> it is hard to distinguish among the CEO who promises the impossible because she is committing fraud, the CEO who promises the impossible because she is deluded, and the CEO who promises the impossible and then goes and does it.
It seems you're suggesting otherwise, except I disagree with you and agree with the article, at least to the extent that it applies to VCs and other high-risk investors: they don't have the ability to have enough technical depth to detech technical fraud, so they have no choice but to price in that risk.
> This environment is either a virtuous circle that'll lift all boats (to mix metaphors), or the opposite
Just the wording makes me think this is a false dichotomy. Why can't it be neither? The environment is complex, and it's conceivable that it would lift/sink only some boats or that it's not circular.
> Hard to distinguish between fraud, delusion, and currently impossible that will get done.
I agree that it's hard for the VCs to distinguish. I've also seen plenty of situations where the VCs out of their technical depth and make preventable bad calls in both directions (investing in bad tech and passing on very feasible tech). I'm just saying that it would be good for the VCs and the entire ecosystem for them to put more resources into much better vetting of technology.
> This environment is either a virtuous circle that'll lift all boats (to mix metaphors), or the opposite
I'm not saying that it's an absolute with all vectors pointing in the same direction. Even strongly positive or negative environments will contain outliers, counter-trend examples, etc. Even on the massive crashing days on the stock exchange, there are always a few stocks that make good gains.
What I'm pointing to (perhaps badly) is the feedback loops between on one side, predominantly sound investment, growing startups bringing good new tech to market, and solid returns, and on the other side, delusional investment, scarcity of good new tech, and poor returns. The former will bring in more startup founders and investors, and the latter will become a dying ecosystem.
A major problem with our industry is that in addition to the visionaries, dreamers, and hard workers, there is a lot of money which is also a magnet for scammers and a variety of toxic personalities. The better we sort the latter from the former, the better off we will all be.
> The former will bring in more startup founders and investors, and the latter will become a dying ecosystem.
OK. I think I see what you're saying, that, on the whole, it's likely to be one or the other. I'd still argue that it could be neutral/stable, but I don't have any counter-argument to why that would be likely on a meaningful time scale, considering the duration of most VC funds.
> A major problem with our industry is that in addition to the visionaries, dreamers, and hard workers, there is a lot of money which is also a magnet for scammers and a variety of toxic personalities. The better we sort the latter from the former, the better off we will all be.
I'm not disagreeing that it would be good for everyone involved. I just don't see the path to get there. Merely wishing VCs would do a better job, without some kind of specific mechanism and associated incentive for them to do that better job, isn't enough.
Yup, there could be a balanced middle ground, not sure how big.
How to get the VCs to do better tech vetting? Definitely an issue. I would have thought that the downside of losing would be sufficient motivation to invest in really solid tech vetting, but it seems like they treat it more of a cost center. Perhaps seeing $700 million go "poof" in this instance will provide some motivation in the future?
Not only that, but how would they? Do they keep experts on staff (and risk that expertise going stale, if it's reliable in the first place)? Do they bring in outside consultants/contractors (and risk espionage)? Do they interrogate employees (conflict of interest and perverse incentives galore)?
I'd argue that this is a fundamental problem with traditional VC, in that, in general, they have no expertise in the ventures, and their financial incentives and neither well aligned with those ventures nor with their investors (limited partners).
> invest in really solid tech vetting, but it seems like they treat it more of a cost center
To be fair, though, it is, both for them and the target company, assuming that there's no fraud (or delusion?) involved.
> Perhaps seeing $700 million go "poof" in this instance will provide some motivation in the future?
You do bring up an interesting point about the sheer magnitude of this loss. By comparison, pets.com was only $300 million.
Although it provides some motivation, in that it may exceed what was priced in, is it enough to change the way the industry behaves?
Definitely not holding my breath for change, that's for sure!
Interesting points about the difficulties of in-house staff. Although my first instinct would be to expand it, you're right about ti getting stale, and also that structure was one I've seen make mistakes (maybe because they were stale). Tough nut to crack indeed..
> it is hard to distinguish among the CEO who promises the impossible because she is committing fraud, the CEO who promises the impossible because she is deluded, and the CEO who promises the impossible and then goes and does it.
It seems you're suggesting otherwise, except I disagree with you and agree with the article, at least to the extent that it applies to VCs and other high-risk investors: they don't have the ability to have enough technical depth to detech technical fraud, so they have no choice but to price in that risk.
> This environment is either a virtuous circle that'll lift all boats (to mix metaphors), or the opposite
Just the wording makes me think this is a false dichotomy. Why can't it be neither? The environment is complex, and it's conceivable that it would lift/sink only some boats or that it's not circular.