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TL;DR: The traditional VC backed tech startup growth curve is an exercise in giving something away for less than it's worth, such as selling a $10 bill for $5.

TL;DR: The traditional VC backed tech startup growth curve is an exercise in giving something away for less than it's worth, such as selling a $10 bill for $5. This is done to dominate the market. You will become very popular very quickly and dominate the $10 bull market by selling them for $5. After dominating the market you must find some way to become profitable. Often when a company tries to raise prices and become profitable they find that the market evaporates, you won't sell many $10 bills for $11 even if you run a managed service that makes it convenient. For "gig-economy" startups this screws the workers because their jobs evaporate with the market. The article ends with a call to action.

jstanier 8y ago
I totally need you to write my articles in the future. :)
jfk13 8y ago
> you won't sell many $10 bills for $11 Unless you're a payday lender (or similar). Of course, they have to accept the risk that they'll sometimes be unable to collect the $11 at all.
Udik 8y ago
Also, there seems to be no personal accountability for those who lost all that money. I can set up a business that sells 10$ notes for 9$, convince a number of VCs and/or shareholders to cover the losses, and live the sweet, exciting life of the entrepreneur until the game is over. By the time the value of the company drops to zero, I'll probably have accumulated enough cash to live comfortably ever after.
- michaelt 8y ago
  Why should anyone else be accountable for sophisticated investors' failure to do their due diligence? If I go to the Kentucky Derby put $1000 on Fancy Dancy Magic Prancy, it's hardly the horse's fault if my gamble doesn't pay off.
  - marcosdumay 8y ago
    It's not the investor that decides to give money to the $10 bills seller. It's a third party. Now, I don't know what kind of punishment the GP wanted to see. If the question is why doesn't all the money run away from the VP's fund, I wonder about that too.
    - michaelt 8y ago
      Don't you have to be an accredited investor to invest in venture capital and angel investments?
  - tristor 8y ago
    Your made up horse name made me just think of (which may already exist outside my awareness) a corollary to Poe's Law. "That without a clear indicator of the author's intent, it is impossible to create a parody of race horse names so obviously exaggerated that it cannot be mistaken by some readers for a sincere and accurate name of a horse." We could call it the "Derby Law". I actually searched for "Fancy Dancy Magic Prancy" because I thought that might be an actual horse. I found out it's a reference to PBF, but nonetheless it /could/ have been a real horse.
- Radim 8y ago
  And that's perfectly fine, as long as the people paying the price (here, VCs) are the ones bearing the responsibility for their eventual losses. It only gets disgusting when such "musical chairs" scams get too popular, becoming "too big to fail". Then the society at large will cover the bill, including those actors who were more prudent and honest throughout (adding insult to their injury). The more involved and indirect the chain of responsibility, the larger the potential for scams.
saalweachter 8y ago
As a quibble, I would say the traditional VC-backed tech startup is a technology that costs $50mm to develop, but can be sold into a market of 10 million units @ $100 with a per-unit cost of $75. "We can develop a monopoly by selling below cost" is some kind of traditional business, but I wouldn't call it a traditional tech startup.
- mannykannot 8y ago
  Developing a monopoly while selling below cost was Amazon's path, and others took note - Uber, for example, which is hoping to corner the autonomous taxi market, and is effectively offering its current services with human drivers in order to position itself for that.
0815test 8y ago
> For "gig-economy" startups this screws the workers because their jobs evaporate with the market. Except that it doesn't. Those "jobs" were never sustainable in the first place, and in the meantime the workers make bank.
treis 8y ago
>The traditional VC backed tech startup growth curve is an exercise in giving something away for less than it's worth, such as selling a $10 bill for $5. This gets it fundamentally wrong. Only Moviepass was in the business of selling $10 for $5. Most of what appears to be $10 for $5 can be broken down into two things: (1) Software is a very high fixed cost and very low marginal cost business. If you spend a million to develop a piece of software your profit is going to look like crap for your first few customers, better for the next bunch, and so on until you are wildly profitable (or so you hope). (2) Discounting recurring revenue. Spending $10 to get $5 in revenue is stupid. Spending $10 to get a customer who will give you $5 in revenue every year is smart. If you only look at year 1 the smart move looks stupid.

jstanier 8y ago

I totally need you to write my articles in the future. :)

jfk13 8y ago

> you won't sell many $10 bills for $11 Unless you're a payday lender (or similar). Of course, they have to accept the risk that they'll sometimes be unable to collect the $11 at all.

Udik 8y ago

Also, there seems to be no personal accountability for those who lost all that money. I can set up a business that sells 10$ notes for 9$, convince a number of VCs and/or shareholders to cover the losses, and live the sweet, exciting life of the entrepreneur until the game is over. By the time the value of the company drops to zero, I'll probably have accumulated enough cash to live comfortably ever after.

michaelt 8y ago
Why should anyone else be accountable for sophisticated investors' failure to do their due diligence? If I go to the Kentucky Derby put $1000 on Fancy Dancy Magic Prancy, it's hardly the horse's fault if my gamble doesn't pay off.
- marcosdumay 8y ago
  It's not the investor that decides to give money to the $10 bills seller. It's a third party. Now, I don't know what kind of punishment the GP wanted to see. If the question is why doesn't all the money run away from the VP's fund, I wonder about that too.
  - michaelt 8y ago
    Don't you have to be an accredited investor to invest in venture capital and angel investments?
- tristor 8y ago
  Your made up horse name made me just think of (which may already exist outside my awareness) a corollary to Poe's Law. "That without a clear indicator of the author's intent, it is impossible to create a parody of race horse names so obviously exaggerated that it cannot be mistaken by some readers for a sincere and accurate name of a horse." We could call it the "Derby Law". I actually searched for "Fancy Dancy Magic Prancy" because I thought that might be an actual horse. I found out it's a reference to PBF, but nonetheless it /could/ have been a real horse.
Radim 8y ago
And that's perfectly fine, as long as the people paying the price (here, VCs) are the ones bearing the responsibility for their eventual losses. It only gets disgusting when such "musical chairs" scams get too popular, becoming "too big to fail". Then the society at large will cover the bill, including those actors who were more prudent and honest throughout (adding insult to their injury). The more involved and indirect the chain of responsibility, the larger the potential for scams.

saalweachter 8y ago

As a quibble, I would say the traditional VC-backed tech startup is a technology that costs $50mm to develop, but can be sold into a market of 10 million units @ $100 with a per-unit cost of $75. "We can develop a monopoly by selling below cost" is some kind of traditional business, but I wouldn't call it a traditional tech startup.

mannykannot 8y ago
Developing a monopoly while selling below cost was Amazon's path, and others took note - Uber, for example, which is hoping to corner the autonomous taxi market, and is effectively offering its current services with human drivers in order to position itself for that.

0815test 8y ago

> For "gig-economy" startups this screws the workers because their jobs evaporate with the market. Except that it doesn't. Those "jobs" were never sustainable in the first place, and in the meantime the workers make bank.

treis 8y ago

>The traditional VC backed tech startup growth curve is an exercise in giving something away for less than it's worth, such as selling a $10 bill for $5. This gets it fundamentally wrong. Only Moviepass was in the business of selling $10 for $5. Most of what appears to be $10 for $5 can be broken down into two things: (1) Software is a very high fixed cost and very low marginal cost business. If you spend a million to develop a piece of software your profit is going to look like crap for your first few customers, better for the next bunch, and so on until you are wildly profitable (or so you hope). (2) Discounting recurring revenue. Spending $10 to get $5 in revenue is stupid. Spending $10 to get a customer who will give you $5 in revenue every year is smart. If you only look at year 1 the smart move looks stupid.