
Is Venture Capital Worth the Risk? - imartin2k
https://www.newyorker.com/magazine/2020/01/27/is-venture-capital-worth-the-risk
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aloukissas
In short, this article can be summarized: "VC used to fund R&D-heavy startups
like Genentech and Intel, now it's used to make startups grow as fast as
possible at any cost, just like cancer". Mostly agree with this.

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_rpd
For greenfield plays, the benefits of being market leader are so extreme that
"grow as fast as possible" is almost always the right strategy.

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mox1
Benefit to whom?

There are at least 3 parties involved in every VC funded startup, the company,
the investors and the customers.

Growing as fast a possbile and becoming a market leader benefits 1 perhaps 2
of those. I would argue usually benefits 1.

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SpicyLemonZest
I think it’s hard to argue growing fast doesn’t benefit customers. Becoming a
market leader means almost by definition that a lot of customers are convinced
you’re selling the best thing on the market.

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gbear605
From another perspective, becoming the market leader might mean that a lot of
consumers are convinced you’re selling the best thing on the market because
you’re the only thing on the market because you bankrupted all the other
choices. The venture capital growth-at-all-costs model results in monopoly or
near-monopoly conditions, which is horrible for consumers. If your business
doesn’t have competition, you’re probably hurting your customers.

~~~
SpicyLemonZest
I suppose I can imagine the scenario, but have any VC-backed companies
actually grown big in that way? Doordash is the closest example I can think
of, but unless you're considering restaurants rather than end users as their
customers, it seems pretty uncontroversial to say that it's been good for
customers. Alternatives exist, and both Doordash and the alternatives have
significantly expanded the range of foods most people can get delivered.

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throwaway2048
uber's model is/was essentially putting their competition (taxis) out of
business with VC subsidized rides.

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SpicyLemonZest
Taxis are still in business in every city I’m personally familiar with. Are
there other cities where they’re gone?

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FanaHOVA
Sometimes I wonder why people spend all this energy to bash VC. It's a 4,500
words article and there's only have 5-6 companies to mention as failures of
the model in the past decade, compared to the tends of thousands that raised
money, and all of those are consumer-facing products.

The New Yorker uses Parse.ly (Venture backed company), GitHub (Venture backed
company), BrowserStack (Venture backend company), Asana (Venture backed
company), Hipchat (Venture backend company), just to name a few they listed on
their Stackshare profile [0] (another venture backed company). I'm sure they
are glad those were funded :)

[0] [https://stackshare.io/new-yorker/new-yorker](https://stackshare.io/new-
yorker/new-yorker)

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dkersten
Completely anecdotal and subjective, I know:

Personally I try to steer clear of venture-backed startups when I can for the
following reasons.

The first is out of fear of the dreaded announcement about the exciting next
steps for the team because they got acquired yay (which typically translates
to either the product I was relying on being shut down, merged into a shitty
bigger product and/or my data being used by Big Co which is possibly what I
was trying to avoid by using a small companies product in the first place.
Basically, a service provider being acquired has never translated to a
positive to me the customer in my personal experience). Especially if the
company gets bought by google: now I can look forward to both having my data
taken by google (something I’m going to great lengths to minimise!) and an
above average chance of the product getting cancelled.

The second is the pressure to make the big return on investment (not just
sustainable profit), which in consumer products usually means advertisement
and in b2b often means aggressive analytics.

Finally, if the company wasn’t successful enough fast enough it often gets
shut down.

Either way, the business pressures usually mean it ends up negative for me,
the customer.

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dehrmann
> dreaded announcement about the exciting next steps for the team because they
> got acquired

This announcement usually means it was an acquihire, and the company was
already dead, so you have to stop using the product either way.

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dkersten
Right, but if they didn’t focus on hyper growth because of VC pressure and
focused on sustainability instead, then it wouldn’t be a problem.

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echelon
Are there any good guides on how to take VC funding but not lose your majority
stake or control in your company?

How can you raise multiple rounds but still come out like Zuckerberg? He still
returned a lot to investors without ceding control to the board.

Has VC plugged those holes?

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portman
Grow really fast. It’s fairly one-dimensional: if you are growing at +50%
month/month, then you will be able to raise substantial rounds with minimal
dilution.

If you are not posting exponential growth, then you will likely give up more
and more control with each subsequent round.

~~~
echelon
Do you need to raise fast, then?

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tristor
I have a different take on VC and what it means. It's one of the reasons I'm
where I'm at in my career. VC-backed companies are worse for employee and the
technology community, because they'll optimize the use of open-source software
but not the giving back. So your career in a VC backed company (at least in
Ops) is mostly cobbling together multiple disparate open source projects into
something that "works", but you're restricted from sharing your work publicly
to give back to the community.

Contrasting that with large public companies or small bootstrapped companies,
both have been much more willing to allow me to open-source my work or
contribute to existing projects in a public way. I'm very happy to work for a
bootstrapped small company that only produces 100% pure open-source software
these days. Something which was always out of reach when I was bouncing
between VC-backed startups.

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mistrial9
very noticeable change in Silicon Valley culture pre-2007 and post-2008 on
this topic ; it appeared that there used to be a detectable, "moral" element
to FOSS contributions by stakeholders, but post-2008, pure ROI drives have
changed that argument .. they stay silent, don't communicate and don't
reciprocate.. Apple Inc, who always was in that direction anyway, embraced the
change and stopped pretending to give back, too.

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brenden2
"Is having money better than not having money?"

~~~
ssalazar
There are multiple possible funding models for technology companies. VC is not
the only way for “having money.”

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say_it_as_it_is
Such as?

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ssalazar
Bootstrap, private equity, angel/friends+family investment

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marketingfool
In the article it says 80 percent of the investments fail. If you can have
that risk, I genuinely don't see the problem.

Heck for my personal angel investments I use 95 percent will fail. Yes it's
risky, but the entire point was to find something that returns in the hundreds
of percents rather than 7%.

The math works out.

I only worry about evil businesses getting this VC money or uneducated people
making bad decisions on investments.

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ones_and_zeros
Genuinely curious how this works for an angel investor if the failure rate is
95%. How many companies do you have to invest in in order to spread the risk
of that 95%?

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onion2k
Angel investors are not VC funds. They can approach risk very differently.
They don't really need to spread the risk or mitigate it if they don't want
to. No one is auditing their investments (besides the tax man). The angel
investors I spoke to when I was running my last startup _really_ didn't _need_
to make a profit. They _wanted_ to make a profit because that meant success
for a business they thought should exist (and would use in their other
businesses in my case), but if they didn't they've only lost some money that
they could afford to lose.

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ones_and_zeros
I get that but, how much money do angel investors have? How long before the
95% failure rate drains their capital?

You'd need at least 20 investments to even think about maybe beating that 95%
failure rate, that seems like a very high number of investments for one person
to find, evaluate, fund and wait before the 95% catches up to you.

~~~
learc83
You don't need 20 before it's more likely than not that you get a success. And
I'm doubtful that the majority of angel investors actual have a net positive
return.

