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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."
Better to be showered in green than in gold.
Using pure economic reasoning to guide your decisions does of course leave history, or memory, out of the equation. Something that looked like a good idea and failed can still be a good idea five, ten or twenty years down the track, when you're armed only with analysis and a set of rules. Perhaps one history elective during that MBA would've helped cut down of this sort of tomfoolery.
5% (or 1 in 20) make it giving a 10 fold return = bankruptcy for the venture capitalist.
Perhaps you should spend more time in your math class and less time karma-whoring here?
Bad analogies are like waxing a monkey with a rainbow.
Depends upon VC's vision about technology whether it is in phase A or phase C of the famous Hype Cycle
hilarious
All I get is suggestions how to increase my malehood.
The only ones that deal with money come from widows of late Nigerian presidents. Must be tough to live there when every few days a prez is killed. Kinda makes me want to send our government there, for development aid.
Whether I'm concerned with their or our well being in doing so, is up to the reader.
We used to have a Bill of Rights. Now, with the rights gone, all we have left is the bill.
Sounds to me like the CEO is being taken by a 419 variant scam -
"Hi, we am interesting in investing to your company, the money will arrive from my dead uncles account of [insert country here]. We will just be needing $10k to release those funds please thank you. Did I mention that I am a civil servant..?"
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.
I reckon we're at about the right time for internet investments to start up again. Technology has caught up with the ideas. If Google's payment gateway plans live up to the rumours then the possibility of micropayment subscriptions for premium content is very real. Add to that the fact internet users are a much more clued up and savvy bunch with good, fast access and, critically, a willingness to spend money online there's a real opportunity here. The problem however is that investors are buying into (IMHO) the wrong thing. The biggest chunks of capital are going on things like social networking sites .. basically people are buying premium ad space. Online advertising is the old model .. the one that didn't work. It works for Google because they're not in the business of displaying adverts. They sell the distribution. Actually displaying the adverts doesn't yield much profit (a million here or there maybe, but not the hundreds of millions the venture capitalists want). I believe the future is in charging lots of users small sums for things the want .. like iTunes.
http://twitter.com/onion2k
...we're getting Bubble 2.0 as well.
It is said that economy works in 7-year cycles. Let me be the first to publicly call this "Hype 2.0"
There is no such thing as good luck. There is only misfortune and its occasional absence.
> AT the end everyone got burnt
Not everyone. Many people knew the game ahead of time and had their exit strategy planned. The CxOs had their business insurance. The investment brokers knew how to sell the funds that would ultimately fail to the less priveleged brokers. In the end the money was raked in by the folks at the top while the losses were lumped onto the insurance companies--who then distributed the losses by raising rates on health, auto, and home insurance.
The government itself is not stealing your liberties. Their new programs are enabling criminals who will.
Being showered with money isn't much of a blessing. Before you know the investors are knocking on your door wanting to know where their ROI is, and why you haven't spent the X millions given (apparently spending the money is a sign of progress).
The money is a burden; a HUGE burden.
When in this situation, be honest with yourself. What will you spend the money on. If you cite PR, furniture, company stationary, etc, run the other way. If you cite "more employees", triple-check your logic to see if they are really needed before taking the money.
"Pigs get fatter, hogs get slaughtered."
-- Jim http://www.runfatboy.net/
"Thanks, Mr. Simpson. Because of you, we're all taking golden showers! [offstage laughter] What?"
We know where leadership by an anti-intellectual "strongman" who scapegoats minorities and likes boisterous rallies goes