry is that in addition to the visionaries, dreamers, and hard workers, there is a lot of money which is also a magnet for scammers and a variety of toxic personalities. The better we sort the latter from the former, the better off we will all be. I'm not disagreeing that it would be good for everyone involved. I just don't see the path to get there. Merely wishing VCs would do a better job, without some kind of specific mechanism and associated incentive for them to do that better job, isn't enough.

There's another overlooked class of people in the hype/fraud cycle: normal people like you and me, via our pension funds.

by avip 8y ago

There's another overlooked class of people in the hype/fraud cycle: normal people like you and me, via our pension funds.

sokoloff 8y ago

I believe that is a risk that's priced into venture investing already. Not to defend the fraudsters here, but a certain amount of high-risk investments are going to end up failing because of fraud and investors knowingly bear those risks (and/or pay a money manager to smoke out and avoid those risks).

toss1 8y ago
True, some aspect of the fraud is likely priced in by investors at the individual investment level. But, do they price in the damage to the overall startup ecosystem, which makes a more difficult landscape for everyone to succeed, them included? E.g., an overall broader perception of fraud, smoke, and mirrors will make it harder for them to raise their next funds, and general skepticism of the startup environment, reduces the liklihood of success of all the ventures. This environment is either a virtuous circle that'll lift all boats (to mix metaphors), or the opposite...
- mmt 8y ago
  The article states: > it is hard to distinguish among the CEO who promises the impossible because she is committing fraud, the CEO who promises the impossible because she is deluded, and the CEO who promises the impossible and then goes and does it. It seems you're suggesting otherwise, except I disagree with you and agree with the article, at least to the extent that it applies to VCs and other high-risk investors: they don't have the ability to have enough technical depth to detech technical fraud, so they have no choice but to price in that risk. > This environment is either a virtuous circle that'll lift all boats (to mix metaphors), or the opposite Just the wording makes me think this is a false dichotomy. Why can't it be neither? The environment is complex, and it's conceivable that it would lift/sink only some boats or that it's not circular.
  - toss1 8y ago
    > Hard to distinguish between fraud, delusion, and currently impossible that will get done. I agree that it's hard for the VCs to distinguish. I've also seen plenty of situations where the VCs out of their technical depth and make preventable bad calls in both directions (investing in bad tech and passing on very feasible tech). I'm just saying that it would be good for the VCs and the entire ecosystem for them to put more resources into much better vetting of technology. > This environment is either a virtuous circle that'll lift all boats (to mix metaphors), or the opposite I'm not saying that it's an absolute with all vectors pointing in the same direction. Even strongly positive or negative environments will contain outliers, counter-trend examples, etc. Even on the massive crashing days on the stock exchange, there are always a few stocks that make good gains. What I'm pointing to (perhaps badly) is the feedback loops between on one side, predominantly sound investment, growing startups bringing good new tech to market, and solid returns, and on the other side, delusional investment, scarcity of good new tech, and poor returns. The former will bring in more startup founders and investors, and the latter will become a dying ecosystem. A major problem with our industry is that in addition to the visionaries, dreamers, and hard workers, there is a lot of money which is also a magnet for scammers and a variety of toxic personalities. The better we sort the latter from the former, the better off we will all be.
    - mmt 8y ago
      > The former will bring in more startup founders and investors, and the latter will become a dying ecosystem. OK. I think I see what you're saying, that, on the whole, it's likely to be one or the other. I'd still argue that it could be neutral/stable, but I don't have any counter-argument to why that would be likely on a meaningful time scale, considering the duration of most VC funds. > A major problem with our industry is that in addition to the visionaries, dreamers, and hard workers, there is a lot of money which is also a magnet for scammers and a variety of toxic personalities. The better we sort the latter from the former, the better off we will all be. I'm not disagreeing that it would be good for everyone involved. I just don't see the path to get there. Merely wishing VCs would do a better job, without some kind of specific mechanism and associated incentive for them to do that better job, isn't enough.