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Before anyone talks about a bubble and how easy this service is to replicate, consider that by putting $12M in, Magic was selected to win the space. Now to win

Before anyone talks about a bubble and how easy this service is to replicate, consider that by putting $12M in, Magic was selected to win the space. Now to win over Magic you need to replicate the concept AND get matching resources. Even spaces that are easy to get into and replicate still have winners, household names to rule over all others (Dropbox, Github to name a couple of services that, ignoring scale, can be replicated pretty easily). At the seed stage, investors mark those winners in advance. At later round stage, investors back the de-facto winners (A16Z style). At some point the investment creates a momentum of its own, preventing viable competition and drawing in even more money (all the way to an IPO or acquisition). The competition eventually dies and if the business case/segment has merit, the winner and their investors will stand to make all the money. So Magic has just been marked as the winner in their segment (whatever you can call it). Whether or not this service is easy to replicate is irrelevant.

engendered 12y ago
The overwhelming majority of those "winners" fail. These funds aren't anointing the king, but rather are just trying to make a bet, and it's a bet they usually lose. As you said, their funding gives the entrant a leg up (usually if there's a significant capital cost), but in this case such funding provides astonishingly little advantage of scale. This isn't an example of a bubble. It's an example of a really comically silly investment.
- flyinglizard 12y ago
  "winners" failing is not much of an indication - obviously there is a staggering number of investment entities and often they are competing with other "winners" (look at the payment market, with Stripe, Balanced, Braintree etc, they all raised serious money) and someone usually comes out on top. Whether or not Magic is a smart investment - I can't really tell, but I suspect that if I were to choose between Magic and Twitter back when they were just ideas, I would bet on the former.
  - kra34 12y ago
    Yeah I have to agree it's actually really hard to fail when backed by one of the bigger VC's, if you're on the road to failure they can just bully one of their former portfolio unicorns to acquire you with post IPO Opm dollars. See Twitter's recent bail out of Foursquare care of Fred Wilson. There are no losers in this game.
    - flyinglizard 12y ago
      Even without doing the OPM arrangement, it's very sobering to see companies that fail on tech, product and people level hoovering up gobs of money due to their investor momentum. At some point, an IPO is the only way out (well, that's the best kind of OPM, isn't it).
peteretep 12y ago
> Magic was selected to win the space What does that even _mean_? Yes they have money. Can they execute using it? Who the hell knows? Can they execute better than some kids whose uncle gave them £20,000? Maybe, or maybe they'll piss it up against the wall on some stylish offices and seats.
- flyinglizard 12y ago
  They can pivot, refine, experiment and endure temporary setbacks in a way that would kill those kids with their uncle's money. Their margin of error is incredible compared to someone bootstrapping. Obviously this has a flip side as well - they might be too lenient and careless. But money is a major factor, always. That said, I'm not saying they have won - they've just been marked by Sequoia to do that. That's a hefty thing. We don't like to admit it because its painful, but the cool kids with the VC money, get the hype, the coverage, the big names C-level executives and the follow investment that are needed to win big. Many fail, but this is how you build a first rate startup.
onion2k 12y ago
The on-demand service market is going to be a lot bigger than anything a $12m stake will buy you. There will be competitors. The competition might be better funded, better positioned, have better domain expertise, have access to markets Magic find difficult to enter, and so on. Magic is, essentially, just proving the market exists at this stage. Their first mover advantage is useful, but it's not enough to win the majority share of a market. For example, if Magic grow to £x00m in a year, what would stop Uber adding a similar service to their app? They have the capital, the customer base, the delivery network, and no overhead from using third parties to do the delivery. $12m and a year wouldn't magically beat that.

engendered 12y ago

The overwhelming majority of those "winners" fail. These funds aren't anointing the king, but rather are just trying to make a bet, and it's a bet they usually lose. As you said, their funding gives the entrant a leg up (usually if there's a significant capital cost), but in this case such funding provides astonishingly little advantage of scale. This isn't an example of a bubble. It's an example of a really comically silly investment.

flyinglizard 12y ago
"winners" failing is not much of an indication - obviously there is a staggering number of investment entities and often they are competing with other "winners" (look at the payment market, with Stripe, Balanced, Braintree etc, they all raised serious money) and someone usually comes out on top. Whether or not Magic is a smart investment - I can't really tell, but I suspect that if I were to choose between Magic and Twitter back when they were just ideas, I would bet on the former.
- kra34 12y ago
  Yeah I have to agree it's actually really hard to fail when backed by one of the bigger VC's, if you're on the road to failure they can just bully one of their former portfolio unicorns to acquire you with post IPO Opm dollars. See Twitter's recent bail out of Foursquare care of Fred Wilson. There are no losers in this game.
  - flyinglizard 12y ago
    Even without doing the OPM arrangement, it's very sobering to see companies that fail on tech, product and people level hoovering up gobs of money due to their investor momentum. At some point, an IPO is the only way out (well, that's the best kind of OPM, isn't it).

peteretep 12y ago

> Magic was selected to win the space What does that even _mean_? Yes they have money. Can they execute using it? Who the hell knows? Can they execute better than some kids whose uncle gave them £20,000? Maybe, or maybe they'll piss it up against the wall on some stylish offices and seats.

flyinglizard 12y ago
They can pivot, refine, experiment and endure temporary setbacks in a way that would kill those kids with their uncle's money. Their margin of error is incredible compared to someone bootstrapping. Obviously this has a flip side as well - they might be too lenient and careless. But money is a major factor, always. That said, I'm not saying they have won - they've just been marked by Sequoia to do that. That's a hefty thing. We don't like to admit it because its painful, but the cool kids with the VC money, get the hype, the coverage, the big names C-level executives and the follow investment that are needed to win big. Many fail, but this is how you build a first rate startup.

onion2k 12y ago

The on-demand service market is going to be a lot bigger than anything a $12m stake will buy you. There will be competitors. The competition might be better funded, better positioned, have better domain expertise, have access to markets Magic find difficult to enter, and so on. Magic is, essentially, just proving the market exists at this stage. Their first mover advantage is useful, but it's not enough to win the majority share of a market. For example, if Magic grow to £x00m in a year, what would stop Uber adding a similar service to their app? They have the capital, the customer base, the delivery network, and no overhead from using third parties to do the delivery. $12m and a year wouldn't magically beat that.