Is Startup Funding a Ponzi Scheme? - Company Forensics
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- Опубликовано: 19 авг 2023
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#slidebean #startups #ponzi #VC
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A frequent question has been popping up in our comments: do VC and Ponzi Schemes look the same? Reflecting on this question ourselves, we started an investigation to shed light on the matter. Our findings are… interesting!
Curious about the connections?
Explore the answers in our informative video.
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Caya
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LinkedIn: / caya
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Sources:
Steve Blank (Startup Owners Manual) and John Rampton (Forbes) at Startup Grind Global 2016: • Steve Blank (Startup O...
The meeting that showed me the truth about VCs: techcrunch.com/2017/06/01/the...
20 VCs Capture 95% Of VC Profits: Implications For Entrepreneurs & Venture Ecosystems: www.forbes.com/sites/dileepra...
Demystifying Venture Capital Economics, Part 1: www.wealthfront.com/blog/vent...
Forbes: www.forbes.com/sites/dileepra...
One of Silicon Valley’s most outspoken investors slams the ‘bizarre Ponzi balloon’ of the start-up economy: www.cnbc.com/2018/10/31/palih...
Pitch Book: pitchbook.com/news/articles/p...
Business Standard: web.archive.org/web/2023030218...
Venture Capital Isn’t Good For Us…: / venture-capital-isnt-g...
Theranos and other biggest startup frauds of the 21st century that shocked the world: www.lifestyleasia.com/ind/mon...
Former founder who raised $1.5M here - being on the other side of the table from VCs (after successfully raising money from them) is an experience everyone wants but few get to experience. I'm here to tell you that running a business is not for everyone, it's much harder than the jobs i loved/hated before that. Generating new business and early clients, hiring/firing people, fighting with co-founders over strategy...i don't want to have to do any of that ever again. I love my simple WFH 9-5 now.
Word.
Now imagine doing all that without VC money... thats how we roll in latin america.
hats off to y'all!@@Galopo
You mean the pressure of dealing the venture 24/7? Everyone is on you? The client, supplier, your team, and the fuxking competitiors? Oh the vendors hence the logistics guy might messed up and you need to figuring out where to replenish your stocks for your vendor… then the banks and the tax office sniffing your books. I have been a cofounder and that's what I had to deal with.
But hey, it was a experience, it was hard AF, but it does shows who is ultimately your reliable friends and partners.
nnnd in africa lool we're all in this together hehe@@Galopo
Having worked at a VC-backed startup, a top tech media company as a managing editor, and having founded a few companies, I have had the opportunity to interact with numerous venture capitalists (VCs).
Very few of them are genuinely passionate about taking a long-term perspective and being aligned with the startup's vision and values, the majority of VCs are driven by hype and market trends, leading them to overgeneralize and make inaccurate predictions.
So startup founders should avoid blindly listening to VCs' predictions and market analyses, which may be short-sighted. Instead, you need to stay focused on building a strong, long-term business with a solid value proposition and sustainable model.
If you need VC $, you should seek out VC partners who are truly aligned with your long-term vision and values, rather than those just chasing the latest trends.
Building sustainable businesses requires patience and persistence, not reacting to every shift in investor sentiment. You will need backers who support their multi-year vision, not quarterly projections.
If this didn't piss you off hard enough - that money isn't free - those are your pension contributions, your company's capital investments, your margin seeking capital if you went for a higher yielding solution. Those funds that can go puff are not rich people's money, they are your money that our system deemed wise to be given to "experts" in evaluating risk.
speak for yourself.. thats not my money
This is giving the vibe of OG slidebean videos, more please❤
🫶🏼 thanks for being an OG subscriber
- Caya
Would be interested in an analysis of the Uber turnaround and the economic impact of their exit in specific regions, for example the remaining operators and how they are affected (increase or decrease in use/growth in that region) - basically “do people use Uber because it’s Uber, or because they just need a ride?”
I second this
They just need a ride, all this companys are basically a commodity, if uber is gone there another one to use. Because they don't hire drivers they can drive whatever app is on demand, I don't see what value has uber over the others
@@ghrayoalso there could be a situation where friends give lifts to each other like an underground taxi service, people won't mind giving cheap lifts to friends as they are basically getting paid to socialise and meet friends
In my country we have Uber and Bolt EU. I have both apps and use the one which gives a better price. If the price is the same I just estimate briefly the number of drivers nearby.
At some point I used only Bolt, however lately Uber gave me some promos so I used it more often. Do I have any "Brand loyalty"? No, lol the service is the same and majority of drivers use both apps anyway.
the youtube channel "modern MBA" made a video "Why Uber Fails to Disrupt Transportation". this really good
You should do a video about the Blitzscaling strategy
Finally a solid video for this topic , now that every time someone says "Startup Funding is a Ponzi Scheme" instead of arguing I will just refer them to this video 😂
🎯 Key Takeaways for quick navigation:
00:00 🤖 Venture capital and Ponzi schemes are being compared due to similarities in funding dynamics and risk perception.
01:42 🛡️ Most VC funds lose money, with only a small percentage actually making substantial profits for investors.
07:38 💼 Venture capital structures vary; some focus on genuine long-term investments, while others prioritize short-term gains for fund managers.
10:59 🏆 Startups initially appear unsustainable due to aggressive spending, but those that succeed can become profitable businesses, making earlier investments worthwhile.
16:16 🚀 Speculation and investor sentiment often play a significant role in valuations of both startups and publicly traded companies.
Made with HARPA AI
HARPA AI?
As a person who looks to a ton of startup news, I found that valuation is meaningless (if the firms are not in exit state).
If I start a startup, I will not think about valuation. Instead, I will just focus on profitability and cash flows of the company and try to ensure that the investors will get back their investments in full amount.
It is challenging, but I think it is the best way to maintain trust with investors and VCs.
might as well just bootstrap it yourself and not worry about outside investors
@@1x0x exactly. For me, bootstrap is a great way to test the market and see if it works out or not.
Based on my experience, I tested my idea in one competition, and it was working (and, actually, I am working on it to launch as a bootstrap service that is scalable in the future).
For me, I don't want to rely on the investors' fund to make it happen since I consider it as debt, not fundings (others may think otherwise, but I digress).
So, yes, I completely agree with you.
Who knew old school things like profitability, cash flow and trust are still relevant after all.
Wait , so how are banks not a pyramid scheme ? 🧐 because if we all pull our money , they fall apart too
they provide a lot of tangible services in addition to handling our money. they also aren't structured like a typical consumer-facing business so the comparison is invalid.
I dont have a bunch of bank products gathering dust in my garage lol
Great Video!!! I thought it was going to end with vcs pump up a company with no revenue until it goes public. After that the vcs get paid and the public market has to deal with what’s left. Still a great video 😊
Great video, probably the best on the topic. Amazing job!
Ive been in startups for twenty years, and looks like thats the next twenty years as well :) The part i still cant wrap my head around are multiple rounds, and who the hell decides both dilution and seniorage. Its likely that while im pretty darn senior, i am not veep or C level. And my mind truly starts trippin' when i hear points, percentages, and shares in the same sentence without knowing about existing sheets pbligations and side deals (oh yes, side deals, they happen)
Caya I always love your videos, Let me suggest a topic for another video, please. Can You talk about how it's hard for diverse founders to raise funds in the US, and also how startups's valuation outside the US especially in Africa are always little compared to the kind of value they are providing.
That wouldn't be a logical video to make due to the meteoric rise of DEI funds since 2020 -- there's lots of opportunities out there for minority founders! Think of the investment process like interviewing for jobs: you'll need to get a lot of irons in the fire to yield a successful raise
(Unless you come from money, then it's a good bit easier)
Awesome video brother ♥️, just subscribed.
Keep give your best, more power to you🔥🙌
Atleast in MLM you got a product, meanwhile in share is just "floating money"
This was awesome, literally the first 90 seconds had me laughing so much lol
Love the videos...awesome discussion
I'm 2min in and I already love this. The hottest of the hot takes.
Great vid, Bro! :D
Shouldn't Lifetime Value be strictly based upon Profit vs. CAC, not revenue vs. CAC? For example, if you do $100 in total revenue at 10% profit, you'll make $10. But if you spent $30 in CAC to make $10, you'd be at -$20. If you did revenue vs. CAC, you'd get a magical 3:1 ($100:$30) ratio, which would be misleading and flat out lying about the success of the business model.
In SaaS considering gross margins are close to 100%, then there isn’t a great difference between profit and revenue.
In other business models a profit vs CAC would indeed be more fair.
@@slidebean Thank you
LFG! What a great topic
6:39 Hold on. At Series A investors tend to expect revenue. The further the start-up goes in the funding proces, the more investors expect paying customers.
Not always i think
@@Myanmartiger921 Investors always expect monetization at some point, and the more the company grows over time, the more monetization better make its way towards becoming reality.
almost always@@Myanmartiger921
Great topic
Wow, I didn't see that conclusion coming
Can you do a video on Saudi Arabias project The Line / Neom? Seems like a very interesting project with a lot of news surrounding and would love to hear your perspective on the topic. Thanks!!
Interesting topic
Thanks for doing it. It's a nuanced topic, but it's also a huge issue for the economy. See svb.
I'd be interested what you guys have to say about Corey Doctorow's principle of "enshitification of online platforms".
Caya have you seen Radpower and Vanmoof? Are they the new Boosted Boards?
YES.
3:35 that sounds kind of similar to the banking system, right? It works until it doesn’t, bank-runs end it all 🤔
Thank you for another excellent video
There’s a saying that goes: if the music changes, the dance should change too. I don’t see the point going back to the status quo. We must embrace the change.
I have never clicked on a video this fast before.
15:31 "Optimises its processes" probably means "burns all its people - to death"
They do that a lot in San Diego with Pharmaceuticals.
A few days ago I was looking at the market cap stats for unicorns and out of around 900 unicorns only about 30 flatlined or dropped. So statistically, the vastly majority of unicorns do continue to gain value, and aren’t Ponzi schemes. The late stage investors do overwhelmingly make profits. The real issue is when companies lose value, index funds often end up holding the remains while everyone else has already dumped it. Because by law, index funds have a set composition and can’t sell stocks even if they know they’re failing. Therefore the index funds are almost always the last investors out. They can’t get out even if they wanted to, as long as those stocks are in their declared index, they have to hold them by law, regardless of the situation. And there is nothing Ponzi about that. It’s just a flaw of the system.
"Ponzi schemes work as long as not everybody gets their money at the same time."
*Looks deeply into the entire Fiat Banking systems eyes*
Except banks are backed by government
Agree
Yes
Why did that conclusion feel so weak?
No sources on the description
Insta-scam 😂😂😂
Many times it is.
Not the same thing but the incentives get warped around the paper valuation
didnt uber just show their first profitable very recently??? -.-a
Literally a week after shooting the video.
Sounds like a 100% scam, whats the skills and point of just throwing money on 100s of companies to find one who makes it? Every one can do that.
You did NOT just splice in Russ Hanneman hahaha
He really used chamaths face 😂
Please give me a quick brief of how you make your thumbnails please
We try about a dozen title and thumbnail combos. Sometimes we run dark social media post to test them
Thank you for the prompt reply, I am not sure what you mean by "dark social media post" could you elaborate? I'm very new to the industry. @@slidebean
when you were explaining Ponzi scheme, you literally explained banks
Whats that movie with WeWork
[citation needed] for the stats @1:45?
Here: techcrunch.com/2017/06/01/the-meeting-that-showed-me-the-truth-about-vcs/
- Caya
Much appreciated! Love your videos.@@slidebean
a bit apologetic dont you think? sometimes its genuine, sometimes its a Ponzi Scheme.
Yeah there's no doubt some startups are legit but that doesn't mean everyone else is as honest as they are, in fact some have already been jailed for scamming people.
was the question answered in the end? i rewatched and couldn't figure out if a conclusion was drawn.
"It works as long as not everybody wants out", sounds like insurance.
The moment you realize when some one has a machine to print money, you will understand the Dollar ponzi economics.
🔥🔥🔥
Venture Capital is a gamble- check out our extended video about the economics ► ruclips.net/video/jj3mIynhjiQ/видео.html
If you are going the (real) revenue route, you should be using ChartMogul to track your subscription ► yt.slidebean.com/wti
Honestly... what ISN'T a ponzi scheme... housing, stocks, social security.
anything that produces a profit isn’t a ponzi scheme.
I am just putting this nagging thought out here, why is the financial system designed this way? I mean if speculation and bad valuations have been known to cause irreversible damage to the financial stability of the world economy, why does nobody do anything to change it? Is it because those who lost big don't intend to change the game until they win big? Like a game of poker ?
📌There's no doubt some startups are legit but that doesn't mean everyone else is as honest as they are, in fact some have already been jailed for scamming people.
Slidebean's gonna have a hard time raising their next round 😅
😅
"Ponzi scheme works as long as not everybody gets the money at the same time"
(BANKS)
15% is pretty good. Only 10% of all investors make money in the stock market. Only 5% of people make money on real estate and they are mostly brokers.
don’t want the video. the answer is YES
If you aren't rich and you are investing in a VC then it is probably a ponzi scheme. 😂
Ya banks are ponzi scheme 😅
I love how startups reinvented “dumping”: pricing your products low enough to gain market, become monopolistic and then start generating profits with higher prices while the competition crumbles for not having cash to burn for that long. That is blitzcalling for you…
Not everything is for everyone!
People who tried to ride the fame of being the entrepreneur and failed calls Venture Capital a Ponzi scheme. VCs takes money from Partners, invests that money in selected Startups with growth potential based on intuition comes with experience and assumptions and eventually, payback to partners with profits. Where it's Ponzi? They have money to play with and take high risks or do things lies in grey areas. What VCs care about is to make sure to invest in 10 startups out of 100 investments which are guaranteed to succeed, and wallah returns are out of the roof from those 10 only to keep for themselves as well as return to partner with profits. Simple Business, No?
Uber was reported profitable on Aug 1st
First time
Yes