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> Startups burn through cash as they skyrocket in size and ambition, accumulating outrageous perks and office equipment along the way. Then they crash to Earth,

> Startups burn through cash as they skyrocket in size and ambition, accumulating outrageous perks and office equipment along the way. Then they crash to Earth, with nothing but their private planes or massive 3D printers to pad the impact. This does not sound healthy. Almost sounds intentional by its common knowledge usual occurance. Taking the money of some clueless holder of money - optimistically calling themselves as investors, never as suckers for sure - and fraud away. Having a good life while doing it. Putting it proudly into the CV to repeat. Like if this is the original intent to begin with. To fail and skim the money while losing bad. Not really doing/attempting something beneficial and lasting in the end. That might sound scary - meaning they have to worry about being permanently successfull, balancing the sheet, react to adverse changing, for long, long, long. 'Starting up' (and fall) is easy, 'keep on going' is too hard?

SemioticStandrd 2y ago
[flagged]
- aftbit 2y ago
  Same logic could apply to Enron or Bernie Madoff. Fraud is fraud, even if it's perpetrated against the rich. Besides, many of the biggest investors are actually defined-benefit pension funds for teachers, firefighters, etc.
  - pm90 2y ago
    Not for early stage startups.
  - SemioticStandrd 2y ago
    If there's fraud, then prosecute it legally. But I am in no way obligated to feel any sympathy to investors getting fleeced. It's their responsibility to do their own due diligence, and if they're getting taken in for, I am hard pressed to give a shit.
    - lolinder 2y ago
      OP isn't asking you to feel sympathy for anyone, they're suggesting that there's not a lot of integrity in Silicon Valley. That can be true while at the same time the victims of the outright or borderline fraud are also unsympathetic. Your comments here seem to suggest that you believe it's actually okay to rob from investors. If that's what you're saying, I think you and OP are in alignment with regards to Silicon Valley ethics.
      - SemioticStandrd 2y ago
        You're an ace at reading comprehension, friend. What part of 'if there's fraud it should be prosecuted' was missed by you? My interpretation of OP's comments was as a call to sympathy. I'm saying I have very little.
    - mkgm1 2y ago
      Sure you’re not obligated, you just have a pretty rubbish worldview. To be fair so does a lot of the world - buyer beware is a defacto standard, doesn’t mean it’s a moral one though.
  - rsynnott 2y ago
    In general, there's no actual fraud. It is not fraud to have a bad or unworkable idea and raise money on the basis that the idea is good (unless you _know_ that it's bad or unworkable). Now, once you know it's unworkable, then you're getting closer to fraud, and once you incorrectly claim that it _does_ work, then you're in fraudsville. Theranos is a neat example of this; as far as anyone can see, in the early stages, its generally rather unsophisticated principals and employees geniunely seem to have thought what they were trying to build was viable. If, once this became apparent, they'd given up, then investors would have lost a lot of money but there would have been no fraud. Instead, they faked it. _That_ was fraud.
- deleted 2y ago
  [deleted]
aftbit 2y ago
Yep, I think it's an open secret that many startups are known to be doomed from the beginning. That's one reason that founders tell such outrageous stories. Maybe it arises from the fact that tech changed and grew so fast that the non-technical asset class was unable to separate fact from fiction. You see that today with many of the AI startups that clearly have almost no meat on their bones but a really good pitch deck.
tdumitrescu 2y ago
Nobody is going through the significant work of raising VC and then TRYING to fail. All for the sake of temporarily using some fancy office furniture.
- lolinder 2y ago
  OP's not suggesting they're trying to fail, OP is suggesting they're not trying very hard to succeed. A typical bootstrapped business wouldn't dream of spending money on equipment that wasn't absolutely essential because it pointlessly burns valuable runway. But when you're spending someone else's money and don't see this startup as your one shot—when you can always start again with a new VC when this one fails, and the new VC will be totally understanding of your past failures because that's just how the dice roll—the need to be careful isn't there, creating an incentive to live it up while you're flush with cash.
  - rsynnott 2y ago
    High spending on office furniture etc is _not_ a common behaviour for early-stage startups, tho. It's really something that you see more from mid-stage, and generally at a point where it doesn't _really_ matter; the amounts just aren't significant enough to make more than a few days' difference to the startup's lifespan if the next raise doesn't work out.
  - DanielHB 2y ago
    Given that most employees are underpaid at very-early stage startups with stock options it seems deliberate fraud is not common at all. Besides monetary compensation the "have a failed startup in the CV" argument doesn't seem a big draw either. I don't see how VC funding is being syphoned away by fraudsters at all. Syphoned away by incompetence yes, not deliberate fraud.
  - cloverich 2y ago
    > wouldn't dream of spending money on equipment that wasn't absolutely essential The issue is if they don't create a desirable work place, they will have trouble attracting and keeping talent. Further most of the luxury items pale in comparison to a single engineer's salary. E.g. 10 engineers with cushy job setup, or 11 engineers with a very lean one. The former may be more attractive to the kinds of engineers you want. The trick of course is identifying the talent, IMHO and IME this is why most startups don't make it.
huijzer 2y ago
I mean does it surprise you at this point that it’s hard to find integrity in Silicon Valley? My current theory is that it’s a side effect of easy wins since the fall of the Soviet Union. There was no competition and only the US knew how to build software startups. It’s interesting where the next decades will go. I’m not saying the US will surely loose, but based on the products I see coming out of China, it’s going to be interesting. For example, in my local MediaMarkt, the most high-tech section is the drone section and these are all Chinese. Also, if you purely look at the specs, Chinese electric cars outperform all European and American brands (charging rate, battery capacity, and performance). Not only in the budget segment but in the performance segment as well.
- pm90 2y ago
  Nah. There has been legitimate progress in Semiconductors (EUV!) and basic research (JWST!), including healthcare (mRNA, CRISPR). This theory that living in a world on the brink of world war somehow makes societies more productive seems like an incorrect narrative.
  - huijzer 2y ago
    That’s not what I meant to say. I think many in Silicon Valley underestimate how much right place and right time has played a role in the success. With that in mind, I think too many ideas from Silicon Valley are blindly copied as a theory of how things should go. As a contrast for example, Buffett is known for high integrity. A lot of current startups on the other hand assume that integrity is not really necessary in business, based on the contradictory statements that are often made. I think that getting away with low integrity was/is only possible due to the tailwinds.
- Workaccount2 2y ago
  I cannot picture a future where software avoids becoming another low margin commodity.
pjc50 2y ago
This has been the way since the first internet boom in the early 2000s. The successes make too much money for it to be any other way. Overt fraud (sometimes known as "long firm" fraud) is rarer than you think, but there are the Theranos companies out there. Then things with very questionable payment structures like WeWork. This is also why "qualified investor" rules exist in the US. People briefly got into cryptocurrency (ICOs) as a way round this, which really is an all scam all the time economy.
- DanielHB 2y ago
  It feels the frauds are at least using non-traditional funding strategies, Theranos funding setup was kinda crazy.
pseudocomposer 2y ago
I have a theory that extreme levels of VC investment mean, relative to whatever ownership shares the employees doing the actual work get, the original VCs have extreme ownership over whatever profits the business might generate (including from an IPO/sale). Well, that’s just a fact. But my theory is that this ultimately incentivizes the employees to invest in their own skills and maximizing their salary-earning potential, rather than making the business succeed - the behavior you’ve described here. If the market were sane, I think VCs would be averse to investing in already-highly-invested-in companies that don’t have clear paths to profitability. But, well… our markets aren’t really sane or sensible in that way. Many VCs and managerial types would rather crack whips or institute OKRs/other MBA-type nonsense than simply make sure employees are both adequately salaried and adequately invested in the success of the company.
rsynnott 2y ago
> Taking the money of some clueless holder of money - optimistically calling themselves as investors, never as suckers for sure - and fraud away. Generally, investors in early-ish-stage startups, that is those which are most likely to unexpectedly implode, scattering office furniture all over the place, know very well what they're getting into; they're specialist VCs who invest in, say, 50 startups in the hope that two or three will be worth something. Though, the nature of the game is that sometimes, one of these will have a truly massive breakout success, by accident, and it will totally screw up their view of risk from then on, leading them to put vast amounts of money into things which could not possibly work. Looking at you, Softbank.
- mihaaly 2y ago
  Right. So it sounds like rolling the dice with unknown numbers (both negatives and gigantic ones) on the faces as many times as the vallet bears in the hope of a lucky jackpot kind of unsophisticated cluelessnes to me then. National lottery for the wealthy. Likely this is not their money, and not hard earn money then but some easy come easy go furtune perhaps? Otherwise I'd expect a bit more cautious sophistication arond wealth generated by an intelligent body of people rather than the '2-3 out of 50' kind of strategy those VC specialists represent. Success is a conscious journey for only those eventually succeed and always retrospectively - to serv as a sellable recipe then for the hungry aspirings seeking foolproof methods - so a lot of luck is involved in the birth of great things, any great things, but come on! This level of fortuitous attitude is a crime, huge distortion, misuse, and disrespect of the funds representing the value created by someone else elsewhere. Is this all there is about VC professionals? This apparently open secret of lavish games, seemingly by overgrown greedy children whose talent is in puffery?
  - fragmede 2y ago
    There's a lot of due diligence and background checks and other things that happen, that this framing glosses over, but given due diligence let FTX and Theranos through, it's easy to see why some would choose to see it that way. Still, thats just how the numbers work out. If you have $1,000,000 to blow, and you invest $100,000 at a time, and one pays off 100x, you're up $9 million. But if they all fail you're down to zero. If they all hit 100x, you'd be up $100 million! So there is actually a lot of effort put in to try and only pick only the winners. It's just the fact of the matter is that there's just so much luck involved, on top of being good at business and sales and product development, that, as an investor, there's no such thing as a sure bet.
luckydata 2y ago
Investors are usually the ones that push you to spend as fast as possible. The goal is to find out the good company sooner and not having to dedicate time and effort on businesses that won't become outliers. You're either Facebook or dead, those two outcomes are preferable to a good mid size company that generates steady revenues (they call that a lifestyle business).
andrewf 2y ago
The "private planes" were liquidated from https://en.wikipedia.org/wiki/Universal_Hydrogen https://en.wikipedia.org/wiki/Universal_Hydrogen - "The company's main product was intended to be a conversion kit to be retrofitted to existing aircraft to allow them to run on hydrogen fuel." The "massive 3D printer" was liquidated from https://en.wikipedia.org/wiki/Local_Motors https://en.wikipedia.org/wiki/Local_Motors - "was an American manufacturing company focused on low-volume production of open-source vehicles and other products using multiple microfactories." If an investor accepted the premise of the companies, these don't sound like outrageous assets to own.
- mihaaly 2y ago
  Those two sound - phrased that way - noble goals. I assume the opening of the article quoted with that hint of a judgemental tone was born on the corpses of the others then. Those may have catchy promises too perhaps, without any hint of parasitic smell leaking out even if the hidden agenda was precisely that.
dumbledoren 2y ago
> This does not sound healthy. Its not - the entire Silicon Valley / VC thing was enabled by the free cash created by the zero-interest economy. Now that went away, and everything is coming crashing down back to reality.

SemioticStandrd 2y ago

[flagged]

aftbit 2y ago
Same logic could apply to Enron or Bernie Madoff. Fraud is fraud, even if it's perpetrated against the rich. Besides, many of the biggest investors are actually defined-benefit pension funds for teachers, firefighters, etc.
- pm90 2y ago
  Not for early stage startups.
- SemioticStandrd 2y ago
  If there's fraud, then prosecute it legally. But I am in no way obligated to feel any sympathy to investors getting fleeced. It's their responsibility to do their own due diligence, and if they're getting taken in for, I am hard pressed to give a shit.
  - lolinder 2y ago
    OP isn't asking you to feel sympathy for anyone, they're suggesting that there's not a lot of integrity in Silicon Valley. That can be true while at the same time the victims of the outright or borderline fraud are also unsympathetic. Your comments here seem to suggest that you believe it's actually okay to rob from investors. If that's what you're saying, I think you and OP are in alignment with regards to Silicon Valley ethics.
    - SemioticStandrd 2y ago
      You're an ace at reading comprehension, friend. What part of 'if there's fraud it should be prosecuted' was missed by you? My interpretation of OP's comments was as a call to sympathy. I'm saying I have very little.
  - mkgm1 2y ago
    Sure you’re not obligated, you just have a pretty rubbish worldview. To be fair so does a lot of the world - buyer beware is a defacto standard, doesn’t mean it’s a moral one though.
- rsynnott 2y ago
  In general, there's no actual fraud. It is not fraud to have a bad or unworkable idea and raise money on the basis that the idea is good (unless you _know_ that it's bad or unworkable). Now, once you know it's unworkable, then you're getting closer to fraud, and once you incorrectly claim that it _does_ work, then you're in fraudsville. Theranos is a neat example of this; as far as anyone can see, in the early stages, its generally rather unsophisticated principals and employees geniunely seem to have thought what they were trying to build was viable. If, once this became apparent, they'd given up, then investors would have lost a lot of money but there would have been no fraud. Instead, they faked it. _That_ was fraud.
deleted 2y ago
[deleted]

aftbit 2y ago

Yep, I think it's an open secret that many startups are known to be doomed from the beginning. That's one reason that founders tell such outrageous stories. Maybe it arises from the fact that tech changed and grew so fast that the non-technical asset class was unable to separate fact from fiction. You see that today with many of the AI startups that clearly have almost no meat on their bones but a really good pitch deck.

tdumitrescu 2y ago

Nobody is going through the significant work of raising VC and then TRYING to fail. All for the sake of temporarily using some fancy office furniture.

lolinder 2y ago
OP's not suggesting they're trying to fail, OP is suggesting they're not trying very hard to succeed. A typical bootstrapped business wouldn't dream of spending money on equipment that wasn't absolutely essential because it pointlessly burns valuable runway. But when you're spending someone else's money and don't see this startup as your one shot—when you can always start again with a new VC when this one fails, and the new VC will be totally understanding of your past failures because that's just how the dice roll—the need to be careful isn't there, creating an incentive to live it up while you're flush with cash.
- rsynnott 2y ago
  High spending on office furniture etc is _not_ a common behaviour for early-stage startups, tho. It's really something that you see more from mid-stage, and generally at a point where it doesn't _really_ matter; the amounts just aren't significant enough to make more than a few days' difference to the startup's lifespan if the next raise doesn't work out.
- DanielHB 2y ago
  Given that most employees are underpaid at very-early stage startups with stock options it seems deliberate fraud is not common at all. Besides monetary compensation the "have a failed startup in the CV" argument doesn't seem a big draw either. I don't see how VC funding is being syphoned away by fraudsters at all. Syphoned away by incompetence yes, not deliberate fraud.
- cloverich 2y ago
  > wouldn't dream of spending money on equipment that wasn't absolutely essential The issue is if they don't create a desirable work place, they will have trouble attracting and keeping talent. Further most of the luxury items pale in comparison to a single engineer's salary. E.g. 10 engineers with cushy job setup, or 11 engineers with a very lean one. The former may be more attractive to the kinds of engineers you want. The trick of course is identifying the talent, IMHO and IME this is why most startups don't make it.

huijzer 2y ago

I mean does it surprise you at this point that it’s hard to find integrity in Silicon Valley? My current theory is that it’s a side effect of easy wins since the fall of the Soviet Union. There was no competition and only the US knew how to build software startups. It’s interesting where the next decades will go. I’m not saying the US will surely loose, but based on the products I see coming out of China, it’s going to be interesting. For example, in my local MediaMarkt, the most high-tech section is the drone section and these are all Chinese. Also, if you purely look at the specs, Chinese electric cars outperform all European and American brands (charging rate, battery capacity, and performance). Not only in the budget segment but in the performance segment as well.

pm90 2y ago
Nah. There has been legitimate progress in Semiconductors (EUV!) and basic research (JWST!), including healthcare (mRNA, CRISPR). This theory that living in a world on the brink of world war somehow makes societies more productive seems like an incorrect narrative.
- huijzer 2y ago
  That’s not what I meant to say. I think many in Silicon Valley underestimate how much right place and right time has played a role in the success. With that in mind, I think too many ideas from Silicon Valley are blindly copied as a theory of how things should go. As a contrast for example, Buffett is known for high integrity. A lot of current startups on the other hand assume that integrity is not really necessary in business, based on the contradictory statements that are often made. I think that getting away with low integrity was/is only possible due to the tailwinds.
Workaccount2 2y ago
I cannot picture a future where software avoids becoming another low margin commodity.

pjc50 2y ago

This has been the way since the first internet boom in the early 2000s. The successes make too much money for it to be any other way. Overt fraud (sometimes known as "long firm" fraud) is rarer than you think, but there are the Theranos companies out there. Then things with very questionable payment structures like WeWork. This is also why "qualified investor" rules exist in the US. People briefly got into cryptocurrency (ICOs) as a way round this, which really is an all scam all the time economy.

DanielHB 2y ago
It feels the frauds are at least using non-traditional funding strategies, Theranos funding setup was kinda crazy.

pseudocomposer 2y ago

I have a theory that extreme levels of VC investment mean, relative to whatever ownership shares the employees doing the actual work get, the original VCs have extreme ownership over whatever profits the business might generate (including from an IPO/sale). Well, that’s just a fact. But my theory is that this ultimately incentivizes the employees to invest in their own skills and maximizing their salary-earning potential, rather than making the business succeed - the behavior you’ve described here. If the market were sane, I think VCs would be averse to investing in already-highly-invested-in companies that don’t have clear paths to profitability. But, well… our markets aren’t really sane or sensible in that way. Many VCs and managerial types would rather crack whips or institute OKRs/other MBA-type nonsense than simply make sure employees are both adequately salaried and adequately invested in the success of the company.

rsynnott 2y ago

> Taking the money of some clueless holder of money - optimistically calling themselves as investors, never as suckers for sure - and fraud away. Generally, investors in early-ish-stage startups, that is those which are most likely to unexpectedly implode, scattering office furniture all over the place, know very well what they're getting into; they're specialist VCs who invest in, say, 50 startups in the hope that two or three will be worth something. Though, the nature of the game is that sometimes, one of these will have a truly massive breakout success, by accident, and it will totally screw up their view of risk from then on, leading them to put vast amounts of money into things which could not possibly work. Looking at you, Softbank.

mihaaly 2y ago
Right. So it sounds like rolling the dice with unknown numbers (both negatives and gigantic ones) on the faces as many times as the vallet bears in the hope of a lucky jackpot kind of unsophisticated cluelessnes to me then. National lottery for the wealthy. Likely this is not their money, and not hard earn money then but some easy come easy go furtune perhaps? Otherwise I'd expect a bit more cautious sophistication arond wealth generated by an intelligent body of people rather than the '2-3 out of 50' kind of strategy those VC specialists represent. Success is a conscious journey for only those eventually succeed and always retrospectively - to serv as a sellable recipe then for the hungry aspirings seeking foolproof methods - so a lot of luck is involved in the birth of great things, any great things, but come on! This level of fortuitous attitude is a crime, huge distortion, misuse, and disrespect of the funds representing the value created by someone else elsewhere. Is this all there is about VC professionals? This apparently open secret of lavish games, seemingly by overgrown greedy children whose talent is in puffery?
- fragmede 2y ago
  There's a lot of due diligence and background checks and other things that happen, that this framing glosses over, but given due diligence let FTX and Theranos through, it's easy to see why some would choose to see it that way. Still, thats just how the numbers work out. If you have $1,000,000 to blow, and you invest $100,000 at a time, and one pays off 100x, you're up $9 million. But if they all fail you're down to zero. If they all hit 100x, you'd be up $100 million! So there is actually a lot of effort put in to try and only pick only the winners. It's just the fact of the matter is that there's just so much luck involved, on top of being good at business and sales and product development, that, as an investor, there's no such thing as a sure bet.

luckydata 2y ago

Investors are usually the ones that push you to spend as fast as possible. The goal is to find out the good company sooner and not having to dedicate time and effort on businesses that won't become outliers. You're either Facebook or dead, those two outcomes are preferable to a good mid size company that generates steady revenues (they call that a lifestyle business).

andrewf 2y ago

The "private planes" were liquidated from https://en.wikipedia.org/wiki/Universal_Hydrogen https://en.wikipedia.org/wiki/Universal_Hydrogen - "The company's main product was intended to be a conversion kit to be retrofitted to existing aircraft to allow them to run on hydrogen fuel." The "massive 3D printer" was liquidated from https://en.wikipedia.org/wiki/Local_Motors https://en.wikipedia.org/wiki/Local_Motors - "was an American manufacturing company focused on low-volume production of open-source vehicles and other products using multiple microfactories." If an investor accepted the premise of the companies, these don't sound like outrageous assets to own.

mihaaly 2y ago
Those two sound - phrased that way - noble goals. I assume the opening of the article quoted with that hint of a judgemental tone was born on the corpses of the others then. Those may have catchy promises too perhaps, without any hint of parasitic smell leaking out even if the hidden agenda was precisely that.

dumbledoren 2y ago

> This does not sound healthy. Its not - the entire Silicon Valley / VC thing was enabled by the free cash created by the zero-interest economy. Now that went away, and everything is coming crashing down back to reality.