4 ms·
They lose money because they forget the most basic principle of any business: moneymaking. It seems so obvious; but everybody on Web 2.0 seems to think that ex
by python_kiss 20y ago
They lose money because they forget the most basic principle of any business: moneymaking.
It seems so obvious; but everybody on Web 2.0 seems to think that exit strategies mean they don't need a business plan. The bottom line is that a business is not a business if it does not make money. By that metric, almost all internet startups, even the ones funded by VCs, are just "hobbies".
Exit strategies are great. But that does not give us the excuse to ignore the basic economics of this business.
- acgourley 20y agoI somehow doubt VC's forget money making.
- pg 20y agoBelieve it or not, some may. Several top-tier VCs have told me (truthfully or not) that some lower-grade VCs know their funds are never likely to make money, and they're just doing it for the fat management fees.
- brett 20y agoIf that's true then question then is how bad off are you if you take money from such a lower-grade fund. In the long run is it not even worth it to take their money?
- pg 20y agoInteresting question. It might actually be ok to take money from a firm like that, if you didn't have any better alternatives. You wouldn't have the brand or connections of a top VC, but you'd at least have the money, which is not nothing.
- acgourley 20y agoThats pretty amazing actually. It sounds like these lower-grade VC's could only be so cynical due to past experience, but if that is the case, who is putting them at the helm of large funds again and again?
- nostrademons 20y agoSecond-tier university endowments and pension funds, the ones trying to catch Harvard & Amherst in endowment performance. They know that if the fund performs well, they look like a genius, yet if it fails, the poor college students and retirees are left holding the bag. The whole economy has a huge moral hazard problem. There's a reason why John Nash won a Nobel Prize.
- staunch 20y agoThe way VCs raise their funds and get paid seems horribly broken. I think most of them hover between borderline fraud and out-right fraud. YC should kill all the sub-par VCs by scaling up massively and taking their billions in funding away.
- pg 20y agoYou can't talk about VCs generally because there's such a difference between the good ones and the bad ones. The good ones serve their investors pretty well. We'd never compete with VCs, incidentally. It's a completely different world from ours. They invest on behalf of other people (or more often, institutions). So while they have huge resources at their command, they have to answer to their investors, and this makes them excessively conservative. We much prefer using our own money, even if it limits what we can do.
- python_kiss 20y agoLast question from YC's FAQ: Q. Are you looking for investors? A. Not at the moment. I always wondered why YC was reluctant to take outside investment. Now we know why :)