I think that one issue is that it's harder to manage them, especially because they tend to be high-skill niche businesses. The thing about social media is that any fucking idiot has, at least, the technical knowledge to run one. This makes them attractive to bikeshedding investors and also ripe places to put underachieving friends who are owed favors.
The economics are marginal. You need to put in a large amount of money over long time periods before you get any returns at all, so if those returns aren't great, you might end up losing money and not being able to continue.
A large portfolio of mid-risk companies is not low risk, because they are correlated in various ways. For example:
- macroeconomic shocks can hurt your entire portfolio.
- your entire portfolio might have a selection bias
High-beta funds can let go of companies that fail. But if you're counting on most companies not failing in order to make money, you'll have to step in and rescue some companies where the founders break up, or give up, or move on to better opportunities. It's very painful to recruit and install new management.
The real reason is they take much more effort on the part of the investor to back companies like this. Much better to burn through hundreds of naive young guys trying to pick "outliers" than building businesses with a good chance of moderate success.
What do you think those are?
I think that one issue is that it's harder to manage them, especially because they tend to be high-skill niche businesses. The thing about social media is that any fucking idiot has, at least, the technical knowledge to run one. This makes them attractive to bikeshedding investors and also ripe places to put underachieving friends who are owed favors.