附近上门

By

A few years back, I wrote an article titled, Why 700 million? Because that was DoorDash鈥檚 鈥渄isappointing鈥� valuation at the time. It was seen as an indication that VCs might finally be coming to their senses after a year of seemingly round-the-clock unicorn production 鈥� 10 a month 鈥� that ended with a $9 billion bang: the blood-testing debacle.

Subscribe to the 附近上门 Daily

Fast-forward five years: is trading publicly and doing just fine. Theranos is remembered as a modern 鈥淓mperor鈥檚 New Clothes.鈥� And those old 鈥渋rrational鈥� valuations? They seem almost quaint. A new unicorn is now being born every day, and $700 million valuations really are a dime a dozen. Some people are talking about another startup bubble: It鈥檚 getting to be like 1999鈥攖hey say.

I say VCs have always been off their rockers, and this year is no different. The VC industry is (flimsily) built on bubbles, and their investments have always had a notoriously low success rate. It鈥檚 just that they now have even more ungodly amounts of money to play with, thanks to the dismal returns available elsewhere. And thanks to the booming market, they鈥檙e saddled with great expectations. Gee, it鈥檚 almost possible to feel sorry for them.

As founder of fan and light maker which I bootstrapped entirely, I railed for years against VCs鈥� 鈥渕oney is everything鈥� mentality and their practice of jumping on any bandwagon, no matter how rickety.

At the time, however, I merely read about their shenanigans and railed; I was like who heckled from the balcony. Then, four years ago I sold the business for $500 million, and using a chunk of those proceeds鈥攏ot other people鈥檚 money鈥攕tarted a new company that invests in startups and advises founders. As a result, I come in direct contact nearly every day with the fallout from VCs鈥� errant ways.

At our office, we tell founders things they鈥檙e not used to hearing: That high valuations can be the kiss of death鈥攖hey inevitably lead to down rounds and less founder equity; that a strong business plan from the get-go is essential; and that if everybody鈥檚 doing it, you probably shouldn鈥檛, etc., etc.

Some founders listen, some don鈥檛. That鈥檚 to be expected. Every one of them is smart, but many have already been brainwashed into believing the hype that sustains both the VC world and most media outlets that cover it.

In defense of VCs鈥擨 never imagined I鈥檇 say that鈥攖hey can鈥檛 help fueling the frenzy. Theirs is an industry that relies on bubbles for its existence, like the that blows bubbles underwater to pick up scents.

The ranks of most VC firms are filled with bankers. Finance is all they understand鈥攏ot business, not tech, not even 鈥渇intech,鈥� the latest craze. So they chase dreams in search of a big payday because lots of wealthy schmucks鈥攅xcuse me, investors鈥攈ave entrusted them with obscene amounts of money. Who can blame them for betting it on whatever is hot at the moment?

The investors don鈥檛; most are happy to be where the action is. After all, it gives them something to brag about at the next cocktail party. They accept that the vast majority of VC-backed startups will fail. It鈥檚 part of the game, and because those wealthy investors can afford the losses, no one鈥檚 left holding the bag.

The one good thing about the whole crazy system is that the cash those failing startups burn through isn鈥檛 going up in smoke. It鈥檚 going into the pockets of people hired by the startups while they鈥檙e still flush: Employees, and contractors, and plumbers and window-washers鈥攁nd all of them need it much more than a VC鈥檚 well-heeled clients.

Every day, we all spend money on the wrong things, and VCs are no different. They just have so much more money to spend. Until something happens to change that, they鈥檒l be forever blowing bubbles. Bigger and bigger bubbles.

Entrepreneur founded Big Ass Fans in 1999, bootstrapping the fan and light maker to nearly $300 million in sales and more than 1,000 employees. Ready for a new challenge, he sold the company in 2017 for $500 million then founded , his Austin-based investment company that helps small companies with big potential create enduring, endearing brands.

Illustration: .