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I have a question. How in the world do VC's ever fall for this bullshit? I mean in most situations they have made enough money on their own to invest, so they a

by aty268 7y ago

I have a question. How in the world do VC's ever fall for this bullshit? I mean in most situations they have made enough money on their own to invest, so they aren't stupid right?

dharmon 7y ago
There are a lot of parts to the answer, at least in my experience with VCs. Probably the biggest is just that they have a bias to be bullshitted (bullshat?). The are constantly searching for the next big thing, so they need these things to be true. They want them to be true. And human nature makes them scared of missing out. Also, most of the VCs out there are not investing their own money, and have never actually operated a business. This is why they ask the same questions with slight variations, and get obsessed with metrics that may or may not apply to a given business. This also makes them easier to fool, although many make up for this hands-on inexperience with enough years of watching startups that they can "pattern match" rather than understand things from first principles. Most also develop specialties. You're not going to fool an experienced blockchain VC with the made up or cherry-picked bitcoin numbers. But go next door on Sand Hill Rd and you can probably get away with it.
smt88 7y ago
1. Most VCs don't create value. Compared to a passive fund, like an ETF, they lose money (and take large fee, regardless of performance). 2. Most of the people staffing VCs were not necessarily successful investors. Many were people in their 20s escaping the NYC banking scene to be analysts in VC. These days, there are many people on the capital side that are ex-entrepreneurs, but that still doesn't mean they know how to spot a deal. 3. It does not always make economic sense to try to out a scam. If your model is that you find one mega-return to erase 100 failures in your portfolio, you actually go around looking for deals that sound insane (like Theranos). If other reputable VCs have already led the round, you just throw your money in without even investigating. 4. Most importantly, most VCs don't fall for anything this crappy. The target is likely individuals with net worths in the millions who aren't very business savvy. There are lots of such people (children of wealth, for example).
- excitom 7y ago
  Related story: Around the turn of the century I was talking to a VC friend about the dot com boom. He said "Watch out if the dentists start investing." Meaning, people with high net worth, inflated sense of knowledge, and not much tech savvy. Next teeth cleaning visit, my dentist enthusiastically told me about a start up he was investing in. Coincidental or not, the crash soon followed.
  - WrtCdEvrydy 7y ago
    I was involved in a bitcoin ATM company and left... two years later, was sitting at my current company in the bathroom and I hear someone from the non-technical side go 'Dude, you have to invest, it's at nearly $20,000, it could go to a million'. You'll never guess what happened when it passed $17,000
nexuist 7y ago
Any sufficiently advanced bullshit is indistinguishable from intellect.
- hef19898 7y ago
  That's a great one! Hope you don't mind if I borrow it?
  - nexuist 7y ago
    Ha, no problem. It's based off another quote, "Any sufficiently advanced technology is indistinguishable from magic." https://en.wikipedia.org/wiki/Clarke%27s_three_laws https://en.wikipedia.org/wiki/Clarke%27s_three_laws
    - hef19898 7y ago
      That one I know! Nice twist you added there!
      - nexuist 7y ago
        When I was still in robotics, one of our mentors had a similar quote, "if you can't Beat them with Brilliance, Baffle them with Bullshit!" It helped a lot during demonstrations.
omarhaneef 7y ago
I don't think most people -- VC, angel or otherwise -- do, but I suppose occasionally some must. I believe what happens is that they think about the idea. What if there were some kind of bitcoin powered investing platform. Sort of like angellist but the block chain would ensure the funders were real and the money was in some crypto? Yes, that could work. Wow, it could be worth a lot! Imagine all the startups that could get funded and omg where do I sign? This wouldn't happen if you went for a visit, and the person -- lets assume they mean well and are not lying -- logged in and the screen was a little awkward. There were zero companies signed up because the authorities had not signed off on it yet. There are two companies waiting: a fast food franchise and a t-shirt company. The gap between what could be and what probably is, is very wide till you actually look at the thing.
speeder 7y ago
I once pitched around my own startup... and VCs all refused it, just in case it was "another scam". Then I found out... they DID got scammed, in a rather elaborate way: some guy (that I won't name here, but you can find out who it is) seemly created a mobile games company, made some simple but wildly successful games (in donwload numbers), and then started to put ad fraud after ad fraud on the games, Apple started to ban him, but he would find other ways to get back, meanwhile he would accumulate cash, then he rented an office, built a seemly legitimate company, and asked the VCs for money, and as proof of his business working as intended, gave to the VCs the data about his income... Eventually Apple and Google figured out how to kind-of get rid of his frauds permanently, seemly he found one last loophole, moved all apps to a new account that was on his name only (not his company), fired all employees, and took off with Apple's and VC's money. I was told Apple ended taking the hit, they gave all the defrauded money back to advertisers, but couldn't get the money back from the scammer. So to reply to your question: if you have data, for example (fraudulent) income, it is easy to convince VCs... for the first time. Since on the second attempt they believe even real business (like mine) is a fraud.
- majos 7y ago
  Confused about one point, if he can build wildly downloaded games why doesn't he just do that legitimately? Or are those numbers somehow fake?
  - jacquesm 7y ago
    I know two people like that. Both absolute genius level but for some reason the only way they can think about making money is by somehow moving it from someone else's pockets to theirs without creating any value. If they spent 10% of their talent on value creation and the rest on the business end they'd be doing much better than they do now. Really wasteful.
    - majos 7y ago
      That's strange. It seems not only wasteful but much riskier. Do you have some guess for why they operate that way?
Nextgrid 7y ago
Given the amount of VC-funded companies with blockchain-powered products where the blockchain is either useless and can be replaced with a database, or where the product itself is completely flawed I realised a lot of VCs do absolutely zero due-diligence on a technical level.
- paulgb 7y ago
  I remember that hitting home for me when I saw a "stable coin" that was mechanically equivalent the a sort of economic perpetual motion machine raised over $100M from reputable investors. Not just a $100M+ valuation, a $100M+ raise. Nobody I talked to who had actually read and understood the white paper was surprised when they folded after not launching, blaming regulators rather than taking ownership of the fact that it was a flawed premise.
  - jacquesm 7y ago
    What happened to the money?
    - paulgb 7y ago
      They apparently returned 90% of it, I'm not sure where the $13M was spent. (To be clear, I'm not suggesting this is a scam per your definition, just a failure of DD on the VC's part.) https://www.wsj.com/articles/stablecoin-project-basis-is-shutting-down-after-raising-135-million-11544730772 https://www.wsj.com/articles/stablecoin-project-basis-is-shu...
rasz 7y ago
You answered your own question, reshuffling your post: "I.. have made enough money on .. own .. so I aren't stupid"
icedchai 7y ago
You'd be surprised. Were you around during the dot com period?
- aty268 7y ago
  Well, I was around 3 at the time so not really.
pseudolus 7y ago
It comes to down to "FOMO" Fear of Missing Out. Who wants to be known as the VC who passed on the next Google or Facebook?
csomar 7y ago
Because money, and its management, is not distributed by I.Q. but rather hazardously. Here are a few categories that I can think of. - rich people by inheritance. They might have been spoiled and thus required little due diligence in life; or simply they are dumb and believe the hype. - rich people by accident. They are not particularly bright. They invested in real-estate very early on because that's what they know at the time. Then real-estate appreciated significantly in the last few decades in their area and they are crazy rich. - people managing other people money. they have to invest in "blockchain" and stuff and they get introduced via their circle. It's not their money at the end of the day; and if the VC fund collapse they'll manage to jump to the next one thanks to the networking circle they were busy building during their last tenure.

by aty268 7y ago

I have a question. How in the world do VC's ever fall for this bullshit? I mean in most situations they have made enough money on their own to invest, so they aren't stupid right?

dharmon 7y ago

There are a lot of parts to the answer, at least in my experience with VCs. Probably the biggest is just that they have a bias to be bullshitted (bullshat?). The are constantly searching for the next big thing, so they need these things to be true. They want them to be true. And human nature makes them scared of missing out. Also, most of the VCs out there are not investing their own money, and have never actually operated a business. This is why they ask the same questions with slight variations, and get obsessed with metrics that may or may not apply to a given business. This also makes them easier to fool, although many make up for this hands-on inexperience with enough years of watching startups that they can "pattern match" rather than understand things from first principles. Most also develop specialties. You're not going to fool an experienced blockchain VC with the made up or cherry-picked bitcoin numbers. But go next door on Sand Hill Rd and you can probably get away with it.

smt88 7y ago

1. Most VCs don't create value. Compared to a passive fund, like an ETF, they lose money (and take large fee, regardless of performance). 2. Most of the people staffing VCs were not necessarily successful investors. Many were people in their 20s escaping the NYC banking scene to be analysts in VC. These days, there are many people on the capital side that are ex-entrepreneurs, but that still doesn't mean they know how to spot a deal. 3. It does not always make economic sense to try to out a scam. If your model is that you find one mega-return to erase 100 failures in your portfolio, you actually go around looking for deals that sound insane (like Theranos). If other reputable VCs have already led the round, you just throw your money in without even investigating. 4. Most importantly, most VCs don't fall for anything this crappy. The target is likely individuals with net worths in the millions who aren't very business savvy. There are lots of such people (children of wealth, for example).

excitom 7y ago
Related story: Around the turn of the century I was talking to a VC friend about the dot com boom. He said "Watch out if the dentists start investing." Meaning, people with high net worth, inflated sense of knowledge, and not much tech savvy. Next teeth cleaning visit, my dentist enthusiastically told me about a start up he was investing in. Coincidental or not, the crash soon followed.
- WrtCdEvrydy 7y ago
  I was involved in a bitcoin ATM company and left... two years later, was sitting at my current company in the bathroom and I hear someone from the non-technical side go 'Dude, you have to invest, it's at nearly $20,000, it could go to a million'. You'll never guess what happened when it passed $17,000

nexuist 7y ago

Any sufficiently advanced bullshit is indistinguishable from intellect.

hef19898 7y ago
That's a great one! Hope you don't mind if I borrow it?
- nexuist 7y ago
  Ha, no problem. It's based off another quote, "Any sufficiently advanced technology is indistinguishable from magic." https://en.wikipedia.org/wiki/Clarke%27s_three_laws https://en.wikipedia.org/wiki/Clarke%27s_three_laws
  - hef19898 7y ago
    That one I know! Nice twist you added there!
    - nexuist 7y ago
      When I was still in robotics, one of our mentors had a similar quote, "if you can't Beat them with Brilliance, Baffle them with Bullshit!" It helped a lot during demonstrations.

omarhaneef 7y ago

I don't think most people -- VC, angel or otherwise -- do, but I suppose occasionally some must. I believe what happens is that they think about the idea. What if there were some kind of bitcoin powered investing platform. Sort of like angellist but the block chain would ensure the funders were real and the money was in some crypto? Yes, that could work. Wow, it could be worth a lot! Imagine all the startups that could get funded and omg where do I sign? This wouldn't happen if you went for a visit, and the person -- lets assume they mean well and are not lying -- logged in and the screen was a little awkward. There were zero companies signed up because the authorities had not signed off on it yet. There are two companies waiting: a fast food franchise and a t-shirt company. The gap between what could be and what probably is, is very wide till you actually look at the thing.

speeder 7y ago

I once pitched around my own startup... and VCs all refused it, just in case it was "another scam". Then I found out... they DID got scammed, in a rather elaborate way: some guy (that I won't name here, but you can find out who it is) seemly created a mobile games company, made some simple but wildly successful games (in donwload numbers), and then started to put ad fraud after ad fraud on the games, Apple started to ban him, but he would find other ways to get back, meanwhile he would accumulate cash, then he rented an office, built a seemly legitimate company, and asked the VCs for money, and as proof of his business working as intended, gave to the VCs the data about his income... Eventually Apple and Google figured out how to kind-of get rid of his frauds permanently, seemly he found one last loophole, moved all apps to a new account that was on his name only (not his company), fired all employees, and took off with Apple's and VC's money. I was told Apple ended taking the hit, they gave all the defrauded money back to advertisers, but couldn't get the money back from the scammer. So to reply to your question: if you have data, for example (fraudulent) income, it is easy to convince VCs... for the first time. Since on the second attempt they believe even real business (like mine) is a fraud.

majos 7y ago
Confused about one point, if he can build wildly downloaded games why doesn't he just do that legitimately? Or are those numbers somehow fake?
- jacquesm 7y ago
  I know two people like that. Both absolute genius level but for some reason the only way they can think about making money is by somehow moving it from someone else's pockets to theirs without creating any value. If they spent 10% of their talent on value creation and the rest on the business end they'd be doing much better than they do now. Really wasteful.
  - majos 7y ago
    That's strange. It seems not only wasteful but much riskier. Do you have some guess for why they operate that way?

Nextgrid 7y ago

Given the amount of VC-funded companies with blockchain-powered products where the blockchain is either useless and can be replaced with a database, or where the product itself is completely flawed I realised a lot of VCs do absolutely zero due-diligence on a technical level.

paulgb 7y ago
I remember that hitting home for me when I saw a "stable coin" that was mechanically equivalent the a sort of economic perpetual motion machine raised over $100M from reputable investors. Not just a $100M+ valuation, a $100M+ raise. Nobody I talked to who had actually read and understood the white paper was surprised when they folded after not launching, blaming regulators rather than taking ownership of the fact that it was a flawed premise.
- jacquesm 7y ago
  What happened to the money?
  - paulgb 7y ago
    They apparently returned 90% of it, I'm not sure where the $13M was spent. (To be clear, I'm not suggesting this is a scam per your definition, just a failure of DD on the VC's part.) https://www.wsj.com/articles/stablecoin-project-basis-is-shutting-down-after-raising-135-million-11544730772 https://www.wsj.com/articles/stablecoin-project-basis-is-shu...

rasz 7y ago

You answered your own question, reshuffling your post: "I.. have made enough money on .. own .. so I aren't stupid"

icedchai 7y ago

You'd be surprised. Were you around during the dot com period?

aty268 7y ago
Well, I was around 3 at the time so not really.

pseudolus 7y ago

It comes to down to "FOMO" Fear of Missing Out. Who wants to be known as the VC who passed on the next Google or Facebook?

csomar 7y ago

Because money, and its management, is not distributed by I.Q. but rather hazardously. Here are a few categories that I can think of. - rich people by inheritance. They might have been spoiled and thus required little due diligence in life; or simply they are dumb and believe the hype. - rich people by accident. They are not particularly bright. They invested in real-estate very early on because that's what they know at the time. Then real-estate appreciated significantly in the last few decades in their area and they are crazy rich. - people managing other people money. they have to invest in "blockchain" and stuff and they get introduced via their circle. It's not their money at the end of the day; and if the VC fund collapse they'll manage to jump to the next one thanks to the networking circle they were busy building during their last tenure.