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(edited to consolidate my comments) Here are the reasons I can think of 1) compelling if it all works out. Invest clear-eyed and hope the founding team figures
by mushufasa 7y ago
(edited to consolidate my comments) Here are the reasons I can think of
1) compelling if it all works out. Invest clear-eyed and hope the founding team figures out the roadblocks. Greedy but not stupid; most successful startups start by 'doing things that don't scale.'
2) Pattern-matching / top-down portfolios. Mobile apps. Sharing economy. Subscription businesses. Electric Vehicles. Internet of Things. A lot of investors decide on themes for portfolio before they look at investments. Scooter sharing ticks a lot of boxes.
3) Adverse selection. It's a simple idea - anyone can grasp scooters as subscription. So the simplest-minded investors chose this rather than more subtle ideas.
4) as another comment suggested, investors are playing a game of musical chairs between funding rounds. Chamath Palihapitiya claims this as the reason his firm is stepping back from VC -- so he's walking the talk here https://www.cnbc.com/2018/10/10/start-up-economy-is-a-ponzi-scheme-says-chamath-palihapitiya.html https://www.cnbc.com/2018/10/10/start-up-economy-is-a-ponzi-...
- hef19898 7y agoSo, point two would mean that, in an environment that regards VC finding as success, any good idea, in the sense of getting VC funds, would optimize to tick the right boxes, wouldn't it?
- mushufasa 7y agoIf you think of VCs / founders as a marketplace, which it kindof is, then yes. You have a larger 'market' for selling your startup idea, and optimize the 'product' for 'fit'. If you think of VCs as totally independent, open-minded, critically thinking professionals, dutifully providing a financial service, then no. You pick the VC for the idea rather than the idea for the VC. The second case is the ideal, but assumes highly-competent VCs and founders with equalish leverage. I think the perverse incentives for VC partners (read Palihapitiya) and the lack-of-prestige factors for first-time founders break the model. But this seems to be more true for second-time founders with moderate success under their belt.
- tenpsafdl 7y agoI agree with Chamath Palihapitiya. VC money is like taking steriods. You get the muscles, but it will disappear once you stop taking them. I have come to the realization that VCs are really bad at distributing resource. For all these pedigrees to show for, they all seems to be playing musical chairs. Part of the problem I see is that most VCs don't have a founder background and most of them you meet are pretty arrogant.