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VCs are scared when they should be greedy

blog.aaronkharris.com

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Re: VCs are scared when they should be greedy

#11

Post by dahdum »

MegaButts wrote: post #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…

> 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.

Lyft and Uber are both very near profitability and things are looking pretty good for them over the next couple years.

Why do you believe they are destined to fail? Established markets have been profitable for a while.

Re: VCs are scared when they should be greedy

#12

Post by bshipp »

blakesterz wrote: post #7
MegaButts wrote: post #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…

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.

I read this line and wondered what really has changed in the past 20 years?

"In 2000, the Nasdaq superheated due to the large number of companies that skyrocketed into the public markets fueled by fanciful metrics disengaged from revenue."

Interest rates have been held around zero since almost the dot com crash and certainly since 2008. No wonder VCs were given gobs of cash to try and eek out a better market return. The injection of cash on Wall Street resulted in huge amounts ending up in the stock market, perpetuating those returns once they went public and encouraging more VC activity. Is there any realistic forecasted revenue stream that justifies the valuations of some of these companies?

Some good companies and good prospects are going to get lost when this monetary bubble bursts. It's a shame, but inevitable considering how long the Fed has been holding their finger on the scale.

Re: VCs are scared when they should be greedy

#13

Post by christkv »

dahdum wrote: post #11
MegaButts wrote: post #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…

> 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. Lyft and Uber are both very near profitability and things are looking pretty good for them over the next couple years. Why do you believe they are destined to fail? Established markets have been profitable for a while.

In a recession they provide a luxury good that might be down prioritized by customers to save money.

Re: VCs are scared when they should be greedy

#15

Post by fdgsdfogijq »

Rather than complain about how VCs arent good investors, people should rail on the system that selects VCs. Which is mostly admittance to prestigious MBA programs/colleges. So please write a post about how those schools arent selecting for good investors, because these diatribes about a "flawed" industry are very surface level compared to the underpinning power structures in america

Re: VCs are scared when they should be greedy

#16

Post by PeterisP »

christkv wrote: post #13
dahdum wrote: post #11

Earlier quoted context omitted.

> 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. Lyft and Uber are both very near profitability and things are looking pretty good for them over the next couple years. Why do you believe they are destined to fail? Established markets have been profitable for a while.

In a recession they provide a luxury good that might be down prioritized by customers to save money.

In a recession some people suddenly are eager for any job, no matter how bad, driving down Uber's "cost of goods sold" i.e. driver fees..

But in general economic downturns are tricky, as they affect different groups differently - are the people who would suffer in a recession the same people who are currently using Uber?

Re: VCs are scared when they should be greedy

#17

Post by EGreg »

seibelj wrote: post #4
thdxr wrote: post #2

while 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.

What if the LP says no deals for 50 years? These “fund raised X” means nothing if they can’t enforce capital calls

Re: VCs are scared when they should be greedy

#18

Post by fullshark »

akharris wrote: post #10
thdxr wrote: post #2

while 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 tranc…

If you just view VCs as any other business, it involves revenue (exits) and costs (investments). The market turmoil is affecting the volume and size of exits in at least the short term, which means they are cutting costs. It's not clear the number of opportunities have grown/shrank but i guess fewer people trying to invest means the number of available opportunities to you as a player has grown.

Re: VCs are scared when they should be greedy

#19

Post by echelon »

MegaButts wrote: post #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…

> How many of today's startups are just servicing each other with VC money?

The B2B SaaS ones.

Re: VCs are scared when they should be greedy

#20

Post by ilrwbwrkhv »

A lot of people became "VC"s during the bull run. They brought nothing to the table like YC did. Instead some previously reputable VCs like a16z became crypto grifters. So it's good the market clears a bunch of them so that the YCs and next generation of VCs who actually bring something new to the table come to the forefront.
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