1) compelling if it all works out. Invest clear-eyed and hope the founding team figures out the roadblocks. Greedy but not stupid; most successful startups start by 'doing things that don't scale.'
2) Pattern-matching / top-down portfolios. Mobile apps. Sharing economy. Subscription businesses. Electric Vehicles. Internet of Things. A lot of investors decide on themes for portfolio before they look at investments. Scooter sharing ticks a lot of boxes.
3) Adverse selection. It's a simple idea - anyone can grasp scooters as subscription. So the simplest-minded investors chose this rather than more subtle ideas.
4) as another comment suggested, investors are playing a game of musical chairs between funding rounds. Chamath Palihapitiya claims this as the reason his firm is stepping back from VC -- so he's walking the talk here https://www.cnbc.com/2018/10/10/start-up-economy-is-a-ponzi-...
If you think of VCs as totally independent, open-minded, critically thinking professionals, dutifully providing a financial service, then no. You pick the VC for the idea rather than the idea for the VC.
The second case is the ideal, but assumes highly-competent VCs and founders with equalish leverage. I think the perverse incentives for VC partners (read Palihapitiya) and the lack-of-prestige factors for first-time founders break the model. But this seems to be more true for second-time founders with moderate success under their belt.
I have come to the realization that VCs are really bad at distributing resource. For all these pedigrees to show for, they all seems to be playing musical chairs.
Part of the problem I see is that most VCs don't have a founder background and most of them you meet are pretty arrogant.
There's no way it's that low. Maybe 90% of VC-backed startups, and even then I think it depends on how you massage the definition of 'fail'
90% failure rate comes from research by Small Biz Trends
Also real estate businesses only have a 42% failure? So I have a greater than 50% chance of becoming a real estate mogul? I just don't buy it, and I don't believe those other numbers either.
And the only source they cite on the website, http://www.moyak.com/papers/business-startups-entrepreneurs...., doesn't really lend any explanation to their numbers.
I think their data is wildly skewed by sampling bias, as they claim to get their data from interviewing failed founders. Welp, they never interviewed me - how many other people have they never interviewed because they simply never knew the company existed? How many founders, after failing, go out of their way to talk about their failure?
VCs have a strong incentive to create a story that starting a company has a greater chance of success than it does, because it's low-risk for them and they want a churn of potential investment prospects.
I think 1% is a much more realistic number than 10%, unless we're limiting ourselves to Sequoia-backed post-Series A companies.
The informal definition we think of day-to-day is fairly fuzzy. There's nuance in differentiating a small business operated by a few people from a startup. Being venture-backed is a simple differentiator but there are still legitimate startups this would exclude, e.g., serial founders who don't need to raise or products that make money early.
With respect to "fail"... is an acquihire or an even-money, 1-3x exit etc a "failure". Probably, yes for the VC, but not necessarily for the founder. Accelerators are incentivized to count "successes" liberally as well.
With a more broad definition of startup, it's easy to see the failure rate at 99%+.