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Silicon Valley Firms Having Cash Showers
Carl Bialik from WSJ writes "'The market for high-technology start-up businesses is so intense in Silicon Valley that some companies are being showered with millions of dollars from investors -- without even asking for it,' the Wall Street Journal reports. The home-improvement website Done Right received an email from a well-known investment firm inquiring about putting cash into the company. 'Paul Ryan, Done Right's chief executive officer, says the missive wasn't sent to him or to his executives -- it landed in a general corporate email inbox,' the WSJ reports. 'Mr. Ryan wasn't put off by the impersonal plea: "We're having very good discussions with [the firm] right now," he says, declining to name the potential investor.' The Journal notes that 'pre-emptive' funding is, of course, risky, and harkens back to bubble-year investment trends."
You can make money investing in a company that is going to tank. You just have to know when to buy and sell. For many investors it doesn't really matter whether a company that they are investing in actually makes money. Their goal is just to outsmart other investors. Most of the time when someone sells stock, they think they are smarter that you and are going to make money off of you. To be a good investor, you have to prove them wrong. I'm sure every investor hears a voice in the back of their heads talking about the 2000 crash but they also hear another voice that says 'opportunity.'
Actually the maths are weak but not "really false".
Typically a VC does not win all or nothing.
It is more like in 20 deals:
1 is a big success: *10 and most real (effectivelly freed money) was
done here.
5 deals are huge flop, one of them hurts (it looked good and then failed, so more than seed money was spent).
10 deals fail and the VC is only recouping 1/3rd of their investment
4 deals work quite well but not stellar, so the VC gets *2
At the end the VC gets 30% more per year than what they invested.
Remember dot.bomb a few years back? Stupid people hosing money around. AT the end everyone got burnt. That green shower could turn into a shit shower very quickly.
Engineering is the art of compromise.