4 ms·

I don't understand why one would not invest in a startup with insane metrics? What is there to not understand? Has it ever worked out badly when an invesor inv

by wellboy 13y ago

I don't understand why one would not invest in a startup with insane metrics? What is there to not understand? Has it ever worked out badly when an invesor invested in a startup with insane metrics?

wikwocket 13y ago
I am sure many investors look to invest in companies that they understand, so they can leverage any expertise they have to evaluate why this startup is the special snowflake that will make a gazillion dollars. If a startup has insane metrics but you don't "understand" their secret sauce, it may still be a sound investment, but I imagine you'd ask yourself if it was too good to be true, or due to temporary conditions, or rigged data, or something else, since you lack the expertise to understand why the numbers are so good.
flavien_bessede 13y ago
Insane metrics? They might have a lot of shares but only 50 millions monthly active users ...
wepple 13y ago
There are a few reasons. For large institutional investors, they have a responsibility to stand behind their decisions: saying "I didn't really understand what it is they were trying to do, but their metrics, whoa!" does not stand up. And a lot of more conventionally-minded investors look to truely understand what a companies value proposition and product is. If you could invest earlier in Pinboard, or a company which has found a revolutionarily cheap way to manufacture toilet paper - you know which one has a more steady and obvious demand, right? Although SV, the YC/VC world, operates very different. Just a few ideas.
nostrademons 13y ago
It fails when the metrics obscure fundamental problems with the business model which will lead to the metrics cratering later. The most obvious example in recent memory is Groupon. They had insane metrics, huge revenue growth, and lots of adoption. The problem is that their value proposition was based on companies selling at a loss, treating it as a marketing expense, and then making it up in repeat business later. Many companies bought into that proposition at first, tried it, but then the repeat business failed to materialize, and they vowed never to go near Groupon again. When Groupon exhausted their initial market, sales collapsed. Groupon may survive based on the smaller market of companies where their value proposition holds, but they aren't going to meet initial investors' expectations. An older example would be online retailers like Webvan and Kosmo.com that sold below cost, hoping to make it up in volumes. Here the problem is that the investors were looking at the wrong metric; the stocks climbed to astronomical heights based on userbase and revenue, but the key metric for a retailer is operating margin, and this was negative for these companies.
- wellboy 13y ago
  That´s a good example.

by wellboy 13y ago

I don't understand why one would not invest in a startup with insane metrics? What is there to not understand? Has it ever worked out badly when an invesor invested in a startup with insane metrics?

wikwocket 13y ago

I am sure many investors look to invest in companies that they understand, so they can leverage any expertise they have to evaluate why this startup is the special snowflake that will make a gazillion dollars. If a startup has insane metrics but you don't "understand" their secret sauce, it may still be a sound investment, but I imagine you'd ask yourself if it was too good to be true, or due to temporary conditions, or rigged data, or something else, since you lack the expertise to understand why the numbers are so good.

flavien_bessede 13y ago

Insane metrics? They might have a lot of shares but only 50 millions monthly active users ...

wepple 13y ago

There are a few reasons. For large institutional investors, they have a responsibility to stand behind their decisions: saying "I didn't really understand what it is they were trying to do, but their metrics, whoa!" does not stand up. And a lot of more conventionally-minded investors look to truely understand what a companies value proposition and product is. If you could invest earlier in Pinboard, or a company which has found a revolutionarily cheap way to manufacture toilet paper - you know which one has a more steady and obvious demand, right? Although SV, the YC/VC world, operates very different. Just a few ideas.

nostrademons 13y ago

It fails when the metrics obscure fundamental problems with the business model which will lead to the metrics cratering later. The most obvious example in recent memory is Groupon. They had insane metrics, huge revenue growth, and lots of adoption. The problem is that their value proposition was based on companies selling at a loss, treating it as a marketing expense, and then making it up in repeat business later. Many companies bought into that proposition at first, tried it, but then the repeat business failed to materialize, and they vowed never to go near Groupon again. When Groupon exhausted their initial market, sales collapsed. Groupon may survive based on the smaller market of companies where their value proposition holds, but they aren't going to meet initial investors' expectations. An older example would be online retailers like Webvan and Kosmo.com that sold below cost, hoping to make it up in volumes. Here the problem is that the investors were looking at the wrong metric; the stocks climbed to astronomical heights based on userbase and revenue, but the key metric for a retailer is operating margin, and this was negative for these companies.

wellboy 13y ago
That´s a good example.