Chamath Palihapitiya says most of the things VCs have funded are "mostly crap"
vanityfair.com
vanityfair.com
So we have reason to be skeptical of any claim to wisdom from VCs and even any claim to understand relevant metrics or KPIs. Good VCs are humble about this, but others posture behind it.
What we should really be wondering is how many bad decisions are made by startups based on pressure from VCs.
Since average (non-accredited) investors are prohibited by law from investing in early stage startups, those who are not prohibited get a highly leveraged game which some are bound to play successfully several turns in a row.
There is nothing wrong with this, but it's sad to see promising startups make bad decisions because they are simply striving for rapid growth at all cost.
Can't continue reading past this. They were ordering food from a place that 2-3x a week delivered maggots? Please.
More than once is too long.
Corporate catering has evolved a lot since 2007 and there are a lot of better product offerings now for startups to use.
Startups are experimentation, and you have to try lots of things to find the right things. I'd be _worried_ if most startups didn't end up "crap" in one way or another - it would mean we were being too conservative in our experimentation.
That doesn't mean we have infinite tolerance for "crap", but to say "mostly crap" doesn't seem alarming to me.
> I think what we’ve had is a handful of investors who have extreme vision who make great investments in things that are amazing businesses: Facebook, Google, Uber. And then everybody else reacts to that success by trying to do the thing that most approximates the thing that’s working. As a result, most of those businesses are fundamentally not good, they’re poorly run, and they never should have been invested in in the first place. But the capital came in because the person who had control of the capital was able to justify it intellectually to themselves versus something else that could have become the next Facebook or Google.
No, it was not.
Amazon started out by just selling books, which others had already been doing before Bezos came along.
For instance, books.com belonged to an outfit in Ohio that would sell you books through a telnet terminal interface (http yet to come).
Amazon marketed better ("a river of one million books") and executed well on the web. Books.com was sold to Barnes&Noble a few years later.
We can look back on it and say "Of _course_ people will want to do shopping online", but that's with the benefit of hindsight. While it was a _stupid_ idea, it wasn't a well-proven one.
Nowadays Amazon can spend quarter after quarter deliberately avoiding profitability, and no one strenuously questions it because it is known they can focus on profitability anytime. Back then it was a far more open question if they had something people would want, and something that wouldn't be easily copied by the established competitors.
I heard the Sears&Roebuck catalog was quite a hit in its time.
Also, some people made some money selling by mail and phone.
Crazy stuff.
I remember when Amazon was founded. (Heck, I was taught how to order from a catalog in Home Ec classes). A lot of people found the idea cute. Laughable. Or maybe just naive. I mean, sure, you could sell SOME stuff in a catalog, but would enough people want to buy books that way? (SciFiFantasy book club ala Columbia House notwithstanding) And that assumed enough people understood these fancy "home computers" to order things. All with enough volume to justify the costs.
I mean, we're talking about a time when no one said "Amazon", they'd say "www.amazon.com" (WWW required when you said it!), and that's assuming they didn't say "H.T.T.P. colon. uh, is that forward or backslash?..." and so forth.
I mean, had the idea NOT been crazy, it'd have been done earlier. And when it was enacted, lots of smart people had doubts. Lots of rich people didn't try to get their foot in that door. All because there were very realistic doubts.
They just turned out to be horribly wrong and Amazon succeeded like crazy.
To think that profitable companies could be built around selling clothes, furniture, and appliances by mail from paper catalogs, but that there might be no profit in selling books online, is absolutely daft.
Obviously all these distorted memories should be forgotten as we recall how brick-and-mortar bookstores (or as we called them then, "bookstores") were in constant collapse due to the competition from these book catalogs.
Obviously I'm just daft and history didn't happen.
As you've just pointed out, people were already buying books from catalogs, and profitable companies were built around this activity. There was a clear market for it, and centralization of this activity via the internet just happened to provide a bigger boost to Amazon's success than many people would have predicted.
My point, for clarity:
* There was NOT a large sell-book-by-catalog business. Those companies that did it were either rackets, or extremely niche, or both. * At the time of Amazon's founding, it was a wide open question as to whether they could make enough money to cover costs, and a bigger question as to whether this was best investment for that much money.
Now, you can argue that either of these is wrong, but those are my personal memories of the time, and I feel #2 is supported by #1, and I'm the only one that has mentioned ANY book catalogs, and both of those are NOT general providers. Do you have any examples that show that there WAS such general success to prove your point?
(I've done some brief googling, but articles from 1995 are hard to locate)
We know that. But in the '90s, none of that had happened, and it was as uncertain and unproven as VR is now, or voice commands before Siri and Echo were available, etc. To pretend that uncertainty didn't exist is to deny what actually happened.
This applies to everything.
Which isn't that far off from the title -- but still, that just wouldn't have been click-baity enough, now would it. So they just had to tweak it, I suppose.
Invest in a bunch of things, most of which will fail, but make that back from a big payout from the ones that succeed.
But I'm baffled when VCs invest in businesses that don't have a business plan that demonstrates a reasonable likelihood of actual profit margins within a reasonable pay-off time, as opposed to steady losses of unknown and unstated duration.
That's pretty much the definition of a failed business. So when everyone seems very surprised that businesses like this fail, it's even more surprising that they're surprised by it.
I think there's a serious opportunity for VCs to fund workable but unspectacular non-unicorns with reasonable but not explosive growth potential.
But maybe that's just not exciting enough, while hyper-growth is, even with no profitability.
I can't pretend to understand it, because it makes no sense to me.
Central banks around the world have made it easy to borrow money almost for free. That money must be invested somewhere, because keeping capital in the bank has negative interest rates in many countries!
That's a big reason why there's so much venture capital sloshing around. What else are they going to do with it? Buy a German 10 year Bund that returns 0.18% per year, or maybe a US Treasury that's about 2%? Why not take a chance on the next startup instead? After all, maybe Tinder for Cats is the next big thing?
In reality it is worse because you don't actually know the number of companies, and you don't get presented with the same options as everyone else -- a good part of being a top investor is access to top dealflow.
Is Whatsapp worth $55 dollars per user? If you pay 1 dollar per year and you have no advertisement? Really hard to believe, unless the money is coming from monetizing nosy activities. Doesn't possibly add up.