One of Silicon Valley's Most Esteemed VCs Says Startups Are 'Mostly Crap' (vanityfair.com)

An anonymous reader cites an article on VanityFair: Former Facebook employee Chamath Palihapitiya won't pull punches when it comes to lame tech companies. Palihapitiya's firm, Social Capital, has backed numerous tech companies with valuations in the billions, such as Slack, Box, and SurveyMonkey. But that doesn't mean that he is bullish on unicorn culture. He says "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. [...] The reality is, great companies can go public in any market. When we talk about the I.P.O. slowdowns what we're really saying is that there really just aren't that many good companies being built. We need to divorce ourselves from venture capital as an occupation and focus on using capital as a way to take really big bets on things that just seem totally audacious. Right now we haven't done enough of that, and the result is that most of the things we've funded are mostly crap and largely worthless."

Comments

It's normal for a bubble

[BarbaraHudson]

It's a bubble, and now it's deflating because, like the mortgage-backed certificates, the underlying assets are crap.

Lemme guess what happened next...

[Narcocide]

Then he announced his plans for a revolutionary type of new instant messaging/social dating app?

No kidding?

[amRadioHed]

Didn't Sturgeon already tell us this 75 years ago? Ninety percent of everything is crap, including VC's.

Re:No kidding?

[amRadioHed]

Meh, I meant to say startups, not VCs. But still true either way.

Re:No kidding?

[war4peace]

So... that was like... accidental truth? :)

Re:No kidding?

[K. S. Kyosuke]

More like a tautology. "Everything including VCs" is the same set as "everything", isn't it?

Re:No kidding?

[Irate Engineer]

Didn't Sturgeon already tell us this 75 years ago? Ninety percent of everything is crap, including VC's.

That must mean 90% the remaining 10% is crap too. And 90% of that last 1%...

Let me get this right

[damn_registrars]

Someone who made a ton of money from investing in something worthless is telling the rest of us we shouldn't invest in things that are worthless? Sure thing.

Re:Let me get this right

[religionofpeas]

"well, thank you, unbiased stranger!"

Re:Let me get this right

[Actually, I do RTFA]

He's making a ton of money, while saying that people are overpaying him for crap he bought earlier for less. Of course, he's still selling it to them.

I consider it the equivalent of the poker pro telling everyone he makes a living at this and (some standing backing that up) when he sits down at the table. Just fair warning that someone is going to lose money, and he has the skills for it not to be him.

Re:Let me get this right

[AuMatar]

A poker pro doing that is doing image control. He's either trying to scare off a table of fish, or trying to egg on a few aggro hotheads. Or trying to look like an aggro to other real pros. What's this guy's angle?

Re:Let me get this right

[ScentCone]

aggro

Please stop that.

Re:Let me get this right

[dwye]

What's this guy's angle?

He's Bret Maverick?

Re:Let me get this right

[istartedi]

Maybe this is one of those "fuck you" resignations/retirements then. I vaguely remember reading one of those that was posted in 2008. It was from a hedge fund manager that was going long for his clients against his own advice, while they insisted on it or something. He still made all kinds of money from the fees, but he was telling them the whole way it wouldn't last, and they wouldn't believe him. He socked those fees away in something safe, they crashed, he retired.

Re:Let me get this right

[__aaclcg7560]

Someone who made a ton of money from investing in something worthless is telling the rest of us we shouldn't invest in things that are worthless?

When I worked at Accolade, a family-owned video game company, it got bought out by Infogrames, a French video game company, in 1998. Like many companies in the run up to the dot com bust, Infogrames went on a buying spree for other video game companies. When it acquired Hasbro Interactive, which owned the intellectual property for Atari, it moved the company from San Jose to Sunnyvale and renamed itself Atari. As the company slid into bankruptcy after the dot com bust, upper management figured out that they paid two to four times what each company was worth. In short, it was all crap.

Re:Let me get this right

[thejynxed]

I actually enjoyed many Accolade titles.....I can't say the same about many Atari or Infogrames titles. There were a few of course, but the vast majority were crap.

Re:Let me get this right

[tnk1]

I still hate Infogrames for the shitfest they made out of MOO3.

They are ALWAYS mostly crap.

[gurps_npc]

Look, the numbers for new businesses are always crap - that's why you get the high returns.

For every 10 businesses you start, seven go out of business in the first year. One more squeaks along till the 2nd year, another becomes a 'viable loss' (i.e. they make money, but less than their owner could earn if they got a job working for a major corporation), and only the last one makes any money. But that last one will make so much money that the owner becomes wealthy

That show VC works - they invest in 10 start ups, one of them gives them a return on their investment that is 20x, or 100x how much they gave it, and they go away happy. The other 9 they invested in are just the cost of doing business.

Re:They are ALWAYS mostly crap.

[Penguinisto]

You forgot one out of those 10... perhaps #9 makes enough money to live off of, but either has no real growth, or just enough growth to make it viable over sufficiently long periods of time?

Re:They are ALWAYS mostly crap.

[ImprovOmega]

It would be like the lottery if buying every ticket combination in that lottery guaranteed a minimum 10% net profit. With VC stuff you anticipate a 90% failure rate but with an approximate 2000% ROI on the one success out of ten.

Re:They are ALWAYS mostly crap.

[ewibble]

It is a lottery, and a very unfair one at that, if you started off rich you have a much higher chance of success, you can invest money, take risks, and have connections. If you are poor, you have to worry about surviving day to day before you can even start to invest.

Re:They are ALWAYS mostly crap.

[argStyopa]

"But that last one will make so much money that the owner becomes wealthy"
For which they (or their descendants) need to be thoroughly punished by taxation into the ground, because "income inequality".

Signed,
Thomas Piketty
(and his friends)
"the 99%"

Re:They are ALWAYS mostly crap.

[tomhath]

Most people don't end up screwed; most people end up working for the good entrepreneurs who succeed. A few will try to start their own business, and a few of those will succeed.

Re:They are ALWAYS mostly crap.

[K. S. Kyosuke]

But that last one will make so much money that the owner becomes wealthy

Reminds me of DARPA AI efforts.

Re:They are ALWAYS mostly crap.

[Darinbob]

In general they break even. The 1 in 10 will make 10 times what they spent. It is extremely rare to get the 20x or 100x. They would do so much better if they properly vetted the companies first to weed out the obvious failures.

Re:They are ALWAYS mostly crap.

[gurps_npc]

No I didn't. That's called a viable loss. I repeat, the owner makes a profit, but not as much as they could if they worked for a corporation.

Re:They are ALWAYS mostly crap.

[gurps_npc]

You are absolutely right. They should not be punished - but neither should their descendants benefit - they should not get the money in the first place. After all, they didn't earn it., their parents did. If they want to be wealthy, they should have to go out and start their own business - from scratch, not a single penny from mom and dad. 100% death tax. No inheritance, all gifts after hitting the age of 18 are taxed at 100%, including paying for college (earn a scholarship you free loader).

Signed,
Adam Smith.

Note I did not sign that, I ascribed it to Adam Smith, the father of Capitalism. I don't believe it - but you are implying you do.

You don't get to pick and choose - you want to be a strict capitalist, then take the good with the bad.

Re:They are ALWAYS mostly crap.

[argStyopa]

1) let's first note first that Adam Smith's observations on 'the evident justice and utility' of inheritance taxes were made in a time when there WAS NO INCOME TAX. Certainly not the confiscatory levels it is today.

2) after he muses about how children might therefore tolerate some tax once they've moved out of their parents' home, he opines: "There is no art which one government sooner learns of another than that of draining money from the pockets of the people" - hardly a ringing endorsement of the necessity of impoverishing children of their parents' accumulated wealth

Finally, From the Adam Smith Institute itself:
3) http://www.adamsmith.org/blog/...

Inheritance Tax is taxing money that has already been taxed when it was earned. The provision parents worked to make for their children, paying tax as they did so, is now taxed again, removing part of their incentive to create wealth in the process. For many recipients, the bequest comes as a lump sum when they are already established and probably own their home. It is thus available for investment or to start a business. Taxing it greatly reduces these possibilities. The capital pools built up by a family business such as a shop, for example, can be dissipated on death by Inheritance Tax, with a consequent economic loss to society, a loss that impacts employees and customers.

Re:They are ALWAYS mostly crap.

[argStyopa]

Wealth isn't a right - so you agree that we shouldn't GIVE money to poor people? They have no entitlement to such?

But basically I'd agree with you - nobody is entitled to wealth. People should be, as a fundamental human right, entitled to keep what they make.

Re:They are ALWAYS mostly crap.

[johncandale]

it's more like every 1 in 999 is runaway successful.

Re:They are ALWAYS mostly crap.

[Quirkz]

I've had four or five flops, a squeaker, and a viable loss, not in that order. So, just four more business and I'll be onto something? Sadly I'm running out of time and energy, and the day job, while not on the path to make me ridiculously wealthy, keeps giving me sweet murmurings of a long, slow road that would eventually make me comfortable enough that it's hard to let my focus wander any further afield.

Business Ideas

[jgotts]

Most business ideas are worthless. The trick is to invest in as many as possible, because a small number will work out.

This is not rocket science, and this is why owning the S&P 500 is a great idea. The most successful 500 companies will have many bad ideas, and some business will have such bad ideas that they fail. But on average, you will make 10ish percent per year.

Re: Business Ideas

[Luthair]

The problem with this analogy is that with startups if they fail you lose your investment entirely (and this is the majority outcome), that is almost never the case with major companies.

Re: Business Ideas

[tnk1]

It's more dangerous, yes, but the same thing still applies. It's like playing poker. You don't sit down at a table without a bank roll of sufficient size to absorb some bad luck, because even the best players will have the odds against them in a hand and end up with some bad beats.

In the end, though, as long as you have a reasonable table and you play well, you will ultimately make a profit, even if you get wiped out on a few hands.

Same thing works goes for VC. You can't sponsor the next Facebook unless you're willing to risk wiping out on some bad ideas first. That's why you make sure you can finance 9 failed companies for every one success you expect,

Nevertheless, in the end, the odds only work in your favor if you are playing well and making correct decisions. If you have a 30% chance of making a play at the start, but you have no idea when the odds have changed and keep playing as if you still have a winning hand, you're going to lose and keep losing.

What this guy is saying is that instead of them making 10 high risk bets based on good strategy and information, and getting the expected unfavorable, but still overall lucrative odds, the VCs are just making obviously bad decisions, doubling down on bad bets, and assuming that it's all about luck and throwing around money in the general vicinity of Silicon Valley.

Too many nebuloud "social" companies.

[SeaFox]

...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.

The problem is many of these companies only get big because of a fad and not for any concrete business reason. Social media companies have no real source of revenue except advertising and data-mining their users. But revenue from that is going to be highly dependent on how popular they (may) become.

We had that story about the "emoji" company a few days back. Sounds like a pretty stupid company, right? But they likely got funding from someone, and now they are being bought for $100 million. Would a person approving that capital have any justification that the business would ever become the next Facebook? Or was Facebook really just that 1 in a million that managed to somehow take off?

Re:Too many nebuloud "social" companies.

[Nidi62]

...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.

The problem is many of these companies only get big because of a fad and not for any concrete business reason. Social media companies have no real source of revenue except advertising and data-mining their users. But revenue from that is going to be highly dependent on how popular they (may) become.

How accurate does that data end up being anyway? With all the supposed "targeting advertising" companies do nowadays with their advertising, how well does it actually work? I look at some computer parts to upgrade my computer on newegg, I buy them, then for the next month I'm plastered with ads for computer parts. It seems like in most cases targeted ads are either out of date (ie for something you already purchased days if not weeks ago) or totally irrelevant anyway. And yet "targeted advertising", "data mining", and "data monetization" are all you hear from startups.

Re:Too many nebuloud "social" companies.

[LynnwoodRooster]

Not always. I know more than a few companies that "got big" in terms of the number of consumers using the product because the company gave the product away. Buying consumers is no way to build a viable consumer base.

Re:Too many nebuloud "social" companies.

[Ann O'Nymous-Coward]

As an aside, I realize that nebuloud was almost certainly a typo for nebulous, but it's actually a wonderful portmanteau word that describes startups perfectly.

Not only are they nebulous, they're loud in their self-promotion to anyone with two coins to rub together.

Or maybe it's a portmanteau between nebulous and cloud. Just as apt either way.

Re:With a name like Chamath Palihapitiya

[Z00L00K]

You need fertilizer to make things grow. Sometimes the yield is bad, sometimes it's good, sometimes it's surprising and sometimes it ends up being the most horrible thing ever.

obvious insight is obvious

[ooloorie]

But that doesn't mean that he is bullish on unicorn culture. He says "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. [...] The reality is, great companies can go public in any market.

The reality is also that you don't know what actually is a great company until it has succeeded. After all, both Facebook and Google looked like pretty crappy bets when they started out. And that's why startups have high returns on investment: they are risky.

Perhaps as a pointy haired boss with a contempt for programmers and who got lucky at Facebook, Mr. Palihapitiya never needed to understand either technology or economics, which is probably why he keeps making a fool of himself.

Re:obvious insight is obvious

[bluefoxlucid]

Not even.

The reality is you don't get a job because you have the skills, the drive, and the product to sell; you get a job because the consumer can pay you. Let me say that again: You get a job because the consumer can pay you.

You go to McDonalds, and you get a hamburger sold to you by a cash register monkey who gets paid minimum wage. He gets the burger from a sandwich maker who gets minimum wage. He gets the patty from the spatula technician flipping them, also paid minimum wage. He got the uncooked patty from stock that came in on a truck driven by a guy paid per mile. That trucker got his fuel from a gas station fueled by another driver. The fuel itself came from oil refineries staffed by technicians making well more than minimum wage, who got their raw fuel from oil drilling companies staffed by more people; electricity comes from power plants run by people who buy stuff from other people, most of whom are getting middle-class or higher salaries.

When you put everything--every input required to get some product to your hands--all together, you aggregate a bunch of wages, fractioned down to the time invested per unit. If every business has zero profit, the price is the combined wages.

Those wages are the lowest price you'll ever pay. Sometimes you get razor-and-blade models where you pay less than cost for the machine and more than cost for the supplies; in aggregate, the two parts are, at a minimum in the life of the loss-leader, the cost of wages.

Good businesses can do well in any market? Hardly. Who's buying all this crap? Who's paying the salaries for these people? Once the consumer base has bought their food, their clothes, their shelter, and their fancy toys, and once they've run out of money buying all that crap, nobody's there to pay your workers.

If the consumers can't afford it, you can't profit from it. The best idea in the world can't profit in a market where a minimum viable market isn't willing to pass on some other product to buy yours at above the cost of wages involved.

Think about that when someone tells you a good idea is a guaranteed success. Think about that when someone tells you an education creates a job. Think about that when someone tells you the unemployed should just go out and get work. Who's paying for all this success?

Re: obvious insight is obvious

[Luthair]

Did they? My recollection is both companies offered something significantly better than what was already on the market.

Re:obvious insight is obvious

[david_thornley]

VCs are the main source of funding before a company goes public. By the time they're ready for that IPO, it's too late for anybody to come along and win too big on the company.

Re:obvious insight is obvious

[slew]

both Facebook and Google looked like pretty crappy bets when they started out.

bullshit, google was already up and running with its current revenue streams and corporate philosophy in place before they went public

Well, Google had Stanford U. backing and Andy Bechtolsheim (sun) and David Cheriton (sun) as initial investors and Ram Shriram (amazon) on the board pretty much since day one...

Facebook was pretty much funded by its acting "president" Sean Parker (napster) seeking out funding from the Paypal Mafia (which includes Reed Hoffman CEO of Linked In) by a convertible note (contingent on Facebook getting to 1.5 million users from the summer to the end of 2004). Although they missed the contingency, the holders decided to convert the note instead of call the loan because they thought they had a good valuation.

So, I doubt either Facebook nor Google looked like crappy bets to the original investors. They both had excellent pedigrees from the get go...

Re:obvious insight is obvious

[ACE209]

Despite the insulting wording, I think his point is correct.

You need demand for your supply.

Re:With a name like Chamath Palihapitiya

[NEDHead]

Perhaps, but when you are planting rocks it doesn't ever help .

Welcome to the 1990s, part 2:

[Penguinisto]

Although to be fair, at least the ideas floated in the '90s were at least half-assed plausible (well, most of them).

I always marveled at the ability of VCs to dump metric tons of money into something that usually has no business plan (and no, "get bought by Google!!OMG!!11!!" is not really a practical business plan). I mean, I get that it's gambling in a way, and one out of 1,000 or so might actually turn a profit (or at least get enough hype to cash out the stock and profit from that), but it looks like one hell of a high risk.

Has anyone done any studies as to what percentage of VC-funded startups actually eke out enough money (somehow) to provide a decent ROI to anyone investing in them?

Re:Welcome to the 1990s, part 2:

[serviscope_minor]

and no, "get bought by Google!!OMG!!11!!" is not really a practical business plan

You say that, but... ...well, OK before I continue, let's both agree it's not actually a sane plan in a world of reason.

But there's a problem here: this ain't a world of reason. Citiation: I currently have a startup. Frankly it's mental. Esseintally what most people seem to want to see is a vague plan to get some customers and revenue and blah blah blah but not use that to have any sort of growth or anything sensible, it's to use that to sell out to google (or whatever) as soon as possible.

Seriously, the equivalent of "get bought by google lolwtfbbq11!!11!11oneONELEVEN11!" is actually the plan they want to see. The purpose of customers is not to bring in revenue, it's to make you a tempting target for purchase AND THAT IS ALL.

Has anyone done any studies as to what percentage of VC-funded startups actually eke out enough money (somehow) to provide a decent ROI to anyone investing in them?

Studies? Fuck 'em. Internet of things, man, INTERNET OF THINGS THEN GOOGLE WILL BUY IS DO YOU NOT UNDERSTAND IIINNTTEERRNNEETT OOFF TTHHIINNGGSS!!!!

Re:Welcome to the 1990s, part 2:

[frank_adrian314159]

Has anyone done any studies as to what percentage of VC-funded startups actually eke out enough money (somehow) to provide a decent ROI to anyone investing in them?

Yes, there have been studies. But you don't need a study - it's enough that there seem to always be VC firms about - proof by existence. The game's no different from what the record industry does (except multiply the numbers on the bets the firms are making by about 50-100x) - you bet on a number of artists/companies; some pay out small, some pay out big, and some you lose money on. It's just about finding that next Adele/Facebook that pays off enough to support the other dogs you picked. It's a model that works, as long as you can tolerate the risks and can pick winners well enough. Plus, if you have enough money to start with, you need put only small portions of your actual wealth into these ventures, mitigating a lot of the personal risk by having your main investments in more secure vehicles and loading the VC fund with more risky investments.

Re:Welcome to the 1990s, part 2:

[Darinbob]

Although generally you want to pick an artist that actually stands a chance, there is already some music that seems good for example. You don't just pick a random person off the street, spend years on musical training, then hope you have a hit. The investment for the artist really is not that much so you can afford some failures.

For startups it's only vaguely similar. First there is often no evidence that the startup is able to succeed even as a moderately successful long term company, there is no technology to show off, little to no technical expertise in the founders except may someone is good at making a web page, no plan of what to do or how to do it (some of these startups completely change direction overnight, sometimes at the urging of panicked investors). Second, the investment is huge. The investors are being asked to fund a group of people for several years, buy equipment, and basically be life support from 5 people up to 100 or more before getting any return. It's a massive risk given the minimal information to work with.

Re:Welcome to the 1990s, part 2:

[kbonin]

Heh, THIS.

Anyone involved in the pitching or management of a VC funded startup will tell you - the purpose of the company is NOT to build a company, the purpose of the company is to create an acquisition target.

The VCs will actively pushback against product release, even against investing too much in building product over building hype to improve the value as an acquisition target.

Re:Welcome to the 1990s, part 2:

[swb]

I always marveled at the ability of VCs to dump metric tons of money into something that usually has no business plan (and no, "get bought by Google!!OMG!!11!!" is not really a practical business plan).

Isn't some of this that they *know* the startup has no business plan? I always thought they were more or less shopping for clever ideas and that part of the VC investment was applying some semblance of business discipline, both to help actually get the clever idea turned into an actual profitable venture and to make sure their money doesn't get spent on bespoke custom Nerf weapons, strippers or otherwise totally flushed down the toilet.

I'm sure a lot of startups are completely worthless ideas, but I would bet that there are some that are actually valuable but die off because the people behind them have absolutely no business sense at all.

Re:Welcome to the 1990s, part 2:

[slew]

I always marveled at the ability of VCs to dump metric tons of money into something that usually has no business plan (and no, "get bought by Google!!OMG!!11!!" is not really a practical business plan).

Isn't some of this that they *know* the startup has no business plan? I always thought they were more or less shopping for clever ideas and that part of the VC investment was applying some semblance of business discipline, both to help actually get the clever idea turned into an actual profitable venture and to make sure their money doesn't get spent on bespoke custom Nerf weapons, strippers or otherwise totally flushed down the toilet.

I'm sure a lot of startups are completely worthless ideas, but I would bet that there are some that are actually valuable but die off because the people behind them have absolutely no business sense at all.

Although in theory getting VC investment includes some of the VC's "business sense", however, the business goals of the VC aren't necessarily aligned with the founders (and often not the employees either). Generally the goal of the VC on an early-stage startup is to attempt to execute a 3-5 year plan and then 'exit'. An exit will generally either result in the ability for the VC's to deploy their winnings (if any) on the next big thing, or have the company crash and burn. The basic business sense that a startup gets from a VC team is often that time is of the essence and to optimize the burn rate (e.g. the spending of investment capital vs the performance the exit plan strategy). In fact, sometimes they will install a management team in your company to make sure you follow the plan if they don't trust you.

FWIW, VC's generally don't invest in clever ideas, they invest in teams that can execute exit plans. A typical VC firm will probably get pitched a dozen ideas that are more-or-less similar, but they generally only pull the trigger on investments that they think they can assist in executing an exit plan. I'm sure there are some startups that fail because they have absolutely no business sense, but it isn't clear to me that applying typical VC business sense would generally result in "success" from the founder's point of view either (because the VC's would probably kick those folks out of their own company for not having any business sense).

Re:Welcome to the 1990s, part 2:

[swb]

Of course it would make sense that someone would evolve the VC strategy beyond the notion of developing a "crazy idea" into a successful business and instead look at it as a way to crank money out in 5 years or less.

I suppose it might be argued that by 5 years if you're not able to be a sustainable business then your idea really wasn't that great anyway, and the capital is better directed at the next idea rather than wasted on the next 5 years of not making it.

Re:Welcome to the 1990s, part 2:

[lucm]

The VCs will actively pushback against product release, even against investing too much in building product over building hype to improve the value as an acquisition target.

that's the mistake TIBCO made. For a long time it was so obvious they wanted to be bought by IBM or Oracle it was pathetic. Minimal product evolution. Now it's left behind.

Re:Welcome to the 1990s, part 2:

[jandersen]

- it's enough that there seem to always be VC firms about -

I suppose this is what they call trickle-down-economics: Some mediocre people get rich by exploiting their fellow beings unscrupulously, then their combination of lack of actual talent with lack of scruples means they invest stupidly in the hope of making more, undeserved profit, whereby their money trickles down to feed the next layer of parasites. Am I being too cynical?

Re:Welcome to the 1990s, part 2:

[serviscope_minor]

The VCs will actively pushback against product release, even against investing too much in building product

Yes they will and it's really annoying. Dammit I got into this business because I wanted to build these things.

Re: Welcome to the 1990s, part 2:

[gl4ss]

bullshit. or maybe true in valley. elsewherebyou can forget about round 3 or acquisition if you dont at least have product and growing customer base.

thats 2 years though that can be spent in an impossible product while getting paid. vc beware.

Re: Welcome to the 1990s, part 2:

[lucm]

The problem is really that theres no money going around. [...] Better to be patient and not focussed on money at all I think, until the right time

That's the perfect way to solve it. People shouldn't invest money until "other" people invest money.

Re:Welcome to the 1990s, part 2:

[lucien86]

You put what is often the real problem with VC. If you pull out of a business to cash in after three to five years then you will often end up with relatively little, even for the most successful.. seven to ten years is often a much better bet.
Facebook was making money on the scale of $50 million per year after three years, $280 million per year after five years, but $3700 million per year after seven years.. and $12,500 million after ten years..
Google followed a similar kind of path, after 5 years worth about $100 million, after seven worth $1470 million, $6500 million after ten years. Today worth something over $100 billion.

Re: History never changes

[Luthair]

Usually you don't manage to sell the Eiffel tower this many times before people wisen up

Re:With a name like Chamath Palihapitiya

[Z00L00K]

Over time some rocks gathers moss.

Some rocks may also look bland on the outside but on the inside they are amazing.

Or you can trip and hit your head on a rock.

Re:With a name like Chamath Palihapitiya

[PvtVoid]

Racist.

How do you know her as anything but a white blue-eyed blonde Valley girl, except by her annoyingly long and unpronounceable name?

"Racist", right back at'cha!

She's also a dude. From Sri Lanka. You know, a country which speaks fucking Tamil and Sinhala, and doesn't give two shits about what a couple of English-speaking dumbfucks think about how they name their kids.

Re:With a name like Chamath Palihapitiya

[NatasRevol]

The moss on those rocks might develop C4 photosynthesis which can then be GMO'd into rice which can then feed the whole planet with less water.

You know, while we're BSing.

Re:With a name like Chamath Palihapitiya

[CauseBy]

It's not racist to recognize the likely ethnicity behind a given name.

Re:With a name like Chamath Palihapitiya

[dmbasso]

Dude, you're mixing two things up: the "stereotypification" and the prejudice.

Inferring one's ethnicity by their name is not racism, it's just pattern recognition. Assuming something is bad because of the specific pattern, that might be racist.
Just to be clear:
stereotype("Palihapitiya") -> "Indian" # Wrong (the guy is not Indian), but OK!
groupthink("Indian") -> "Everything must seem like crap!" # plain stupid, and racist

Comment removed

[account_deleted]

Comment removed based on user account deletion

Bring back FuckedCompany.com

[bigdady92]

The stories of abject failure, malfeasance, and mismanagement alone would be worth the price of 10 of those startups.

Re:Bring back FuckedCompany.com

[antdude]

No kidding. What happened to that place? Did it also get bitten by startup bust?

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[account_deleted]

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All new businesses are mostly crap

[Drewdad]

That's why 8 of 10 new businesses fail.

Re:With a name like Chamath Palihapitiya

[pr0fessor]

I have had that problem before... contacts that I only speak to over the phone with non-english names and I'm not sure if they are male or female. or worse yet they have a name that just sounds feminine and they sound feminine on the phone even though it's a dude.

And yet some great ideas can't attract funding.

[DidgetMaster]

I have a startup that I have been trying to get funding for in order to finish the product. It is highly technical but all the features I have finished work great. I think it will be 10x better than anything else on the market that it will compete against (it does data management). Yet I can't seem to get any attention from investors. If they can't understand it in a 20 second elevator pitch, they have no interest.

Re:And yet some great ideas can't attract funding.

[iMadeGhostzilla]

I'd recommend you to read Crossing the Chasm. There is a reason for the 20 second elevator pitch -- if the idea cannot be condensed in such a short span it cannot occupy the shelf in the mind of the target market user and so most critically it can't get the word of mouth. The word of mouth is absolutely necessary for any product to be successful since you cannot pay to reach every potential user through advertising, you need people talking about it and 20 secs is the most word of mouth can accept. So try rephrasing your product description with that in mind.

I wish you luck with your product.

Re:And yet some great ideas can't attract funding.

[DidgetMaster]

Thanks for the advice. I actually have no problem telling technical people what it does. Potential customers know what I am talking about when I say 'it is hundreds of times faster than NTFS or Ext3 at finding documents or pictures", or "it can do database table queries faster than PostgreSQL without needing indexes". But when I try to explain it to those who have money to invest, they give you a blank stare and ask "what is a file system" or "what is a database index"? They don't want to take the time to find out why that is important. Even though companies spend $ Billions every year trying to get better performance from their data managers, investors seem to have trouble figuring out why a product that offers breakthrough technology in this area, has any value. I'm sure it is just that I haven't found the right investor yet, but after so many rejections it is hard to understand why and persevere.

Re:And yet some great ideas can't attract funding.

[tnk1]

You need to sell the problem that your product fixes.

A direct assault on performance is a hard sell. You can be 10x better, but if a customer is happy with what they have, they aren't going to budge. A lot of big companies are adverse to change. VCs would know that too. Companies have big investments into the products that they have already installed. And they have a lot of inertia as well. They're not always looking to upgrade, especially if there is nothing that more "quality" or "speed" gets them in their existing product.

What you need to do is not seek to replace what they have, you need to show them that your product is what they are *missing*.

For instance, no one is going to drop their paid off economy car simply to pay for a new economy car with more horsepower.

They *will* buy your sports styled car with the same engine and basic specs as your econo-box if it looks good and gets them laid.

Both cars can get you to work, but only my sports car is more likely to get you dates.

Pick some markets and think about how your product fixes a problem that they have. Does your product make it possible to make factories more productive? Can you increase bookings per quarter by improving lead generation and qualification speed?

If you target a specific market or two, you can dig deep into what they need and ensure your product can do something for them that their existing data management software does not. Even if you do something as silly as have compatibility with some other software specific to that market, you have a wedge into a place where your older and slower competitors can't interfere. And once you are in there, the company will feel more comfortable moving to your superior product for all its data management needs.

Solve the problem, and if your software is not a completely brand new idea, then add something to it that gives you a wedge. Let your investors know that you have a wedge, and once that wedge is in there, you can drive adoption from within by dint of your superior offering.

Re:And yet some great ideas can't attract funding.

[slew]

I have a startup that I have been trying to get funding for in order to finish the product. It is highly technical but all the features I have finished work great. I think it will be 10x better than anything else on the market that it will compete against (it does data management). Yet I can't seem to get any attention from investors. If they can't understand it in a 20 second elevator pitch, they have no interest.

Investors need exit strategies. If you don't have an exit strategy for your investors they aren't interested.

Do you actually think they would be happy to give you a pile of money with no idea how they would get their money back (and get some reasonable return rate on it)? Investors don't want to hold on to their investment for the duration of your career (or your interest/involvement in the business). Can you get sold to a big company (who can understand the value of your product), or can you ever get big enough to go public? If not, are you going to pay the investor a royalty for every unit sold (which implies can your product even generate enough revenue to do that)?

Of course if you are doing something that is part of the current "fad", they may already have an exit strategy figured out before you even talk to them, but if you aren't doing something along the beaten track, you will have to distill your thoughts on the "exit" topic as part of that 20-second elevator pitch too...

I suspect your potential investors probably dismiss your idea is too small for an exit strategy (e.g., it's a product not a company) or perhaps your company is sized/structured to be uninvestable (e.g., maybe it's just you so there is nothing to keep you from taking the money and blowing it on blackjack and hookers if you get diagnosed with an inoperable brain tumor).

Also, have you thought of why there is nothing 10x better on the market today? Perhaps not very many people will pay for something 10x better because what they get for "free" (bundled with other software they need) is good enough? Or maybe the size of the market that will pay for something better is too small to support a large company (even though it might be enough to support small mom/pop company w/ no investors)?

Just food for thought...

Re:And yet some great ideas can't attract funding.

[DidgetMaster]

I am fully aware that a file system doesn't "find" anything. I didn't say it did. But if you have an application that displays pictures and you have a hard drive with 10 million files on it without any idea which folders contain pictures; your application must search through that file system using file system APIs in order to find them all. This can take an hour or more unless you use some kind of indexing service that runs for hours in the background; doesn't work well on portable drives; and doesn't necessarily index everything.

... and

[Lead Butthead]

and some rock, gets sold as pet rock, netting someone millions for pennies in cost

Re:With a name like Chamath Palihapitiya

[Darinbob]

Almost everyone knows most startups are crap anyway. Especially in Silicon Valley anyone with any experience is wary of working at one as the risk is so high that you'll be out of work soon and will have made less money than if you had taken a steady job with less stress. Whenever I hear a job recruiter pushing names of VC investors, levels of funding, bios of the founders, then I know the company is more hype than substance.

Re:With a name like Chamath Palihapitiya

[Darinbob]

Right, and buying lottery tickets is still a better way to invest your money.

News at 11

[tehlinux]

Well no shit, Sherlock!

Re: History never changes

[EmperorArthur]

Thing is while 999 out of 1000 business ideas may be crap or only moderately successful, if that last 0.1% of businesses makes enough money to pay for all the rest, plus some profit on top.

It's somewhat like gambling, but in a way where you know that over the long run you'll make money.

Re:With a name like Chamath Palihapitiya

[LynnwoodRooster]

No, not racist. It is probably a microaggression however...

Stupid-looking ideas

[david_thornley]

Most successful startups are going to look like crap early on. If the ideas behind them were clearly good, there'd be established businesses in the market segment, and it would look dumb to try to break in and make it big.

TV might be 99% worthless, but...

[AndyKron]

TV might be 99% worthless, but that one time it lets you know a tornado is coming your way makes it worth it. Someone could lose $100 million on ten crappy companies to find that one company that will make them billions.

Sour grapes

[Bruce66423]

Google books and google scholar are amazing resources for me as a graduate student. Google maps makes a significant contribution to my lifestyle. Youtube has it moments...

Re:History never changes

[Darinbob]

But we haven't normally been funding poeple with shitty business ideas for millions of dollars until recent times. Sort of. Actually... We did do things like funding Columbus who had an idea about going all the way to China the long way around to save money, totally stupid idea that everyone knew was stupid except for the VC firm of Isabella and Ferdinand (not to mention the well funded voyages that no one ever heard from again).

That's perhaps an anomaly, often there were business interests willing to fund an idea if the idea was demonstrated first, merchants willing to fund a an explorer finding a shorter overland route to Asia, and other things that at least were conceivable or which did not hurt too badly financially when they failed. There was a period when we spent good money on scientific discovery, if something valuable was discovered then that was a great but if not at least there was some science done.

What we have today though is a lot like Columbus and Isabella. Everyone already knows that yet another dating site is a dumb idea but there's one investor out there who doesn't know any better. Eventually people give up on funding yet another voyage to find the northern passage or funding yet another dating site.

Uhh....

[Xabraxas]

Pets.com anyone? How is this news?

Assess project quality

[manu0601]

Improving VC means they would be able to assess project quality, instead of being misled by nice talks. Is it possible?

Re:History never changes

[jandersen]

Most business ideas throughout all of history have been shit, news at 11.

Not quite - most of the business ideas that go like "I'll sell vegetables/groceries/fast food from my small stall in the local market" actually do quite well - the same goes for small businesses in the building trade. They may not become huge, international hi-tech companies, but they do make a living, and they tend to provide jobs more efficiently than do large corporations - because there is much less management overhead.

Re:History never changes

[jellomizer]

However history also shows the product that most VC had disregarded as non-profitable but turned out to be a big hit. And the one crazy guy who invested in it, made out like a bandit.

Part of the problem is it is very difficult to tell a stupid idea from a big hit a lot of the time. A lot of of the easy succesfully companies are solving problems that have already been solved, because the problem has been pointed out and are just solving them in a slightly different way, meaning it may interest some people. However the big hits solve a problem that people don't realize they have until the see the product. Before the iPhone, we were happy with our Cell phones, and Blackberries. Having a mobile version of the internet seemed rational for the small screens and limited input options.
However Apple offered a phone with a full web browser, and full email, and lot of the components we were use to on a computer, and the multi-touch display allowed comfortable interfacing with the features. It solved problems that we didn't really knew that we had.

Granted Apple was already a well established company sailing off the iPod success.

Wind up Jumping toys are crap!!

[ripvlan]

Those silly wind up jumping toy animals are total crap. Yet you find them for sale everywhere. People will purchase them as silly gifts and folks put them on their desks.

But it makes money. Were they the Google of the toy industry? no. Did anybody learn and have an ah-ha moment after seeing one? probably not.

Bobble heads too.

Re:With a name like Chamath Palihapitiya

[lucien86]

Buying Lottery tickets is never a better way to 'invest' your money. The only way statistically to win the Lottery is not to play.. basic maths... Your better off just giving your money to beggars on the street.

VC is great way of making money - if you know what you are doing. The perfect example is Facebook, it might be s**t but its investors have still made themselves billionaires off that piece of s**t. Are you telling me you would not want the money just cos its got a little brown on it?

Re:With a name like Chamath Palihapitiya

[Darinbob]

But the investors don't know what they're doing. Facebook won by mostly being lucky, not by being technologically superior or innovative. It also didn't get massive amounts of VC funding instead it started rather small and grew and as it became a better known product with a track record it got more investment. But when people throw money at a start up that has no product, no plan, run by people who've failed before, then that's not a smart investment. At least with the lottery ticket you stand a *better* chance of breaking even or winning another free lottery ticket than some of the returns these startups will have. Sure, spend a hundred thousand or so to help out a friend with a good idea isn't terrible, but spending many millions on a stranger who has nothing but a pretty presentation is idiotic.

Similary someone with a decent job who quits it all, mortgages the house to raise money, and then tries to get yet another dating site started up should not be applauded as an entrepreneur (even if successful) but instead accused of gambling recklessly with the family's future.

Re:With a name like Chamath Palihapitiya

[lucien86]

I actually have a business idea 'invention' potentially worth many billions - and a business in start-up to create it.
But in real life things are never so simple - getting my design to a working machine has a lead time of at least ten years minimum and is immensely complicated, plus the project is very high risk and has a minimum setup cost of about $1 to 5 million. There are an even bigger set of problems that I wont go into that make recruiting a good team next to impossible - so far too much will have to be done by me alone. - The machine also requires a complete new computer platform (based on FPGA and SMP) - which requires some pretty heavy electronics engineering, as well as stuff like bespoke compilers, test software, a new thin operating system, and bootstrap code.. Fortunately most of that can be farmed out to people who know what they are doing - though it will cost. :)
Every project is different..

Yes then there is the guy creating a new start-up based on the idea of selling stuff like insurance through a web page, or just like you said setting up a new 'innovative' dating site..

Re:With a name like Chamath Palihapitiya

[Darinbob]

In the past many of these really complicated things were solved by having a major corporation doing the investment in house. Sure, you have to be paid a salary rather than ending up a billionaire... Today though most corporations never bother with research anymore.