
Chamath Palihapitiya says most of the things VCs have funded are "mostly crap" - jackgavigan
http://www.vanityfair.com/news/2016/03/chamath-palihapitiya-interview-says-start-ups-are-mostly-crap
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grandalf
The broader thing I've realized of late is that so many startups exist simply
because they are building something that appeals to VCs, not something that
necessarily appeals to any sort of customer.

So we have reason to be skeptical of any claim to wisdom from VCs and even any
claim to understand relevant metrics or KPIs. Good VCs are humble about this,
but others posture behind it.

What we should really be wondering is how many bad decisions are made by
startups based on pressure from VCs.

Since average (non-accredited) investors are prohibited by law from investing
in early stage startups, those who are not prohibited get a highly leveraged
game which some are bound to play successfully several turns in a row.

There is nothing wrong with this, but it's sad to see promising startups make
bad decisions because they are simply striving for rapid growth at all cost.

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gtirloni
_we’d ship in lunch and probably two to three times a week the lunch had
maggots in it_

Can't continue reading past this. They were ordering food from a place that
2-3x a week delivered maggots? Please.

~~~
fapjacks
It raises questions about everything else he says.

~~~
bobbygoodlatte
Chamath wasn't in charge of the food. I'm sure he told the relevant person
within the company and I'm pretty certain that problem didn't last very long.

~~~
pavel_lishin
> _I 'm pretty certain that problem didn't last very long._

More than once is too long.

~~~
anxman
I worked at Facebook back when food was a problem. We didn't quite have
maggots 2-3x a week but we did have maggots more than once. We used a lot of
different caterers but quality was a persistent issue. Randi actually handled
a lot of the food services back then.

Corporate catering has evolved a lot since 2007 and there are a lot of better
product offerings now for startups to use.

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ergothus
Is there a reason that's surprising? The difference between a great idea and a
dumb idea is largely commercial success. Amazon was crazy when it started, now
it's huge.

Startups are experimentation, and you have to try lots of things to find the
right things. I'd be _worried_ if most startups didn't end up "crap" in one
way or another - it would mean we were being too conservative in our
experimentation.

That doesn't mean we have infinite tolerance for "crap", but to say "mostly
crap" doesn't seem alarming to me.

~~~
S4M
By "crap", I think he means something like "poorly understood copy cats of
successful ideas", not "really bad ideas". See the whole quote:

> I think what we’ve had is a handful of investors who have extreme vision who
> make great investments in things that are amazing businesses: Facebook,
> Google, Uber. And then everybody else reacts to that success by trying to do
> the thing that most approximates the thing that’s working. As a result, most
> of those businesses are fundamentally not good, they’re poorly run, and they
> never should have been invested in in the first place. But the capital came
> in because the person who had control of the capital was able to justify it
> intellectually to themselves versus something else that could have become
> the next Facebook or Google.

~~~
sinatra
I can actually see why some VCs would invest that way though. A startup proves
that there's a massive market opportunity (think Uber's initial days), it's
still not a certainty that that startup will be the eventual winner. So, I can
see some VCs thinking: Now that one of the biggest risks (finding whether
there's a market at all) is reduced, we can just build a better team and maybe
become a much better second-mover. Or, although I am convinced that there's a
massive market, I disagree with how the first-mover is trying to handle it.

------
thaumasiotes
In other news,
[https://en.wikipedia.org/wiki/Sturgeon's_law](https://en.wikipedia.org/wiki/Sturgeon's_law)
.

This applies to everything.

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kafkaesq
Well, strictly speaking he said "most of the things _we’ve funded_ are mostly
crap and largely worthless."

Which isn't that far off from the title -- but still, that just wouldn't have
been click-baity enough, now would it. So they just _had to_ tweak it, I
suppose.

~~~
jackgavigan
Fixed. ;-)

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imron
Isn't that the whole premise of VC funding though?

Invest in a bunch of things, most of which will fail, but make that back from
a big payout from the ones that succeed.

~~~
TheOtherHobbes
I'm not sure what the premise of VC funding is.

But I'm baffled when VCs invest in businesses that don't have a business plan
that demonstrates a reasonable likelihood of actual profit margins within a
reasonable pay-off time, as opposed to steady losses of unknown and unstated
duration.

That's pretty much the definition of a failed business. So when everyone seems
very surprised that businesses like this fail, it's even more surprising that
they're surprised by it.

I think there's a serious opportunity for VCs to fund workable but
unspectacular non-unicorns with reasonable but not explosive growth potential.

But maybe that's just not exciting enough, while hyper-growth is, even with no
profitability.

I can't pretend to understand it, because it makes no sense to me.

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PhantomGremlin
What was unmentioned in the article, and here in the comments as of yet, is
ZIRP, Zero interest-rate policy.[1]

Central banks around the world have made it easy to borrow money almost for
free. That money must be invested somewhere, because keeping capital in the
bank has _negative_ interest rates in many countries!

That's a big reason why there's so much venture capital sloshing around. What
else are they going to do with it? Buy a German 10 year Bund that returns
0.18% per year, or maybe a US Treasury that's about 2%? Why not take a chance
on the next startup instead? After all, maybe _Tinder for Cats_ is the next
big thing?

[1] [https://en.wikipedia.org/wiki/Zero_interest-
rate_policy](https://en.wikipedia.org/wiki/Zero_interest-rate_policy)

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dekhn
I'd say that roughly 90% of things VCs fund fail. A VC which could reduce that
reliably to 60-70% YoY would be considered godlike. Think of VC investments as
a portfolio where you expect most of the investments to fail, but the few that
succeed give you 1000% gains. As mentioned elsewhere in the comments, this is
consistent with Sturgeon's law (and other power laws).

~~~
st3v3r
See, that illustrates another problem: Everything is considered a failure
unless it nets 1000%. Taking a more critical eye toward what you invest in,
and having more realistic views of success, and therefore not pushing insane
growth on everything, would make things much more successful overall.

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bikamonki
Which is how the VC roulette works: bet on all numbers hoping at least one
will pay many, many times more. No?

~~~
rdl
Except what probably terrifies them: each VC firm probably only bets on, at
most, 2/36\. And the industry as a whole only really bets on 18/36.

~~~
econner
Why 36?

~~~
rdl
Just using the roulette analogy from above. Roulette wheels have 36 numbers
(well, they also have 0 and 00. Maybe that's recession and global
thermonuclear war.)

In reality it is worse because you don't actually know the number of
companies, and you don't get presented with the same options as everyone else
-- a good part of being a top investor is access to top dealflow.

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partycoder
There's a lot of apeness in the world of startups and tech.

Is Whatsapp worth $55 dollars per user? If you pay 1 dollar per year and you
have no advertisement? Really hard to believe, unless the money is coming from
monetizing nosy activities. Doesn't possibly add up.

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sidechannel
Reminds me of Geordie Rose who said most people in Silicon Valley work on
things that don't matter and won't last

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nxzero
Why would an investor complain that other investors are wasting capital on
deals unrelated to their investments?

