
In a world of venture capital - abecedarius
https://thezvi.wordpress.com/2015/05/15/in-a-world-of-venture-capital/
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datashovel
IMO the technology industry should be focusing less on maintaining the status
quo, where they are constantly and continuously dependent on VC to bootstrap
businesses, and more on figuring out how to make it easier for brand new
businesses to bootstrap themselves into existence.

Sure it's more "glamorous" to be wooed by VC firms, or to even get in the
door, but IMO it skews priorities and is probably one of the main reasons
there's such a high rate of failure in technology startups.

In today's environment, the real essence of what it means to "build a company
from the ground up" gets lost in translation.

~~~
yesimahuman
I think there's something here. I run a VC-backed company, and though we did
that for a specific reason and have no regrets, I still feel like the world
hasn't truly seen companies like Mailchimp, Campaign Monitor, GitHub, etc.
(before those that raised, raised).

The VC world does tend to dismiss these types of companies, which I now
realize is simply out of frustration at the lack of investable opportunity in
these high-margin, growing, _and_ sustainable companies.

I think we haven't given enough weight to the idea that what those companies
have done is revolutionary, and is actually a lot more contrarian than the
existing startup model.

~~~
datashovel
I think a huge part of it is regulations. Imagine all the successful
kickstarter projects that have ever existed. Then imagine a world where, if
each of those people who "purchased" from these projects actually owned a
percentage of that ongoing success?

I think, of the many points of attack in leveling the playing field, removing
regulations that prevent small-time "investors" from owning equity in ventures
is a candidate that's high on my list.

Although in a way that passes the buck (ie. you're still dependent on
investors and giving away equity). I am looking forward to seeing how crowd-
sourced loans and such will work. For example imagine a prosper.com at scale
(catered specifically toward small business loans).

And wouldn't it be nice if regulations didn't prevent a small startup from
creating such a crowd-sourced loan program?

How about a crowd-funded VC platform? I imagine alot of things are in the
works that will help reduce the importance of the middle-man (ie. the
investor). I look forward to seeing how that all comes together. But none of
it will get off the ground until regulations are no longer the barrier to
entry.

~~~
danieltillett
There is a reason for all these regulations. While I am generally pro-
deregulation, letting unsophisticated investor put money in start-ups is
highly dangerous. While it would make it easier for genuine companies to raise
money, the problem is it makes it much easier for scammers.

~~~
datashovel
I think this used to be the case. But think about what the internet has done
for "reputation" tracking. I think deregulation would open the "potential" for
scammers, but at the same time would open a market for websites like a "Yelp
for investors".

~~~
danieltillett
Given how much reputation "massaging" occurs on Yelp I am not sure this is a
good model :)

The solution to preventing scamming is to make it harder for scammers to raise
money than genuine businesses. The major difficulty is it is very difficult
for unsophisticated investors (actually all investors) to make accurate
judgments into the character of founders of start-ups. Even if we had a good
reputational system for start-up founders (we don't), most founders
(especially the most innovative ones) are not going to have a lot of history
to support any such reputation system.

On the topic of reputation, Linkin^ has a good platform to monetrise this
demand. They could charge users (and pay other users) for reputation
endorsement (not just skill endorsement). They could have users provide an
enormous amount of biographical detail and then have others verify (or not
verify) this data. Make enough links and it will be very hard for a scammer to
succeed over the honest.

^ Actually this could be a great idea for a start-up. Have people upload
massive amounts of biographical data and then pay other people to endorse each
data point - probably someone is doing it already and will soon tell me all
about it :)

~~~
datashovel
I agree reputation isn't an easy problem to solve. I think taken to its
logical limit something like what you've described above is likely close to if
not the correct solution.

Using the tried and true methods that already exist in the public key
infrastructure of the web, I think the problem of tracking reputation online
(in a reliable way) is something that will be solved in our lifetimes.

~~~
danieltillett
The real interesting question here is how many data points do you need to
confirm to establish that someone is trustworthy?

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lordnacho
Wow, this is almost a description of a pyramid scheme.

Investors invest because they think more investors will invest later. You need
the brand name investors because investors need to see the brand name
investors in your company's pitch, making it more likely there will be future
investors. The firms are selling shares by promising (well, making a string
indication) someone else will buy the shares at a higher price later. Also,
you can make money by investing without the firm making money.

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increment_i
>> "We made the deadly mistake of thinking of MetaMed as a business that was
trying to turn a profit and grow organically, rather than a start-up whose
‘profits’ would come from selling its stock to investors at a higher price.
Even in the explicit context of a profitable case, this was still true."

When the author explains that the goal of the startup is to profit through
selling its shares at ever higher prices, it seems like he's basically saying
the entire industry is a giant game of Find the Greater Fool.

I'm sure I'm missing something though.

~~~
MCRed
You're not missing anything. It's kind of intrinsic to the system-- when you
have VC that wants really high rates of growth then they will require/force
the startup to take a path that may be much higher risk but also much higher
reward.

When you are building a business, you have to make decisions that keep you
alive.

In the process you may have less likelihood of becoming unicorn but much
higher likelihood of surviving.

EG: I think VCs want you to take a 1 in 10,000 chance at being a billion
dollar company, vs a 1 in 1 chance of being a $100M company.

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JoshTriplett
The other news here that I hadn't seen elsewhere: when and why did MetaMed
fail? That was an idea I would like to have seen succeed. Is anyone else
working on that?

~~~
danieltillett
It is an idea I would like to see succeed too, but I think the problem is
there is no way to make money out of this service. I suspect it would work far
better as a boot-strapped business offering a very high end service to the
mega wealthy.

~~~
JoshTriplett
In the short term, charge at least as much for the service as it costs. In the
long term, rely on the resulting wealthy and thankful patrons.

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staunch
> _Because another of the characteristic mistakes of young founders is to go
> through the motions of starting a startup. They make up some plausible-
> sounding idea, raise money at a good valuation, rent a cool office, hire a
> bunch of people. From the outside that seems like what startups do. But the
> next step after rent a cool office and hire a bunch of people is: gradually
> realize how completely fucked they are, because while imitating all the
> outward forms of a startup they have neglected the one thing that 's
> actually essential: making something people want._

[http://www.paulgraham.com/before.html](http://www.paulgraham.com/before.html)

~~~
danieltillett
It is not only making something people want, you need to make something people
will pay for, either directly or indirectly.

~~~
adyus
Could it be that "want" is now a type of currency? It seems that some of the
things people "want" and get for free (GMail, Facebook, Twitter) have been
converted to money somehow.

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waterlesscloud
"Starting a business is not about doing business. Starting a new business is
about raising investment."

"Fundamentally, the venture capitalist is asking: will this company be able to
raise money in future rounds?"

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ianstallings
_I have given a lot of thought to, which is why the bigger venture capital
firms dominate the market and make oversize profits while the other firms
taken together make almost no profits_

Is there some data on this?

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TheGrassyKnoll
AKA "The rich get richer"

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michaelochurch
What he's describing is a feudalistic, dysfunctional reputation economy.

I wish there a way to make everyone realize this at once, so we can abandon
this mess wholesale and come up with something else.

The reputation factors dominate in light of the realization that the current
Bay Area "tech" scene is built on taking behaviors (insider trading, market
manipulation) that would lead directly to jail if done on public markets, and
applying them to unregulated private equities. Since the people getting burned
the hardest on the investment are young employees, no one seems to care,
though.

This is also why there will probably never be a competing VC-driven tech hub,
and why VC will always be extremely local. The VC business is that way because
so much of the note-sharing and market/reputation manipulation is borderline
unethical and it would be suicide to put too many of the conversations that
actually matter in writing.

