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There was a common sentiment that speed was everything in VC over the past several years. Due Diligence only slowed you down and made you miss deals. If you wan

There was a common sentiment that speed was everything in VC over the past several years. Due Diligence only slowed you down and made you miss deals. If you wanted gains, you had to invest first with conviction and trust the founders. Amazing to see how efficiently some of the biggest grifters exploited this dynamic to funnel money straight from investors and into their own personal net worth, while building businesses that couldn't have possibly been profitable. It didn't matter, though, because they needed the sense of scale and growth to continue grifting investors. WeWork, Theranos, and FTX are widely known examples. Two of those founders acted criminally and have been arrested. Neumann was shockingly good at perform open-book grifts that benefited himself, but investors looked the other way. One of my favorite stories from this era is Pipe, a fintech company with a business model that didn't really make sense to anyone familiar with their industry. They raised hundreds of millions at multi-billion dollar valuations, then the entire founding team of 3 people just stepped down: https://techcrunch.com/2022/11/22/pipes-founding-team-stepping-down-as-hunt-for-veteran-ceo-begins/ https://techcrunch.com/2022/11/22/pipes-founding-team-steppi... They're trying to spin it as a narrative about being 0-1 builders, but it's hard to take them seriously when 3 people are stepping down simultaneously right after getting a huge bump to their personal wealth. Raising money was their goal, building a perception of a successful business was only useful as far as it supported transfers from investors to their bank accounts. Would be fun to see how much they sold in secondaries.

btown 4y ago
Out of curiosity, why wouldn't Pipe's model have worked? To my knowledge, invoice factoring has been around since ancient times, and became a key (albeit exploitative) part of the textile industry among others. If a SaaS has a degree of lock-in to the extent that churn rates can be modeled predictably, I don't see how churn risk couldn't just be modeled alongside the traditional risk that the customer becomes insolvent on existing invoices. Now, if Pipe was subsidizing those risk-adjusted prices with VC money, then squandering that by being an inexperienced operating team, I can see how they themselves may have failed. But is that a death knell for the entire model? Is it that VC backed companies are themselves at higher risk of default in a correlated way that wasn't being taken into account?
0cf8612b2e1e 4y ago
>… and into their own personal net worth, while building businesses that couldn't have possibly been profitable. I disagree with this characterization of WeWork. Were they extravagantly blowing money on stupid things? Yes. Was the CEO directly enriching himself through his leadership? Yes. However, the business of being a landlord and renting office space is a pedestrian and profitable venture. It’s just not a sexy startup idea worth billions.
- Retric 4y ago
  Being a taxi company or takeout business doesn’t seem sexy either, but several giant “tech” startups existed in those spaces space.
  - olivermarks 4y ago
    Uber has never been profitable
    - Retric 4y ago
      Most startups are never profitable especially in the unsexy spaces like travel agents, used car dealerships, etc.
  - bostik 4y ago
    I recall someone on HN pointing out years ago a curious detail about financial metrics, and how they made food delivery apps look FAR better for VC capital than they in reality are. The underlying reason: pass-through billing. The food delivery startups accept payments, take their cut, and pay out to restaurants & drivers. From a purely financial viewpoint they're paying out a lot of money, perfectly normal in VC land. But they are also taking in an absolute mountain of money, and if you squint, can all look quite a bit like top-line revenue. If you then slice open the business operating costs, and look at how much it costs them internally (accounting only for salaries, rents and operating costs) to service a delivery, the per-unit revenue/cost figures are off the charts. Physical retail intake, and virtual goods unit production costs. What's not to drool over? It was an interesting point - and being thoroughly cynical, likely based in reality.
wpietri 4y ago
> There was a common sentiment that speed was everything in VC over the past several years. And for the VCs it has often worked out. If you're fast enough to get something IPOed before the bubble pops, who cares if there's a real business model? Personally, as somebody who thinks actually delivering value is important, I'm delighted that this era of easy money and massive hype might be ending. Hopefully companies soon will have to be able to actually turn a sustained profit before IPO. And I don't know about you, but I'm immensely enjoying WeWork's fall. It never made any sense, and since the wheels came off before the IPO, it's not retail investors who are taking the loss here.
- Karrot_Kream 4y ago
  > And I don't know about you, but I'm immensely enjoying WeWork's fall. It never made any sense, and since the wheels came off before the IPO, it's not retail investors who are taking the loss here. I agree with everything else, but I'm not a fan of this modern era of schadenfreude that seems to be ever present on tech sites. Theranos and WeWork were certainly fraudulent enough to laugh at, but it's created this effect of fraud-voyeurism that feels more tabloid than news; more celebrity gossip than business news. It also encourages shallow misunderstandings. Real estate can be a profitable business, and certainly many developers turn a profit by reasonably financing and pricing their offerings. But a lot of people are opining about WeWork being unprofitable. Unprofitability is not the same as an exaggerated market cap. Still, I hope Theranos and WeWork are good, cautionary tales of the downsides of easy money.
  - wpietri 4y ago
    You may not be a fan, but that's not going to stop me. I have spent years having to endure the horseshit from places like Theranos, WeWork, and the entire cryptocurrency industry. I knew it was horseshit. The people spouting it could have known it was horseshit if they had bothered, but they did what was in their short-term interests without regard to harm to others. I am going to enjoy seeing them get whatever paltry and belated comeuppance that karma visits upon them. If they ever suffer as much pain as they've inflicted, I might change my tune, so feel free to come back to me then. But in the meantime, I will enjoy whatever sense of justice served I can extract.
x0x0 4y ago
Why doesn't pipe make sense?
mbesto 4y ago
> Amazing to see how efficiently some of the biggest grifters exploited this dynamic to funnel money straight from investors and into their own personal net worth, while building businesses that couldn't have possibly been profitable. It didn't matter, though, because they needed the sense of scale and growth to continue grifting investors. Matt Levine had a great theory on this. It basically boiled down to: "If I wanted to short the VC market how would I do it?"...and basically point to what Adam Neumann did: I can’t quite say that Neumann improved the allocation of capital, but there are certain parallels. Neumann too … look, here I am speculating, and I don’t mean to speak for Neumann’s subjective experience of his WeWork career, but from the outside, in hindsight, objectively, one could describe it like this: He spotted a bubble in venture-subsidized fast-growing money-losing capital-intensive low-margin tech-adjacent companies, noticed in particular that SoftBank seemed to be on the long side of that bubble, and set himself up to profit on the other side—by raising money for his own ultra-unicorn, by setting up the governance of that unicorn in a maximally self-interested way, and by selling and margining a bunch of his personal shares. 6 When investors like SoftBank were frenziedly buying unicorn stock, he was frenziedly selling it. He set himself up to profit from the collapse of the unicorn bubble, and accelerated that collapse. Lessons were learned, and he taught them. Now he’s rich. https://www.bloomberg.com/opinion/articles/2019-10-23/how-do-you-like-we-now?sref=Mv7iE3iW https://www.bloomberg.com/opinion/articles/2019-10-23/how-do...
- deleted 4y ago
  [deleted]
- debatem1 4y ago
  Interesting perspective, thanks for sharing.
spaceman_2020 4y ago
> while building businesses that couldn't have possibly been profitable All of these businesse can easily be profitable. Shared offices have been a thing forever and easily turn handsome profits. As do cab companies, courier companies, restaurants... What isn't possible is turning in enough profits to justify the mammoth valuations.
avip 4y ago
Not sure why we put WeWork, Theranos, and FTX in same bucket? Holmes is in jail, SBF probably on his way, but that Adam Neuman, for what it worth, is apparently not accused in any fraud. He's "just" a failed founder that costed his investors $$$, not unlike many, many others.
- lordnacho 4y ago
  Think he's suggesting bad faith is what they all have in common? Trying to get money from investors rather than by actually building a business, which can be done legally or illegally.
smileysteve 4y ago
The venture campitalists are in on the grift too; They follow the FTX playbook fairly often; It's just legal. They'll invest in a series of companies, as those companies are failing, they'll buy them out with one of their successful companies (possibly a later stage investment, cheaper in a less costly market) then the once successful company also can't survive. On paper, it looks like they have 3-4 successes to balance out their one failure. For their personal portfolio, it's also great too, and helps them raise more money. If they're really successful, they'll oust the CEO of one of the once successful but in down market companies, really boost their shares; and if lucky that investment will exit.
wodenokoto 4y ago
So Pipe basically to the kickstarter model and ydes it ob VC?

btown 4y ago

Out of curiosity, why wouldn't Pipe's model have worked? To my knowledge, invoice factoring has been around since ancient times, and became a key (albeit exploitative) part of the textile industry among others. If a SaaS has a degree of lock-in to the extent that churn rates can be modeled predictably, I don't see how churn risk couldn't just be modeled alongside the traditional risk that the customer becomes insolvent on existing invoices. Now, if Pipe was subsidizing those risk-adjusted prices with VC money, then squandering that by being an inexperienced operating team, I can see how they themselves may have failed. But is that a death knell for the entire model? Is it that VC backed companies are themselves at higher risk of default in a correlated way that wasn't being taken into account?

0cf8612b2e1e 4y ago

>… and into their own personal net worth, while building businesses that couldn't have possibly been profitable. I disagree with this characterization of WeWork. Were they extravagantly blowing money on stupid things? Yes. Was the CEO directly enriching himself through his leadership? Yes. However, the business of being a landlord and renting office space is a pedestrian and profitable venture. It’s just not a sexy startup idea worth billions.

Retric 4y ago
Being a taxi company or takeout business doesn’t seem sexy either, but several giant “tech” startups existed in those spaces space.
- olivermarks 4y ago
  Uber has never been profitable
  - Retric 4y ago
    Most startups are never profitable especially in the unsexy spaces like travel agents, used car dealerships, etc.
- bostik 4y ago
  I recall someone on HN pointing out years ago a curious detail about financial metrics, and how they made food delivery apps look FAR better for VC capital than they in reality are. The underlying reason: pass-through billing. The food delivery startups accept payments, take their cut, and pay out to restaurants & drivers. From a purely financial viewpoint they're paying out a lot of money, perfectly normal in VC land. But they are also taking in an absolute mountain of money, and if you squint, can all look quite a bit like top-line revenue. If you then slice open the business operating costs, and look at how much it costs them internally (accounting only for salaries, rents and operating costs) to service a delivery, the per-unit revenue/cost figures are off the charts. Physical retail intake, and virtual goods unit production costs. What's not to drool over? It was an interesting point - and being thoroughly cynical, likely based in reality.

wpietri 4y ago

> There was a common sentiment that speed was everything in VC over the past several years. And for the VCs it has often worked out. If you're fast enough to get something IPOed before the bubble pops, who cares if there's a real business model? Personally, as somebody who thinks actually delivering value is important, I'm delighted that this era of easy money and massive hype might be ending. Hopefully companies soon will have to be able to actually turn a sustained profit before IPO. And I don't know about you, but I'm immensely enjoying WeWork's fall. It never made any sense, and since the wheels came off before the IPO, it's not retail investors who are taking the loss here.

Karrot_Kream 4y ago
> And I don't know about you, but I'm immensely enjoying WeWork's fall. It never made any sense, and since the wheels came off before the IPO, it's not retail investors who are taking the loss here. I agree with everything else, but I'm not a fan of this modern era of schadenfreude that seems to be ever present on tech sites. Theranos and WeWork were certainly fraudulent enough to laugh at, but it's created this effect of fraud-voyeurism that feels more tabloid than news; more celebrity gossip than business news. It also encourages shallow misunderstandings. Real estate can be a profitable business, and certainly many developers turn a profit by reasonably financing and pricing their offerings. But a lot of people are opining about WeWork being unprofitable. Unprofitability is not the same as an exaggerated market cap. Still, I hope Theranos and WeWork are good, cautionary tales of the downsides of easy money.
- wpietri 4y ago
  You may not be a fan, but that's not going to stop me. I have spent years having to endure the horseshit from places like Theranos, WeWork, and the entire cryptocurrency industry. I knew it was horseshit. The people spouting it could have known it was horseshit if they had bothered, but they did what was in their short-term interests without regard to harm to others. I am going to enjoy seeing them get whatever paltry and belated comeuppance that karma visits upon them. If they ever suffer as much pain as they've inflicted, I might change my tune, so feel free to come back to me then. But in the meantime, I will enjoy whatever sense of justice served I can extract.

x0x0 4y ago

Why doesn't pipe make sense?

mbesto 4y ago

> Amazing to see how efficiently some of the biggest grifters exploited this dynamic to funnel money straight from investors and into their own personal net worth, while building businesses that couldn't have possibly been profitable. It didn't matter, though, because they needed the sense of scale and growth to continue grifting investors. Matt Levine had a great theory on this. It basically boiled down to: "If I wanted to short the VC market how would I do it?"...and basically point to what Adam Neumann did: I can’t quite say that Neumann improved the allocation of capital, but there are certain parallels. Neumann too … look, here I am speculating, and I don’t mean to speak for Neumann’s subjective experience of his WeWork career, but from the outside, in hindsight, objectively, one could describe it like this: He spotted a bubble in venture-subsidized fast-growing money-losing capital-intensive low-margin tech-adjacent companies, noticed in particular that SoftBank seemed to be on the long side of that bubble, and set himself up to profit on the other side—by raising money for his own ultra-unicorn, by setting up the governance of that unicorn in a maximally self-interested way, and by selling and margining a bunch of his personal shares. 6 When investors like SoftBank were frenziedly buying unicorn stock, he was frenziedly selling it. He set himself up to profit from the collapse of the unicorn bubble, and accelerated that collapse. Lessons were learned, and he taught them. Now he’s rich. https://www.bloomberg.com/opinion/articles/2019-10-23/how-do-you-like-we-now?sref=Mv7iE3iW https://www.bloomberg.com/opinion/articles/2019-10-23/how-do...

deleted 4y ago
[deleted]
debatem1 4y ago
Interesting perspective, thanks for sharing.

spaceman_2020 4y ago

> while building businesses that couldn't have possibly been profitable All of these businesse can easily be profitable. Shared offices have been a thing forever and easily turn handsome profits. As do cab companies, courier companies, restaurants... What isn't possible is turning in enough profits to justify the mammoth valuations.

avip 4y ago

Not sure why we put WeWork, Theranos, and FTX in same bucket? Holmes is in jail, SBF probably on his way, but that Adam Neuman, for what it worth, is apparently not accused in any fraud. He's "just" a failed founder that costed his investors $$$, not unlike many, many others.

lordnacho 4y ago
Think he's suggesting bad faith is what they all have in common? Trying to get money from investors rather than by actually building a business, which can be done legally or illegally.

smileysteve 4y ago

The venture campitalists are in on the grift too; They follow the FTX playbook fairly often; It's just legal. They'll invest in a series of companies, as those companies are failing, they'll buy them out with one of their successful companies (possibly a later stage investment, cheaper in a less costly market) then the once successful company also can't survive. On paper, it looks like they have 3-4 successes to balance out their one failure. For their personal portfolio, it's also great too, and helps them raise more money. If they're really successful, they'll oust the CEO of one of the once successful but in down market companies, really boost their shares; and if lucky that investment will exit.

wodenokoto 4y ago

So Pipe basically to the kickstarter model and ydes it ob VC?