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More than once I have said that some startups would do a lot better if they used half the money they got from their last round, bought a few grams of mushrooms

More than once I have said that some startups would do a lot better if they used half the money they got from their last round, bought a few grams of mushrooms for everyone, and then set the rest on fire on a beach somewhere, but for a very specific reason. There are legit complaints about VC's as a whole, but being risk averse is not one of them, and one from someone heroically accepting a regular paycheque and a snack fridge from one of their companies every two weeks, calling them out on risk aversion does seem a bit rich. The reason is too much cash takes the focus off product and turns it inward and creates a zero sum competition internally among managers to loot the excess money instead of focusing on growth from real revenue. Economically, at least the fire would be deflationary. Cash is literally fuel, and unless you can put it into something that grows, it's a volatile nuissance whose fumes impair judgment. If you want to destroy a product and a company, get them indexed on unlocking a covenant or raising another round where the execs get bonused out of it. Cash is what you have when you don't have product market fit and (I think) it creates a culture that repels customer desire. Why make anything someone wants when you have enough runway to tinker with what you want for yourself, maybe some follie that you can speak at conferences about, or the best devops and ci/cd pipeline to nowhere? I'm harsh about this because investors buy a ticket for a growth ride, and the best ones are diversified enough that they really do just buy the ticket and take the ride. But watching engineers iterate on refining the exeuction of solved problems, managers focus on "getting resources," and sales acting like the abused secret side partner to some flagship account they're fronting to attract investor/acquirer interest - are all just spinning wheels, imo. There are lots of legit complaints about VCs, particularly around financial engineering, and some negative culture issues from the teams they can parachute in, but even as an admitted serial IC technologist, the article embarasses me.

drc500free 5y ago
It's certainly a different way of thinking about your burn rate.
robbomacrae 5y ago
"I'm harsh about this because investors buy a ticket for a growth ride, and the best ones are diversified enough that they really do just buy the ticket and take the ride. But watching engineers iterate on refining the exeuction of solved problems, managers focus on "getting resources," and sales acting like the abused secret side partner to some flagship account they're fronting to attract investor/acquirer interest - are all just spinning wheels, imo." -- that was an incredibly well written and succinct summary of the the dangers of over funding. I couldn't agree more!
nonrandomstring 5y ago
> bought a few grams of mushrooms for everyone, and then set the rest on fire on a beach somewhere, Whatever happened to Josh Harris of pseudo/quiet? In that weird but prescient doco "We live in public" he says something like all the guys he knew who made dotcom fortunes "wasted their money" by not blowing the lot on "surveillance art" millennium apocalypse parties. And KLF certainly made a lasting myth, whether they torched the wonga or not. I am just pondering the power, ethics and potential of conspicuous destruction of ones own wealth. There's something profane in this, in a world where it's getting harder to find. Wouldn't it be funny if Musk bought Twitter, and simply shut it down, and pissed off on vacation with no contactable number.
- agentwiggles 5y ago
  One of my favorite software devs I've worked with once told me that if he were elected president, his first and only action as president would be to abolish the presidency and then return home. Obviously not actually plausible, but I got a kick out of his sincerity on the topic. (If you're out there, Dan, hi!)
- kingcharles 5y ago
  The KLF were just ahead of their time. Now they could launch a DAO and everyone could own a share of the burnt wonga and they could sell NFTs of it and open a fast-food chain where everyone can pay with burnt twenty quid notes.
- scruple 5y ago
  > Wouldn't it be funny if Musk bought Twitter, and simply shut it down, and pissed off on vacation with no contactable number. I've honestly had the same thought rattling around in my head during this entire spectacle. It'd certainly be the boat interesting outcome.
jedberg 5y ago
> There are legit complaints about VC's as a whole, but being risk averse is not one of them, I strongly disagree. Most VCs are very risk averse. They just pattern match to previous success, or "wait for someone to take the lead". Only the top VCs are risk takers -- most of the rest just follow on for the ride. Angel investors are much more willing to take risks than VCs.
- placidpanda 5y ago
  I don't think it's actually risk aversion or not. The risk is not precisely and exactly quantified. The uncertainty isn't precisely quantified. This isn't an experiment where someone is asked "Would you like to have $2, or flip a coin and get $5 if its heads, or roll a die and get $16 if it's a six?" I think it's more about how they are estimating risk in different areas, and ways in which one might commonly see people overvalue or undervalue risk, or overvalue or undervalue potential payoffs. It's not that they're trying to be more conservative, their incorrect calculation just makes one option seem like a bad (or worse idea) than another. An alternative viewpoint is that maybe their risk calculation isn't actually wrong and they're not risk averse, they're just taking the strategy of only making decisions that don't make you look foolish and can be blamed elsewhere if you lose, but can take credit when you're lucky and they win. Saying yes to 2$ over a coin flip to $5 is risk aversion. Saying no to $3 so you can coin flip for $5 is probably just foolish.
  - jedberg 5y ago
    Most risk is not quantifiable like that. Very few things are as clear cut as gambling. Most risk is in the form of "should I try to swim across this rushing river or risk going downstream to look for a bridge". That risk isn't quantifiable. But if you're in a national park, you know there is a good chance there is a bridge, so you pattern match what you know about national parks and decide that looking for a bridge is less risky, knowing your priors. VCs operate the same way. They know that in the past they funded two founders from MIT making a marketplace, so they are far more likely to put money into that again than something from a solo female founder who never went to college. That's why I say they are risk averse.
imtringued 5y ago
If I had to summarize the problem it would be that there is too much financial capital and no market signal to tell people to stop producing more financial capital. You have this huge amount of money that you must dispose of for which you demand x% of return. All those startups can deliver x% returns but they can't use all of your money. So you stop giving them money and instead give it to those that are promising x% and taking as much funding as they can get their hands on, fully aware that they could run their business with much less funding and then you end up with all these absolutely gigantic money losing unicorns with the hope that you can sell them to other investors and let them be stuck with the loss by telling them that some sort of monopoly forms which will make it worth it.
dsugarman 5y ago
They are for sure risk adverse and they for sure act like sheep. Most VCs would agree with that in private, if not about themselves, about the space in general. They all like betting on hot startups in hot spaces, there's a lot of big winners and big losers in that group. Almost no one wants to bet on a not hot space and almost no one wants to be the first investor in a company. All due diligence goes out the window when a company is red hot and you aren't expected to do any because look at all the other big names that presumably did. Almost no one wanted to bet on Coinbase in 2012 but everyone wanted to bet on all of these derivative crypto projects after Coinbase and bitcoin were killing it.
jl2718 5y ago
Money very clearly has a social coordination effect. You can’t get people together predictably and repeatably without it. Interestingly, it doesn’t matter whether it’s positive or negative cash flow. Elite private colleges are an example of people paying for the same social coordination they’ll expect to be paid for later on in life. I think university startups work because students are looking to use money and business to keep exploring and maintain friendships. I really wish there was such a thing for older people. I cannot figure out how to make this work, even with money.

drc500free 5y ago

It's certainly a different way of thinking about your burn rate.

robbomacrae 5y ago

"I'm harsh about this because investors buy a ticket for a growth ride, and the best ones are diversified enough that they really do just buy the ticket and take the ride. But watching engineers iterate on refining the exeuction of solved problems, managers focus on "getting resources," and sales acting like the abused secret side partner to some flagship account they're fronting to attract investor/acquirer interest - are all just spinning wheels, imo." -- that was an incredibly well written and succinct summary of the the dangers of over funding. I couldn't agree more!

nonrandomstring 5y ago

> bought a few grams of mushrooms for everyone, and then set the rest on fire on a beach somewhere, Whatever happened to Josh Harris of pseudo/quiet? In that weird but prescient doco "We live in public" he says something like all the guys he knew who made dotcom fortunes "wasted their money" by not blowing the lot on "surveillance art" millennium apocalypse parties. And KLF certainly made a lasting myth, whether they torched the wonga or not. I am just pondering the power, ethics and potential of conspicuous destruction of ones own wealth. There's something profane in this, in a world where it's getting harder to find. Wouldn't it be funny if Musk bought Twitter, and simply shut it down, and pissed off on vacation with no contactable number.

agentwiggles 5y ago
One of my favorite software devs I've worked with once told me that if he were elected president, his first and only action as president would be to abolish the presidency and then return home. Obviously not actually plausible, but I got a kick out of his sincerity on the topic. (If you're out there, Dan, hi!)
kingcharles 5y ago
The KLF were just ahead of their time. Now they could launch a DAO and everyone could own a share of the burnt wonga and they could sell NFTs of it and open a fast-food chain where everyone can pay with burnt twenty quid notes.
scruple 5y ago
> Wouldn't it be funny if Musk bought Twitter, and simply shut it down, and pissed off on vacation with no contactable number. I've honestly had the same thought rattling around in my head during this entire spectacle. It'd certainly be the boat interesting outcome.

jedberg 5y ago

> There are legit complaints about VC's as a whole, but being risk averse is not one of them, I strongly disagree. Most VCs are very risk averse. They just pattern match to previous success, or "wait for someone to take the lead". Only the top VCs are risk takers -- most of the rest just follow on for the ride. Angel investors are much more willing to take risks than VCs.

placidpanda 5y ago
I don't think it's actually risk aversion or not. The risk is not precisely and exactly quantified. The uncertainty isn't precisely quantified. This isn't an experiment where someone is asked "Would you like to have $2, or flip a coin and get $5 if its heads, or roll a die and get $16 if it's a six?" I think it's more about how they are estimating risk in different areas, and ways in which one might commonly see people overvalue or undervalue risk, or overvalue or undervalue potential payoffs. It's not that they're trying to be more conservative, their incorrect calculation just makes one option seem like a bad (or worse idea) than another. An alternative viewpoint is that maybe their risk calculation isn't actually wrong and they're not risk averse, they're just taking the strategy of only making decisions that don't make you look foolish and can be blamed elsewhere if you lose, but can take credit when you're lucky and they win. Saying yes to 2$ over a coin flip to $5 is risk aversion. Saying no to $3 so you can coin flip for $5 is probably just foolish.
- jedberg 5y ago
  Most risk is not quantifiable like that. Very few things are as clear cut as gambling. Most risk is in the form of "should I try to swim across this rushing river or risk going downstream to look for a bridge". That risk isn't quantifiable. But if you're in a national park, you know there is a good chance there is a bridge, so you pattern match what you know about national parks and decide that looking for a bridge is less risky, knowing your priors. VCs operate the same way. They know that in the past they funded two founders from MIT making a marketplace, so they are far more likely to put money into that again than something from a solo female founder who never went to college. That's why I say they are risk averse.

imtringued 5y ago

If I had to summarize the problem it would be that there is too much financial capital and no market signal to tell people to stop producing more financial capital. You have this huge amount of money that you must dispose of for which you demand x% of return. All those startups can deliver x% returns but they can't use all of your money. So you stop giving them money and instead give it to those that are promising x% and taking as much funding as they can get their hands on, fully aware that they could run their business with much less funding and then you end up with all these absolutely gigantic money losing unicorns with the hope that you can sell them to other investors and let them be stuck with the loss by telling them that some sort of monopoly forms which will make it worth it.

dsugarman 5y ago

They are for sure risk adverse and they for sure act like sheep. Most VCs would agree with that in private, if not about themselves, about the space in general. They all like betting on hot startups in hot spaces, there's a lot of big winners and big losers in that group. Almost no one wants to bet on a not hot space and almost no one wants to be the first investor in a company. All due diligence goes out the window when a company is red hot and you aren't expected to do any because look at all the other big names that presumably did. Almost no one wanted to bet on Coinbase in 2012 but everyone wanted to bet on all of these derivative crypto projects after Coinbase and bitcoin were killing it.

jl2718 5y ago

Money very clearly has a social coordination effect. You can’t get people together predictably and repeatably without it. Interestingly, it doesn’t matter whether it’s positive or negative cash flow. Elite private colleges are an example of people paying for the same social coordination they’ll expect to be paid for later on in life. I think university startups work because students are looking to use money and business to keep exploring and maintain friendships. I really wish there was such a thing for older people. I cannot figure out how to make this work, even with money.