> Andreessen Horowitz, Founders Fund, CrunchFund, Marissa Mayer and Mark Cuban
how were these people so easily bamboozled? this is some pretty dubious tech straight from the get go.
how were these people so easily bamboozled? this is some pretty dubious tech straight from the get go.
> I’m sitting backstage at TechCrunch Disrupt. I’m introduced to (let’s call her) Mary, a 22 year old recent college grad. She spends ten minutes setting up a science experiment on my desk. There are jokes about how she managed to get this thing through airport security. She then performs the closest thing to magic I’ve seen in a long time.
> Stuff like that is what makes my job so much fun. In a year or so when this thing is productized you’ll be hearing a lot more about Mary.
Maybe he should go to Las Vegas instead of making decisions about technological investments.
Could you expand on this?
Basically, speed and quantity is better than deep investigation. It's just how the numbers work out, but it's also why you'll see some crazy startups get funded even if others have more solid financials.
In addition, people are much better at disqualifying then qualifying. It's easier to say "no" then to say "yes" to something, so it could be argued that you should say no very quickly to these kind of startups. But history shows that wilder ideas are more likely to lead to the outsized returns so VCs will say yes to the things that other investment classes would always say no to. Then again, it's called "venture capital" for a reason.
I have been closely watching indie bio do their accelerator and I'd say a full 60% of their startups are phlebotonium, or at least "this is not a crazy idea, but the choices you have made are totally crazy".
So while you might disqualify some poor companies in the 99%, what are the odds you don't just get another poor company? The odds that the money you didn't spend will now go to a successful company doesn't really change since the hyped companies would already have the money and the rest are a complete crapshoot.
Meanwhile, how much does that diligence cost? If it's more than Z across your portfolio then you're actually down a shot and have lowered odds for the whole fund. If 99% are going to fail anyway, why spend more money just investing in a different 99%? Remember the entire fund has to be invested, you can't return or rollover the money so this is actually the optimal strategy. It's strange math but it works.
Unfortunate perhaps that VCs are so susceptible to this, but it is what it is.
The fact that you'd need a power plant to charge a room full of people's phones isn't some practicality issue. This was absolute nonsense from day 1.
The simplest answer is the most likely: they weren’t.
They were good at selling a product that cannot work. Imagine how much better they'd do with something that does work.
In order to get liquidity, you need to have your portfolio company have an exit, either by IPOing or being acquired. Good luck having either of those two events with an entirely worthless company. Even if you do, it's fraud and people will sue you and government investigators will kick down your door.
I think most of the other commenters here are on the right track. VCs just don't do that much diligence for early stage companies, especially if they have a compelling emotional pitch. Hell, I wouldn't be surprised if someone flagged that their technology was impossible and a partner pushed ahead with the deal just in case of a miracle. There's so much money chasing returns now that $10MM is a pittance for venture funding.