VCs are scared when they should be greedy
blog.aaronkharris.com
VCs are scared when they should be greedy
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Re: VCs are scared when they should be greedy
#2while I agree with the general premise (majority of VCs are not good investors) it's important to remember the money they raised isn't sitting in a bank account.
It's likely still in the LPs stock portfolio, doing a capital call when everyone is down a lot can be tricky. You need to sell the investment more even though they agreed to give you the money when you asked
Re: VCs are scared when they should be greedy
#3> In contrast with the scenario in 2000, most of today’s tech companies are real businesses.
How many of today's startups are just servicing each other with VC money? This isn't meant to be flippant - I'm genuinely curious (and while I bet it's a lot, I am skeptical it is overwhelming).
I mean if we really look at some of the business models for these companies, they're clearly unsustainable. Uber is a prime example of a company that seems destined to fail. If your unit economics don't work then you're fucked, and even if you raise literally tens of billions of dollars you will eventually run out of money. And yet companies like these are held up as prime examples of unicorn success stories. It's not just Uber - there are serious problems with many of the most acclaimed startups.
Obviously not all startups are terrible, but as someone who isn't a VC (but once considered becoming one), I think tech investors are unable to see their bias for just how awful most tech companies today are.
Re: VCs are scared when they should be greedy
#4while I agree with the general premise (majority of VCs are not good investors) it's important to remember the money they raised isn't sitting in a bank account. It's likely still in the LPs stock portfolio, doing a capital call when everyone is down a lot can be tricky. You need to sell the investment more even though they agreed to give you the money when you asked
Yeah I was super confused by this. VCs generally don’t have all the money ready to invest. They may have raised a $300 mil fund but they don’t get that money until they call it in. If the LP says “no deals for 6 months” that’s how it is.
Re: VCs are scared when they should be greedy
#5> In contrast with the scenario in 2000, most of today’s tech companies are real businesses. How many of today's startups are just servicing each other with VC money? This isn't meant to be flippant - I'm genuinely curious (and while I bet it's a lot, I am skeptical it is overwhelming). I mean if we really look at some of the business models for these companies, they're clearly unsustainable. Uber is a prime example…
Uber's a VC success story because the VCs managed to realize their profits before it can collapse when it went IPO.
Re: VCs are scared when they should be greedy
#6> In contrast with the scenario in 2000, most of today’s tech companies are real businesses. How many of today's startups are just servicing each other with VC money? This isn't meant to be flippant - I'm genuinely curious (and while I bet it's a lot, I am skeptical it is overwhelming). I mean if we really look at some of the business models for these companies, they're clearly unsustainable. Uber is a prime example…
Very good points MegaButts. Crypto is VC funded too. Hence the crazy market caps because most of the VC owned supply is locked up.
Re: VCs are scared when they should be greedy
#7> In contrast with the scenario in 2000, most of today’s tech companies are real businesses. How many of today's startups are just servicing each other with VC money? This isn't meant to be flippant - I'm genuinely curious (and while I bet it's a lot, I am skeptical it is overwhelming). I mean if we really look at some of the business models for these companies, they're clearly unsustainable. Uber is a prime example…
I was there in 2000, and we all thought those tech companies were real businesses! Most of today’s tech companies don't really look all that much different.
Re: VCs are scared when they should be greedy
#8> In contrast with the scenario in 2000, most of today’s tech companies are real businesses. How many of today's startups are just servicing each other with VC money? This isn't meant to be flippant - I'm genuinely curious (and while I bet it's a lot, I am skeptical it is overwhelming). I mean if we really look at some of the business models for these companies, they're clearly unsustainable. Uber is a prime example…
The problem is that sustainability was never the goal to begin with. The goal was to generate enough hype around a product in order to go public or get acquired by someone else.
It's the rich people's version of "hodling". Just like crypto-holders that created lots of hype around various coins and whatnot, VCs just bought stakes in lots of different companies hoping that one of them would go to the moon.
Re: VCs are scared when they should be greedy
#9> In contrast with the scenario in 2000, most of today’s tech companies are real businesses. How many of today's startups are just servicing each other with VC money? This isn't meant to be flippant - I'm genuinely curious (and while I bet it's a lot, I am skeptical it is overwhelming). I mean if we really look at some of the business models for these companies, they're clearly unsustainable. Uber is a prime example…
> I think tech investors are unable to see their bias for just how awful most tech companies today are
I agree. Ecomm broke first in other markets, and I am seeing profitable ecomm companies still having to raise capital. Uber is one of the worst ones (they took a business that is very profitable, and lost absolutely staggering amounts of money, they probably need to cut 50% of the workforce to start with, and then keep doing 50% until the business finds a level) but there are many others that have no business model or route to profit...and these are the best of the best that managed to actually list.
The public ones have a route to survival, some will raise, a lot of expense will go away with the stock price collapsing (employees getting bailed in). But most private ones won't survive. Too many staff, too little cash generation, and too reliant on the kindness of strangers (who remembers a few years ago, IPOs were so unfashionable, very old money...lol).
It is probably worse than 2000, the sector is much larger, private markets are far larger, there is so much hot money in the hands of brainless investors, it is a recipe for disaster. It is also worth saying, there will be a reprieve for a few months, then a story will break about one of the largest companies filing for bankruptcy overnight, then the private marks will come in. The losses sustained already have been some of the largest in the history of capital markets, it is the first inning.
Re: VCs are scared when they should be greedy
#10while I agree with the general premise (majority of VCs are not good investors) it's important to remember the money they raised isn't sitting in a bank account. It's likely still in the LPs stock portfolio, doing a capital call when everyone is down a lot can be tricky. You need to sell the investment more even though they agreed to give you the money when you asked
Fwiw - my general premise isn't that the "majority of VCs are not good investors." My point is that there's a serious disconnect in the markets right now, and that it is rooted more in fear than a lack of opportunity.
On the second point - you're right that the cash isn't literally sitting around, but VCs (generally) do not have to ask LPs for approval on a deal by deal basis. Capital calls can happen either as tranches or in response to a deal, and it is unusual for an LP to successfully refuse a capital call because of a specific deal.