4 ms·

VCs buy growth, headcount signals growth

by m_ke 5y ago

nbstme 5y ago
Not sure that signaling & social status lead however to success
- m_ke 5y ago
  If your goal is to maximize the rate of return you pump a lot of cash into a startup, force them to spend it on heads and marketing then ask your friend to 10x the valuation in 12 months.
  - nbstme 5y ago
    Haha true! Although it's the "not realized rate of return." That might be good enough to raise another fund and live out of generous management fees, but it is not sufficient to realize financial performance - making money when the business sells out or IPO.
    - m_ke 5y ago
      Public markets have the same incentives, as long as there's growth stonks go up. Late stage firms have relationships with banks and the return of SPACs made dumping roided up donkeys easier than ever.
      - nbstme 5y ago
        Warren Buffet claims that his mentor Benjamin Graham once wrote: "In the short run, the market is a voting machine, but in the long run, it is a weighing machine" In the long run, fundamentals matter, and only the best business thrives.
        m_ke 5y ago
        Yes but VC funds have a fixed window, their goal is to deploy their money in the first 3-5 years and show returns in under 10.
- vanusa 5y ago
  If the goal is to create a successful product, then no. If the goal is to get another round of funding from, or bought by someone with tons of cash but lazy in the diligence department -- then it can definitely "work".
paulcole 5y ago
About a decade ago I worked at a place where we frantically moved from our private offices to a big shared open office situation with whiteboards on the walls before the investors came because "that's how facebook does it." It worked and the place got bought out lol. Business was shit though.
- rich_sasha 5y ago
  Ours had a fancy "library", well-stocked with thought-provoking books, supposedly for stimulating discussion and study, realistically only for showing investors around. The "library" backed out onto the Big Boss' office and he didn't like the noise. Oh, I forget, of course he sat with us lowly minions at the coal face of open space, and it definitely wasn't his office. Except it was. And he didn't like the noise.
rjzzleep 5y ago
Not just VCs a lot of governmental funding initiatives or tax initiatives are based on headcount growth. So sometimes you hear startup founders proudly say how they will double the headcount in the next year.
tootie 5y ago
It's not just VCs. In a big corporation, the number of reports in your org is proxy to your clout. The more people you manage the more prestige you have. My wife likes to say "Head count is currency". It can absolutely lead to bloat because leaders are now incentivized to have more employees instead of producing more value.

VCs buy growth, headcount signals growth

by m_ke 5y ago

VCs buy growth, headcount signals growth

nbstme 5y ago

Not sure that signaling & social status lead however to success

m_ke 5y ago
If your goal is to maximize the rate of return you pump a lot of cash into a startup, force them to spend it on heads and marketing then ask your friend to 10x the valuation in 12 months.
- nbstme 5y ago
  Haha true! Although it's the "not realized rate of return." That might be good enough to raise another fund and live out of generous management fees, but it is not sufficient to realize financial performance - making money when the business sells out or IPO.
  - m_ke 5y ago
    Public markets have the same incentives, as long as there's growth stonks go up. Late stage firms have relationships with banks and the return of SPACs made dumping roided up donkeys easier than ever.
    - nbstme 5y ago
      Warren Buffet claims that his mentor Benjamin Graham once wrote: "In the short run, the market is a voting machine, but in the long run, it is a weighing machine" In the long run, fundamentals matter, and only the best business thrives.
      - m_ke 5y ago
        Yes but VC funds have a fixed window, their goal is to deploy their money in the first 3-5 years and show returns in under 10.
vanusa 5y ago
If the goal is to create a successful product, then no. If the goal is to get another round of funding from, or bought by someone with tons of cash but lazy in the diligence department -- then it can definitely "work".

paulcole 5y ago

About a decade ago I worked at a place where we frantically moved from our private offices to a big shared open office situation with whiteboards on the walls before the investors came because "that's how facebook does it." It worked and the place got bought out lol. Business was shit though.

rich_sasha 5y ago
Ours had a fancy "library", well-stocked with thought-provoking books, supposedly for stimulating discussion and study, realistically only for showing investors around. The "library" backed out onto the Big Boss' office and he didn't like the noise. Oh, I forget, of course he sat with us lowly minions at the coal face of open space, and it definitely wasn't his office. Except it was. And he didn't like the noise.

rjzzleep 5y ago

Not just VCs a lot of governmental funding initiatives or tax initiatives are based on headcount growth. So sometimes you hear startup founders proudly say how they will double the headcount in the next year.

tootie 5y ago

It's not just VCs. In a big corporation, the number of reports in your org is proxy to your clout. The more people you manage the more prestige you have. My wife likes to say "Head count is currency". It can absolutely lead to bloat because leaders are now incentivized to have more employees instead of producing more value.