For better or worse, he is not far off although Ponzi scheme is a harsh word. It has become clock work routine for most startups to get some users, get some angel funding, hire, scale, get VC money, pour more money and get more users, ???? , then profit!
Launching a startup used to be something that entrepreneurs loved. And now I see all my acquaintances are either pounding the pavement begging for angel money or dreading the routing morning phone calls from their own startup.
I'm bootstrapping my current, after doing the funding thing in the past. It's a refreshing experience, like what I wanted my first attempt (c2001) to be.
Ponzi Scheme = the top takes the cream and leaves others to deal with the rotting milk. A potential bad scenario example is...Uber. Stratospheric valuations that will offer excellent payoffs to most investors at IPO but by the time public markets come in, the top value has already been actualized and the narrative "it's a giant market" collapses once the reality that it has been achieved through high CACs and unsustainable cash flow levels.
Howard Marks - a bond investor - puts it well. If you are a professional investor you cannot afford to buy into overpriced stocks because by definition they have already topped. The basic unit here is the "buy low sell high" concept. This is why seed and Series A has been most attractive to VCs - equity is cheapest, if you invest in the right companies.
Tech stock and private tech is overvalued as far as the public buy side is concerned. This has been absorbed because the market is doing well. Private tech isn't going public for this exact reason: the public demand isn't meeting the private valuations. This is bound to crash at some point, most likely when the leading companies (uber, air bnb) are put under the microscope.
I don't know what will happen to all these companies flush with cash. They could be in business for years, even decades.
I think he is just saying, that Startups are overvalued or worse might be not long-term viable because unit economics are out of whack.
But investors are happy to invest across different stages as long as those startups show growth.
It is a much easier decision to fund something at a later stage then pull the plug, because new funding round generates paper profits. Where is if it is a zero, you don't look that good in front of LPs.
Launching a startup used to be something that entrepreneurs loved. And now I see all my acquaintances are either pounding the pavement begging for angel money or dreading the routing morning phone calls from their own startup.
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