I remembered your past quotes, "Venture capital enables the perpetuation of unsustainable models in favor of eventual scale. This isn’t necessarily a bad thing. The runway to experiment has been critical for any number of businesses. But any good thing taken to excess can become problematic. The same is true with capital." A good read as always.
Re: Stripe -- I think the side by side you threw up illustrates the issue nicely. Tech cos formed in the Great Bull Market come to see "raise another round" as an inevitability, and there are a LOT of incentives pushing everyone from senior executives to junior management to expand their team's headcount. The seemingly endless pool of capital mutes any potential objections to the headcount explosion -- which, of course, also requires more office space and all sorts of extra G&A.
For many US Tech cos -- including the public giants -- headcount is essentially a status symbol. A luxury good. A flex of what their quasi-monopolistic profits can support for the giants, or what their insane private market funding rounds can support for the anointed private cos.
Given how much of the Tech ecosystem is reputation-based on expectations of far-future-performance, luxury goods & status symbols can easily be rationalized as "investments." One might even call that an "institutionalized belief in the greater fool."
Anyway, I could go all day on this stuff, but thanks for doing a good write up!
The same thing happened in real estate investing, so many people got investors on the promise of high returns, they paid very high prices and nobody accounted for a potential downturn in their underwriting. While the people that are more conservative like myself ended up purchasing less real estate, we are now able to maintain our properties. It was also very hard to see everyone buying things at exorbitant prices while you're scratching your head wondering how that is possible. So I like to say, I'd rather own 10 properties that I know I will keep forever, than 100 that I may lose. Another thing to ponder is: the VC's that are able to exit during such high growth economic times - is it a good strategy when they can exit 10 companies that won't really last but are sold at high valuations, or should they continue to be conservative and have a few extremely stable companies that will most likely last?
Nice read. Reminds me of comments in a recent 20 VC pod of the "factory of VC" where you expect/can predict what type of metrics the next buyer wants, position for it then sell it to them. Will be a lot of "cracked eggs" here.
i want to print this one out, cut it up into little pieces, and snort it
Potentially the best comment I’ve seen in years.
I remembered your past quotes, "Venture capital enables the perpetuation of unsustainable models in favor of eventual scale. This isn’t necessarily a bad thing. The runway to experiment has been critical for any number of businesses. But any good thing taken to excess can become problematic. The same is true with capital." A good read as always.
Memo to myself: https://share.glasp.co/kei/?p=bjs1jBvXd9kf9Oa8hVEI
Great read.
Re: Stripe -- I think the side by side you threw up illustrates the issue nicely. Tech cos formed in the Great Bull Market come to see "raise another round" as an inevitability, and there are a LOT of incentives pushing everyone from senior executives to junior management to expand their team's headcount. The seemingly endless pool of capital mutes any potential objections to the headcount explosion -- which, of course, also requires more office space and all sorts of extra G&A.
For many US Tech cos -- including the public giants -- headcount is essentially a status symbol. A luxury good. A flex of what their quasi-monopolistic profits can support for the giants, or what their insane private market funding rounds can support for the anointed private cos.
Given how much of the Tech ecosystem is reputation-based on expectations of far-future-performance, luxury goods & status symbols can easily be rationalized as "investments." One might even call that an "institutionalized belief in the greater fool."
Anyway, I could go all day on this stuff, but thanks for doing a good write up!
Excellent analysis. Closely related to predatory pricing as encouraged by VCs - see https://blog.dshr.org/2023/08/predatory-pricing.html
The same thing happened in real estate investing, so many people got investors on the promise of high returns, they paid very high prices and nobody accounted for a potential downturn in their underwriting. While the people that are more conservative like myself ended up purchasing less real estate, we are now able to maintain our properties. It was also very hard to see everyone buying things at exorbitant prices while you're scratching your head wondering how that is possible. So I like to say, I'd rather own 10 properties that I know I will keep forever, than 100 that I may lose. Another thing to ponder is: the VC's that are able to exit during such high growth economic times - is it a good strategy when they can exit 10 companies that won't really last but are sold at high valuations, or should they continue to be conservative and have a few extremely stable companies that will most likely last?
Time to say goodbye to the blitz scale https://growthsprints.co/survivorship-eats-strategy/
Great read
Want to save and repost this in a few years once the next investing cycle is in full swing.
A great article on VC and from a VC - I'll start recommending this publication!
Nice read. Reminds me of comments in a recent 20 VC pod of the "factory of VC" where you expect/can predict what type of metrics the next buyer wants, position for it then sell it to them. Will be a lot of "cracked eggs" here.