VC
Entrepreneur fetishization has broken venture
VC is broken. I’m not the first to say that but just more evidence from some recent articles:
“Sometimes investors are a little too serious about monetizing something immediately,” Ms. Singareddy said. “With MSCHF, there’s faith that it’ll pay off. There’s an inherent virality and absurdness to all the projects that they’ve created, and it’s something people want to share and ask questions about.”
https://www.nytimes.com/2020/01/30/style/millennial-entrepreneur-startups.html
That’s her quote about MSCHF, an “agency” of sorts in Brooklyn where they attempt to come up with viral products like “Jesus Shoes” which have water from the River Jordan in Air Jordans. Sure, that sounds like another prank viral hit by an innovative marketer building a reputation. However, that’s apparently not the goal of MSCHF. They’re a product company who doesn’t produce scalable products nor care about profits. A non-profit art gallery?
Investors defending the lack of monetization too early has shown how warped this has become. VC used to be about funding fundamental science and technology that had a huge potential impact, a long runway and a lot of risk. Unfortunately, the successes were fetishized far too much and the 99.9999% of failures are now lauded in Silicon Valley simply as learning.
With almost 40% of VC dollars now going toward digital marketing, we’ve crossed a precipice where business fundamentals like profitability and margins no longer matter. VC cash is revenue. Fail this one and start up your next supposedly wiser.
Certainly, the supply-demand imbalance with capital seeking alpha greater than market returns has fueled some of this. However, investing is psychological and emotional with a herd mentality. This just drives fund sizes and startup valuations up. Funds can only have returns with out-sized “unicorn” exits. Thus, VC kills a lot of nice small to mid-sized businesses by putting them on the rocket to stardom where almost all fail. All businesses have natural ceilings but not in VC land. Forget fundamentals, we want growth. A VC doesn’t make a $500m fund on a $25m exit. They need billion dollar companies and will starve all, including viable businesses, who do not fit that. Its broken…but there is another way and new opportunities that have arisen from this.
