Tim O’Reilly makes a case for why venture capital is starting to do more harm

https://techcrunch.com/2020/06/26/tim-oreilly-makes-a-persuasive-case-for-why-venture-capital-is-starting-to-do-more-harm-than-good/

by lxm • 6 years ago

237 143 6 years ago

techcrunch.com

hellofunk3• 6 years ago

I wonder why TechCrunch never seems to work on mobile. Every single time, every single article.

“An error occurred with this part of the page, sorry for the inconvenience.”

maltelandwehr2• 6 years ago

Works fine in Safari on an iPhone 7.

Are you running any kind of ad or script blocking?

hellofunk3• 6 years ago

Ah yeah I have iOS ad blocker turned on.

Tarq0n• 6 years ago

Techcrunch links are redirected through a tracking domain: https://guce.advertising.com/collectIdentifiers?. This breaks lots of things, especially if you're blocking ads.

projektfu• 6 years ago

I keep a copy of Brave on my iPhone with scripting turned off by default. While this article loads fine for me in Safari, for some that don’t, I share the article to Brave and it often loads great without scripts. This article loads fine in Brave without scripting.

DangitBobby• 6 years ago

Works fine in Firefox Preview on Android 10 with uBlock Origin and PiHole

maltelandwehr2• 6 years ago

We should all learn and accept that VC funding and bootstrapping are not the only two options. Of course VC is bad for some founders and business models. That does not make it bad in general.

abrichr• 6 years ago

What are the other options?

langitbiru• 6 years ago

ICO, crowdfunding, loans, patronage, government's backing, etc.

satvikpendem• 6 years ago

Revenue sharing venture capital for small valuations ~tens of millions.

TinySeed, Earnest Capital, etc.

FabHK• 6 years ago

The point is not that VCs are a bad funding option for founders and business models (compared to other funding options). The point is that VCs are bad for the world by funding things that do not create long term value, so they're effectively destroying and misallocating wealth.

transitivebs• 6 years ago

This post by Tyler Tringas of Earnest Capital is really relevant here: https://tylertringas.com/the-entrepreneurs-new-path-of-maxim...

DailyHN• 6 years ago

This is old news.

The reason nothing has changed is because LPs prefer their money goes to the bros.

LatteLazy• 6 years ago

I think it’s always good to be doing something unfashionable in investment because that market is under served (so you get a better deal) and it can only become more fashionable (so you’re ahead of the curve).

At the same time, we shouldn’t pretend this is novel. People have invested in Idaho (or Austin or wherever the fuck) before. Following a bit about how Silicon Valley just makes financial instruments for the rich with how you’ve made a financial instrument for people with 6 figures is sort of blind too.

I hope this guy does some good and makes a profit but at best he’s just doing angle investing outside Silicon Valley...

ghaff• 6 years ago

And sometimes the crowd is mostly right. Kleiner Perkins' big bet on renewable energy pretty much flopped.

sukilot9• 6 years ago

Vulgar language makes your comment hard to read.

dustingetz• 6 years ago

VC is fundamentally a power/money alliance which exists to further the allies' interests. Capitalism ideology says that it turns out that this is fairly optimal for consumers, given competitive forces to keep it checked and balanced. But this balance is only healthy to the extent that the homeostasis can be maintained. Unconstrained growth (prioritized above all else and with disregard for externalities) is less like homeostasis and more like cancer ("Wall Street: As long as someone wants to buy this [collateralized debt obligation], we’re good.")

lasagnaphil• 6 years ago

...and it's pretty ironic that this comment is written in a social media website directly funded by a VC (Y Combinator)

jppope• 6 years ago

Y/C does the seed rounds and I think they started doing series A - not really a VC, but I get your point.

anoncake• 6 years ago

No more ironic than that everything posted under Capitalism involved stuff made under Capitalism

kebman• 6 years ago

Not sure if it's completely related, but my dad will sometimes talk about the "Yuppie Time" during the 80's, when he tried to get funding for some rather big IT projects. There would be well connected "yuppies" getting funding and loans for just about anything, so they could make short-term investments, and then run away with the profits as quick as they could. Most of these guys weren't interesting in building something lasting, though, so it was important to quickly identify them, and then just turn them down no matter how much funding they promised. Not easy, as these guys would seem pretty flush with cash. Seemingly. But oftentimes it would leave companies, and also employees, ruined after such a run. The hope was to make a lasting impression on the communities they wanted to start up within, by giving people something tangible and safe to build up long-term. However yuppies would offer anything but, so while you could sit in a nice and comfy office on the one day, you'd be out on the street on the next. Think Wolf of Wall Street. Hardly a secure environment to stake your future in. And indeed, eventually it did go south for a lot of folks by the crash of '87, and also the aftermath in '89.

seibelj2• 6 years ago

All sorts of these shenanigans continue in various forms. I know of one company that received an absurd valuation and funding amount from a Russian oligarch to attack a very difficult and established industry, then got acquired 2 years later by a different Russian company for a large return. They hadn’t built anything, they had leased a large office with open windows on the first floor near mine, and every time I walked by they looked dead inside.

Easy answer - washed a large amount of money for the oligarch after the acquisition (clean transfer from Russian acquirer to oligarch plus its advantageous tax treatment).

sheeshkebab• 6 years ago

Taking money from various Russian and Chinese newly rich crowd usually means dealing with mafia or governments/military (and thugs and government are much closer together in those places than elsewhere).

w4hirelife99• 6 years ago

What’s that? You mean they took gambling addicts and gave them control of humanities efforts at scale? It’s all gone wrong? Shocking! Why, a minority of global power brokers have NEVER, in the history of humanity, used their sway over the masses to abuse their trust.

Most financial crimes are still just plain old “paper cons”. They lie on the paperwork.

At least in the US, regulatory agencies are so underfunded or had their mission altered such that “paper cons” happen constantly.

Panama Papers, many of Trumps tax dodge schemes (among others, calling him out because of viz, all those guys “do it”) etc

All very obvious, well known financial schemes.

Basically the origin of the word privilege comes from Latin “privy lege” ... “privileged by the law”.

Humanity is still ruled by ruthless tribalists looking to conquer the globe.

Ain’t nothing changed about it except the literal “who”, and sound forms and visual glyphs used to describe. We use a lot less Latin and romantic notions of higher powers in the sky, but still kowtow to hierarchy based upon scientific bullshit, convincing people “THESE annotations of the numbers are it, boy howdy! We def got IT right this generation! Sorry about rocket cars, but our finance scheme numbers keep going up so we did it!”

Still biologically motivated to the same ends.

alchemism• 6 years ago

I’ve seen this done with New York City commercial real estate, ‘accidentally’ sold far-below market rate to a party which flipped the property within 90 days at (many) millions higher valuation. After this transaction occurred, coincidentally an IRS investigation into offshore Cayman accounts was decided to have no merit and dropped.

jondubois2• 6 years ago

Of course, all investments these days are a form of money laundering. Most funding is derived from loan credit which has been moved around a network of companies. The companies on the front line keep funneling the credit to big corporations and then eventually declare bankruptcy, then new companies spawn up to take their place. It's a systematized global money laundering scheme which extends all the way to the Federal Reserve Bank of the United States.

This game involves separating credit from its underlying debt obligation, collecting the credit and then letting another limited liability corporate entity take the fall for not being able to meet the debt obligation. This is basically what Carl Icahn did with Hertz - He made Hertz take huge loans from banks, then Hertz awarded one of Carl's other companies a huge multi-million dollar contract using that loan money, then Hertz declared bankrupcy. Carl gets to keep the money he received from that big contract. Carl gets the credit, Hertz takes the fall. Carl took no risks and added no value.

When you also consider that those initial loans are printed out of thin air by banks, it becomes clear that our economy is founded on legitimized fraud.

We have a system which rewards fraudsters at the expense of honest people.

What is the difference between right and wrong when the law itself encourages wrongdoing? Nobody seems to knows what is the difference between right and wrong anymore. If the law said it was OK to kill people, we would all start killing each other the next day. That's how superficial our morals have become.

holidayacct• 6 years ago

He's not saying venture capital is starting to do more harm, he's addressing where and how venture capital is being expended. He actually has a good point regarding funding of small to medium sized business with strong business models that emphasize being cash flow positive. Venture capital cannot do harm, most people don't know this but small businesses need the protection via social connections that a venture capital provides. If you don't believe that try running an independent small business and see how exhausting it is when you run into problems and don't have the backing of a VC. I grew up with people who did this and they get burned out when they don't have a larger investor who is connected enough to solve what seem like small problems. Everyone thinks they are better off being completely independent as a small business, that is always a bad idea.

There are certain types of businesses that are difficult to grow due to either legal hurdles or local protectionist tactics, I've seen this growing up in different states. If you start a business in the wrong place and don't have the right connections your business is never going to succeed, it doesn't matter what your business model is. In certain states they simply do not want large multi-national corporations, interstate corporations or franchises. If you succeed on a small scale and decide to expand you're going to run into all kinds of problems because people are going to come out of the woodwork trying to slow down your expansion (yes, this is a real thing it caught me off guard when I first found out there are people who do this).

There are also some types of businesses (particularly in the financial industry) that when implemented on a large scale are a nightmare to understand because there are so many rules and regulations. No one has a clue what is happening and it is easier to have hundreds of medium sized businesses with narrow focus that anyone can understand easily. Funding these types of businesses because everyone wants some sort of large IPO just makes the problem worse.

lmeyerov• 6 years ago

Most VC backed businesses fail, and less obvious, changing an operational model (= company dna) into a VC-optimized one instead of a sustainable revenue optimized one puts a company on that failure path. It is not the capital, but the associated changes for the pursuit of the next round, and dangers of not hitting it. He is pushing back against the hits based business that burns out otherwise good companies, and Bryce is focusing on alternative funding strategies for companies so they can succeed without mega-succeeding.

It's pretty non-obvious. Eg, a founder yesterday in my area cited a ~$50M exit as a success example for what he is doing. Except to O'Reillys point, it may only be a success for a couple of investors, and possibly an income loss for most of the team. They looked good -- raised $2M, $10M, $23M, grew to 50-100 employees, sold for $50M after 5-9yr, helped Global 2000s and govs tackle some hard problems, probably had revenue around $5M+yr, and are now a reasonable part of BigCo's product portfolio for much more $. AND YET... if either the $10M or $23M have a 2x participation, only the VCs really made money (and less than their model needs, so a miss!), and only 0-$5M left to split with the 50+ employees who took years of reduced salary. That's the financial instrument stuff going on. On the leadership side, the hiring was fueled by funding, always more then operating revenue (otherwise no VC needed), so needed the next round or otherwise layoffs and a death spiral. (Only a few % of funded startups can choose to slow growth and switch to sustainable revenue.)

There are reasons to do today's model, but a lot of nuance, and from a creator's / equitibilty perspective, fundamental room for improvement. Glossing over that is no good.

fancyfish• 6 years ago

This will be a growing model in the next decade and is imo much more sustainable for founders because the core business model isn’t torn apart and it’s easier to sell to $MED_CO or $BIG_CO as the exit.

Build a small team, grow to $20-75m valuation then ditch to a bigger co. Easier to pitch this to some of the less unicorn-y VCs like Arrowbridge, etc. I like to call it the bluebird strategy.

kmclean• 6 years ago

It’s part of the structural inequality in our society, where we’re building businesses that are optimized for their financial return rather than their return to society.

Isn't this the whole problem? If people cared about society more than money it wouldn't be a problem to invest or take investment money, because you'd all be working toward the same goal of maximizing returns to "society". The problem is greed and selfish pursuit of wealth by certain kinds of people who see that as a worthwhile purpose for their life.

ashtonkem• 6 years ago

I’m not even sure if a lot of these businesses do that. Some of them seem more like a mechanism to shovel VC money around than an actual plan on how to make a product or service that’ll make money.

luckylion6• 6 years ago

If people cared about society more than money it wouldn't be a problem to invest or take investment money, because you'd all be working toward the same goal of maximizing returns to "society".

We have a hard time deciding what is best for "society" and how to achieve it. Using money as votes is working pretty well: people get to choose what they prefer from multiple offers, they clearly say what they care about the most (by spending most of their disposable income on it), which then incentivizes more people to look at solving problems in that area.

Sure, we could have lots of large meetings, or 100 levels of small elections etc pp, but this works pretty efficiently and without too much coordination. Yes, it also creates some issues, but in general I think the issues are by far outweighed by the benefits.

minerjoe5• 6 years ago

A fish doesn't understand the water it swims in. Have you truly thought about what the "some issues" of money in todays society truly are. What are the true costs? What did we, as a society, lose?

Here's an example. Just a few hundred years ago, many (most?) transactions were not via money, but via person to person interactions. These interactions were the binding connection points in the society. The people you would interact with , depend apon, and be depended apon, etc. These have been ripped away and we've been given a very poor substitute.

It's a drug. A quick fix and a substitute for true wealth. Need a shirt, go buy a shirt with no idea how, where, when, or why it was made and no connection to the ecological damage that it most probably contributed. Acquiring a shirt, back in the day, could involve many local interactions and could help further strengthen your local economy and society.

forgot_user12346• 6 years ago

Money is the worst proxy for optimising returns for the society. Lemme know if you have anything better.

Greed and selfish pursuit leads to wealth creation

neltnerb2• 6 years ago

Our representatives are theoretically responsible for balancing different social interests, including social welfare and money. I think that is better.

I'd rather fix the thing where elected officials don't seem to do that job rather than just throwing up my hands and saying the market knows best... seems like a pretty extreme position to just say that money and pricing is the only tool in the toolbox.

amelius2• 6 years ago

Greed and selfish pursuit leads to wealth creation

Yeah, but for the people doing the actual work or not?

Barrin92• 6 years ago

Lemme know if you have anything better.

I think there are some pretty obvious things. Improvement of the environment, health, safety, educational attainment, military prowess and so on.

As Michael Sandel put it, since the 80s we've moved from a market economy to a market society. Markets aren't used as tools any more to further social ends, they've become ends in themselves. We don't measure success in human flourishing, we measure it in dollars.

Ironically this has made much long-term wealth creation impossible. Many companies in Silicon Valley were sustained by the government pursuing strategic goals, in particular the military.

Industrial ecosystems don't spring out of the ground because of selfishness and greed, they're created by institutions.

WalterBright8• 6 years ago

Money is the worst proxy for optimising returns for the society.

Free markets have done far more for society than any other system that's been tried.

lazylizard2• 6 years ago

China is doing social scores?

robertlagrant• 6 years ago

If people cared about society more than money

Money is only a way to measure relative value of one thing vs another to people who have things (or time) want things (or time). Money is the wrong thing to focus on. It's like blaming air for carrying bad words.

meheleventyone2• 6 years ago

Doesn’t the parent mean “acquiring money” rather than money as a concept? It’s people’s relationship to money that is being criticised rather than money itself.

To rephrase what I believe the intent was “if people cared about improving society more than acquiring money”.

fsckboy4• 6 years ago

according to standard economics, and all economists from right to left agree on this: money is the measure of value to society.

(I changed the word "return" to "money" because return essentially means profit and when you make a selling or purchasing decision, you receive or pay the full price, not just the profit so your decision is a money decision, not a return decision.)

That doesn't mean the rest of the argument he's making (and you are believing) fails, it means you are getting confused by stuff that economists clarified a long long time ago.

There are many effects that distort people's decisions such that the wrong people benefit vs the wrong people who pay, but try to fix that and then just never never let it be said that we should not pursue returns, that's pure nonsense.

Spooky23• 6 years ago

Money is a measure of value, but the standard for assigning value is mostly emotional. Buy anything at retail, then try to sell it. You'll always take a bath, because the retail (whether a store or Amazon) experience adds value.

The same thing happens in business.

tasty_freeze• 6 years ago

money is the measure of value to society

The internalization of this leads rich people to conclude they are rich because the provided even more value to the world than they kept to themselves, otherwise they wouldn't have paid them so well. The richer they are the more they think they think they are benefactors and any complaints about how they acquired their wealth is just jealousy or, uh, socialism or something.

Sometimes it is the case that the wealthy have contributed something of such value that the world is better off, sometimes not. A drug company taking a 40 year old out of patent drug that has a stable but fixed market can increase shareholder returns by increasing the price 5-fold if they've cornered the market on this niche drug. Did they really do anything good for society? It sure doesn't seem that way, even if they are "creating value" by jacking up the price.

The kneejerk reaction of many is to say I should start a company to compete with that predatory pricing model. But that is naive because (a) there are lots of moats to cross to get there and (b) even if stuck it out, I know that the predatory company can drop the price in an instant and use their scale and place as the market leader to crush my nascent company. So nobody does it.

pessimizer• 6 years ago

according to standard economics, and all economists from right to left agree on this: money is the measure of value to society.

Only for a very strict definition of "value to society" that is a tautological summing of individual relative desire that is measured in dollars. Luckily, we're not restricted to defining value that way when speaking generally.

edit: coincidentally, I was recently reading an article by an ex-scientologist reflecting on the complicated process of indoctrination that keeps them in the church. A large part of it seems to be redefining common words (usually making them more specific, but sometimes intentionally creating definitions of words which explicitly denigrate their common meanings) and justifying this as a technical language (or I guess in Scientology, the "words" of a "tech"?) Next, they teach that deviation from those definitions is the source of all error, and that all doubt can be cured by going between the sentence that has caused you to doubt and the official definitions of the words in that sentence, back and forth, until you understand that the sentence is correct, and that LRH is always correct.

Doing that for long enough could probably convince one that somebody buying horrible stepped on street heroin to keep from being sick is valuable to society. Isn't not being sick nice?

sukilot9• 6 years ago

Please cite a source for your claim.

Economists agree they utility is the measure of value to society.

https://www.investopedia.com/terms/u/utility.asp

Money is merely a proxy for utility, a token of exchange.

sacred_numbers• 6 years ago

A related problem is the compounding nature of wealth. Let's say there are 100 investors with a million dollars each. 90% of the investors pursue socially beneficial projects and make a respectable 10% average annual return. The remaining 10% of investors pursue profit maximizing ventures and make 20% per year. Within about 25 years the profit maximizing investors have more wealth. Within about 50 years the profit maximizing group has 90% of the wealth. Chastising the profit maximizing group doesn't really change anything. Not because they don't deserve to be chastised, but because even if the vast majority of them defect to the social good group it only delays the outcome where the profit maximizers own everything. I think the solution is to incentivize socially valuable businesses and de-incentivize less socially valuable businesses. One example of this would be a carbon tax. Another example would be for Medicare to only pay hospitals that charged the same price to both insurance companies and individuals. There are major concerns about companies gaming these incentives, but companies are taking advantage of the lack of disincentives right now anyways, so I don't think the outcome would be any worse.

sukilot9• 6 years ago

Corporations used to have to justify their charter by showing how their enterprise helped society. And charters were temporary. Now corporations have more rights than humans and people who have corporations are nigh untouchable by law for their crimes and civil torts.

There's no justification for this. A sufficiently ethical government could rein in corporations tomorrow.

dgudkov2• 6 years ago

The problem is greed and selfish pursuit of wealth by certain kinds of people who see that as a worthwhile purpose for their life.

Well, isn't it the essence of capitalism and free markets? Isn't it how the deeply individualist Western democracies work - let people follow their greed and ambition, but surround them with legal fences, milk them for taxes, and use the collected taxes for the common good.

It's like operating a nuclear reactor. Give it too much freedom and it will blow up and poison everything around. Restrain it too much, and it's output will quickly drop.

The current social model isn't perfect, but no better social model has been invented so far.

minerjoe5• 6 years ago

I would argue that, depending on your value sytem, many better social models have been invented and flourished for thousands of years. They didn't value property or money nor care to commit genocide to further expansion and hence were basically wiped out. Just because the psycopathic murderers won does not make their world view a "better social model".

baddox3• 6 years ago

let people follow their greed and ambition, but surround them with legal fences

It’s a shame they didn’t think of the obvious loophole that some people get so wealthy that they can use their wealth to influence those “fences.”

nickik• 6 years ago

The old doing things for money is inherently evil philosophy coming out again?

If everybody could just live in love and harmony and to work towards a common goal.

The problem is greed and selfish pursuit of wealth by certain kinds of people who see that as a worthwhile purpose for their life.

No. The problem is not pursuit of wealth but when that pursuit leads to breaking of the law or focus on changing political outcomes.

To be successful society needs to have good laws and enforcement and a stable political system.

The problem is when those things are not correct, not 'greed and selfishness'. Trying to change human greed and selfishness or setting changing that as a necessary goal to improve the world will always fail.

In fact people who wanted to earn money for themselves and their families have overall done a huge mount of good in the world.

cycomanic• 6 years ago

This interview resonantes with something I have been thinking for a while.

Essentially the whole VC fueled hypescaling in a race to become the next unicorn especially in the "sharing economy" seems like a giant pyramid scheme. Like it's all about scaling so the value increases so that in the next round the VC of that previous round can cash in on the next VCs who hope to do the same thing in the next and so on, with the end goal of finding gullible regular investors once it comes to the IPO. All that without a sustainable business model, look at all the bike hire companies a couple of years ago, the scooter companies now etc.. Even Uber might never be profitable.

All that is done on the back of society leaving burned soil in the wake. And yes it's an instrument for the wealthy, because they have the means to be among the early investors.

realtalk_sp• 6 years ago

When there's more capital available (and there's been an abundance of it in the last decade plus), the time it takes to make a new market/industry competitive enough to shred margins goes down a by lot. In recent history, this has happened before such companies can float shares in the public equities market. Great examples are ridesharing, online food delivery, and meal kits.

In an environment flush with capital chasing returns, any company without a true monopolistic moat will ultimately be forced to operate at or below cost, yielding no meaningful profit. Many of these tech unicorns thought they would be monopolistic but ended up looking more like airlines.

Gibbon12• 6 years ago

I keep coming back to Block Buster. Their model was borrow money to open stores and drive smaller mom and pop rental places out of business. I'm not sure but I think when you add everything up they never made a positive return doing that. They just ended up leaving banks holding the bag when they went bankrupt.

Lot of VC unicorns feel like that times 100.

jdxcode• 6 years ago

What? Blockbuster operated under a franchise model. They didn't borrow money to open stores—it was local "mom and pops" doing that.

RockIslandLine• 6 years ago

"Even Uber might never be profitable."

Uber will never be profitable, they can't pay their labor.

What sucks is that their failure will destroy the business model for someone who might have been willing to give it an honest effort.

mgamache• 6 years ago

I think they even admitted that self-driving cars are required to succeed. That's why they acquired <wink> waymo tech.

edw• 6 years ago

Tim's thoughts dovetail nicely with the Mathbabe "Microfinance is mostly a scam" story also on the front page at the moment. (https://news.ycombinator.com/item?id=23662482)

Technological change always causes collateral damage, and, having been in the business for 25+ years, I can't say people were previously more tuned into the negative consequences of our creations in 1994. With every passing day, however, our power to quickly and sweepingly change the structure of physical and social reality grows, and too many investors give their ethical and moral obligations no more thought than an eight year-old does while burning ants with a magnifying glass.

There's a place for thinking about the world through a spreadsheet, but before pouring tens of billions of dollars into science experiments on human civilization, as a professional and a citizen and a human, you have an obligation to pause and look around before pulling the trigger on a deal.

Taking an example from some time ago, I believe Groupon was a singularly ill-conceived and pernicious business akin to payday lending. And perhaps there's a place for payday lending (or microfinance) but the ability to wave your hands and exclaim "(fin)tech start-up!" allows you to avoid the reputational damage usually associated with working in such milieus.

KKKKkkkk1• 6 years ago

Putting aside the important issues of diversity and inclusiveness, there's some really strong criticism of the business ethics and financial soundness of the VC model.

As I said, I’ve been really disillusioned with Silicon Valley investing for a long time. It reminds me of Wall Street going up to 2008. The idea was, ‘As long as someone wants to buy this [collateralized debt obligation], we’re good.’ Nobody is thinking about: Is this a good product?

So many things that VCs have created are really financial instruments like those CDOs. They aren’t really thinking about whether this is a company that could survive on revenue from its customers. Deals are designed entirely around an exit. As long as you can get some sucker to take them, [you’re good]. So many acquisitions fail, for example, but the VCs are happy because — guess what? — they got their exit.

RestlessMind• 6 years ago

Looking at some prominent examples in the last 1-2 years (Uber, WeWork, Lyft) and the recent batch of S-1 filings, I indeed see a lot of companies still operating at a loss. The analogy to CDOs and finding a bigger sucker starts ringing true. So far, the bigger suckers were Softbank and public markets. It would be interesting to see what happens going forward.

achillesheels• 6 years ago

To that point on public markets: who on Earth is buying the equities of a Zynga or a SurveyMonkey? (no offense to any current or former employees)

I get that speculators exist, but I see more and more the public listing of IT startups as “siphoning” passive index funds as part of a necessary diversified portfolio strategy - this is how VCs are exiting. I haven’t done the research, but this is merely the extension of principally why VC exists: the statistical inference of putting X% (typically less than 3) into high risk investments from 10 and 11 figure funds.

jariel• 6 years ago

The notion of grabbing market share at a loss in order to capture future profits is actually sound.

What matters obviously are the underlying fundamentals behind the strategy, which depend on a lot of things, can change, and are therefore amenable to hustling.

Each case is different.

lazylizard2• 6 years ago

Can i say unless subsidised i believe this has no chance against a farm* in dalat despite shipping costs?

https://techcrunch.com/2019/06/11/infarm-series-b/

But nobody will give you us$200m to start farming in dalat. Smart, vertical, aeroponic, hydroponic or otherwise.

*make that a plain default old school fully manual dumb and horizontal kind of farm haha

closeparen2• 6 years ago

It is unethical to be an outsourced R&D operation for an eventual acquirer, instead of an independent business?

globular-toast• 6 years ago

The stock market was invented for the purpose of raising initial capital for companies that need it before they can begin trading. Initially this was mainly railways. But now the stock market is rarely used for that (is it ever?) but rather for initial private investors to cash out.

I sometimes wonder if private investment should be illegal. It's completely unfair that billionaires are able to invest early in radical new companies but the general public are not.

terminalcommand2• 6 years ago

There is a special type of entity that can raise money for acquiring other profitable businesses as well, they are called "special purpose acquisition companies" (SPACs). You can basically raise money out of thin air only by only using your reputation and your desire to invest in other companies.

btilly• 6 years ago

I am reminded of a quote from The Innovator's Solution about how to build a spinoff in a disruptive industry:

Dumb money is impatient for growth and patient for profit. Smart money is impatient for profit and patient for growth.

That book has a lot to say about the dynamics of why this is so. But the lesson is worth thinking about. If you want sustainable returns, focus on being profitable and let growth take care of itself.

However Venture Capital has a fundamental problem that leads to their being "dumb". It is in the interests of the people running the fund to get as much money in the fund as possible (so that they can get the management fees). But then they need to invest too much money in startups. Which forces those startups to search for big enough business opportunities to justify the investment. And if along the way they happen to find a smaller opportunity, they can't pursue it. Therefore they have to look for growth, growth, growth.

zucker42• 6 years ago

One practice that seems relevant is when a large company buys a smaller product which many users depend on, then after a year or two proceeds to kill the product with poor or no replacement options. Some examples: https://ourincrediblejourney.tumblr.com/

This seems like a clear-cut case of market failure since it would even be better for society for the company to die and their product to be open-sourced. The fact that VCs focus on exit instead of building a sustainable business seems to at least contribute to this phenomenon.

stuaxo• 6 years ago

Replace "starting to do" with "does".

acd• 6 years ago

Often startups are being hyped that show exponential growth. There is even books “The age for exponential” but I hypothesize some may have gotten the exponential curve wrong which has impact for growth. Ie I argue that growth may follow mathematical logistic curves/sigmoid s curves and not necessarily exponential hyper growth. Ie there is not an ifinit number of customers there is natural limits to growth. Nor is there infinite number of energy for example. This put some limit on growth which may shape on logistic curves. Has there been research on which types of exponential curves some startups grow with? I think it’s sound that there is demand from investors with income revenue generation.

It kind of matters which of these curves it is or other curve for that matter. And while you are in the middle of a logistic curve growth it can be confused for exponential curve. I recently confused these curves in another topic.

Logistic curve https://en.m.wikipedia.org/wiki/Logistic_function

Exponential curve https://en.m.wikipedia.org/wiki/Exponential_growth

hevelvarik• 6 years ago

Love it, smart cookie. Like every good reporter nowadays, the interviewer made it about racism right off the bat. Oreilly doesn’t bat an eye, genuflects to the racism god and make his point about the fundamental differences between the ventures within the good think context. It’s the new public relations dexterity.

Tim O’Reilly makes a case for why venture capital is starting to do more harm

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