Top Silicon Valley VC Laments: Startups Being Funded Are "Mostly Crap & Largely Worthless"

Tyler Durden's picture

Submitted by Mike Krieger via Liberty Blitzkrieg blog,

Wall Street is counting its winnings from seven years of easy money.

 

The results represent a clear victory for Wall Street over Main Street, according to the team of Michael Hartnett, BofA’s chief investment strategist.

 

“Zero rates and asset purchases of central banks have, thus far, proved much more favorable to Wall Street, capitalists, shadow banks, ‘unicorns,’ and so on than it has for Main Street, workers, savers, banks and the jobs market,” the BofA team wrote.

 

– From the post: Bank of America Admits – Central Bank Policy Enriched Wall Street While “Steamrolling” Main Street

Recently, Vanity Fair sat down with well known venture capitalist Chamath Palihapitiya to get his take on the state of affairs in unicorn land.

Here’s some of what he had to say:

Palihapitiya’s firm, Social Capital, has backed numerous tech companies with valuations in the billions, such as Slack, Box, and SurveyMonkey. But that doesn’t mean that he is bullish on unicorn culture. Here, Palihapitiya speaks about Mark Zuckerberg’s secret sauce, which start-ups are going to make it, and the saga between Apple and the F.B.I., among other topics.

 

Funding is slowing down, both in seed rounds and mega-rounds. There have been fewer tech I.P.O.s recently, more companies are raising down rounds. Are we in a downturn?

 

I think we’re in a phase where we’re realizing that the people who have been allocating capital thus far have done a horrendous job. Most people’s inherent reaction is to make sure they never lose their job, and so they become risk-averse. I think what we’ve had is a handful of investors who have extreme vision who make great investments in things that are amazing businesses: Facebook, Google, Uber.

 

And then everybody else reacts to that success by trying to do the thing that most approximates the thing that’s working. As a result, most of those businesses are fundamentally not good, they’re poorly run, and they never should have been invested in in the first place. But the capital came in because the person who had control of the capital was able to justify it intellectually to themselves versus something else that could have become the next Facebook or Google.

 

The reality is, great companies can go public in any market. When we talk about the I.P.O. slowdowns what we’re really saying is that there really just aren’t that many good companies being built. We need to divorce ourselves from venture capital as an occupation and focus on using capital as a way to take really big bets on things that just seem totally audacious. Right now we haven’t done enough of that, and the result is that most of the things we’ve funded are mostly crap and largely worthless.

 

What advice are you giving Social Capital’s portfolio companies in the event of a tech bubble burst or correction?

 

We’re trying to coach our C.E.O.s that the window dressing is both expensive from a cash perspective and tremendously expensive from a culture perspective. It distracts the team from building what they need to build. Don’t waste money on things that get away from your mission, which confuse employees about why they’re actually there. Meaning, the quality of the office and the quality of the food are all part and parcel of a lack of discipline, which speaks to the fact that the mission isn’t compelling enough. Because I can tell you what it was like at early Facebook: the food was terrible; we’d ship in lunch and probably two to three times a week the lunch had maggots in it. But we were there because we believed, and it didn’t matter.

 

A number of V.C.s have been calling on mature, late-stage companies to go public. There’s even been somewhat of a quiet rally in the public tech stocks recently. Is now the time for big, late-stage companies to go public, or does it make sense for companies to stay private longer?

 

Any company that is making its decision based on external timing is probably not in control of their own destiny and should probably not go public. Facebook could have gone public whenever it wanted. We decided the right time was 2012. It could have easily been 2010 or 2014. When you hear the call for these companies to go public and there’s pushback and they don’t, what’s really happening is the realization that the structural strength of their business is not yet in place. So they’re worried about how the public market will react once they have to transparently demonstrate what their business will look like. The great companies can always go public whenever they want; every other company is trying for some window of time where there’s essentially some combination of intellectual laziness and greed in the public markets that will allow them to exploit a window.

Not that any of this is particularly surprising, but it’s noteworthy nonetheless. It’s also why…

The New “Middle Class” – Making $250,000 a Year in Palo Alto Qualifies for Housing Subsidies

For related articles, see:

Bank of America Admits – Central Bank Policy Enriched Wall Street While “Steamrolling” Main Street

The Military Industrial Complex Unicorn – Former NSA Chief Raises $32.5 Million for Startup Company

Meet “Groundwork” – Google Chairman Eric Schmidt’s Stealth Startup Working to Make Hillary Clinton President

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TradingIsLifeBrah's picture
TradingIsLifeBrah (not verified) Mar 29, 2016 3:38 PM

Yes because these genius Venture Capitalist knew that Facebook would become "Facebook" when they put their dollars into it.  FOH, these guys are just guessing like anyone else and they have no idea which tech company will be the "next big thing".  If they knew what the next big thing would be they wouldn't be "investing" in it, they would be the ones creating it.  

knukles's picture

"Having said that, we here at Yubetchalife Venture Capital have a propriety, non-public, foolproof, secret, amazingly profitable, unparalleled, brilliant (thank you very much) non-IA but very quantitatively drive investment scheme that is guaranteed to make us money.  It's called 2&20.  Why let me tell you, just the other day when I was having lunch with Paul Krugman and Jim Cramer.  Oh what the fuck.  Just sign here.  And here.  Here.  No, that's not what it means about you indemnifying me for losses or international wire transfers ....."

Vampyroteuthis infernalis's picture

Mr P. better avoid nail guns and moving cars. They can be hazardous to those who tell the truth.

zvzzt's picture

'facebook' became 'facebook' because it was the best platform know to man to serve intelligence services.... they either created it or support it's magnificant rise purely for their own use. (cheapest way EVER to get so much data on so many people they give away voluntarily....)

TradingIsLifeBrah's picture
TradingIsLifeBrah (not verified) zvzzt Mar 29, 2016 4:08 PM

I rarely think Intelligence when I think of what is on Facebook.

Herd Redirection Committee's picture

Yep, which is why Facebook censors what the gov't doesn't like (try posting "All Wars are Banker's Wars" on FB and let me know what happens), and lets ISIS spread their 'message' willy-nilly...

Herd Redirection Committee's picture

When I say 'the gov't' I mean the TPTB's co-opted gov't.  Obviously.

PTR's picture

Have you tried "JFK to 911 Everything Is A Rich Man's Trick"?

Twox2's picture

"...we’d ship in lunch and probably two to three times a week the lunch had maggots in it."  And we had to walk twenty miles in the snow, and then...Oh the humanity!

Idiocracy's picture

I can picture the weary kitchen workers at the Menlo Park sandwich shop down the street from proto-Facebook, circa 2005. "Oh hey, those dotcom douchebags at Facebook want lunch again, and this time they insist we deliver on time!"

"OK let me go round to the dumpster and get some maggots"

8th Estate's picture

If the Deep State wasn't propping up Facebook in exchange for all that lovely data, it would have been in the toilet years ago.

Luc X. Ifer's picture

IIT industry has reached such an embarrassing and hilarious state, basically its model of existence is exploitation of people credulity, ignorance and lack of social power, basically a whole industry based on scam and exploitation as model of wealth accumulation, nothing else but high tech feudalism.   

jomama's picture

SV startups aren't just online Webvan shit/survey data collection companies... Generalize much?

ihot's picture

Agree totally.  That's why I invested in a private firm who have no plans to go public. 

They found the best way to generate hydrogen - a device that can be installed in every gas station to fuel the new wave of Hydrogen cars coming out to market.

roisaber's picture

The Fed's firehouse of bullshit fiat has to drain out somewhere. Lucky for me, it's draining out into rent in this part of the country, which has risen to ludicrous levels that only the dullest of imbeciles would mistake for a fair valuation. And of course, the workers at these dead companies walking are all "book smart" and dumber than half a brick.

Bam_Man's picture

They are only "worthless" after the last "greater fool" has bought in.

Welcome to the "exploitation/speculation economy".

Why bother to actually "innovate", when it is so profitable to "exploit" and "speculate"?

**** crickets ****

HectorCamachoTrump's picture
HectorCamachoTrump (not verified) Mar 29, 2016 4:23 PM

This guy is full of shit.

He once said this nonsense:

"One of the things Palihapitiya admired about Mark Zuckerberg, Facebook's principal founder and CEO, was Zuckerberg's lack of ego and his ability to avoid letting personal egos get in the way of business decisions.[4]"

And as we all know, zuckersteinburg is a thief/jew who stole the platform and then decided to loan it to the NSA.

"They trust me — dumb fucks," says Zuckerberg in one of the instant messages, first published by former Valleywag Nicholas Carlson at Silicon Alley Insider, and now confirmed by Zuckerberg himself in Jose Antonio Vargas's New Yorker piece. Zuckerberg now tells Vargas, "I think I've grown and learned a lot" since those instant messages.
"

Yeah his bank account has grown.

I am so sick of bullshit jews and their goyim flunkie followers in the tech industry.

Herd Redirection Committee's picture

The rare time I dare go on FB, Zuckerberg's face is there, looking at me.  Asking to be my friend.

"Accept friendship request from Big Brother?"

Big Brother is watching you!

HectorCamachoTrump's picture
HectorCamachoTrump (not verified) Herd Redirection Committee Mar 29, 2016 4:54 PM

Fuck fedbook, fuck that cunt sandberg, and fuck the shitlib social justice warriors at fedbook!

ZuckerRedShieldBerg has the most punchable shit-lib face on the planet.

I literally want to punch his forhead out the back of his lying POS jew head, then rape his gook wife and feed his half jew/gook kid to her.
I bet she would eat it too.
Chinese like baby.
Keeps the yang up.
I could marry her, divorce rape her and give 90% of my billions to Palestine.

He is definitely on my dead jew/kill list.

Nexus789's picture

VCs are  no more than pump and dump operations. As for understanding technology most are clueless. They are lucky if one in ten investments earns a return. 

NurseRatched's picture

And the Captain Obvious "No Shit, Sherlock" Award for Most Insightful VC Observation goes to....

Consuelo's picture

 

 

"We need to divorce ourselves from venture capital as an occupation and focus on using capital as a way to take really big bets on things that just seem totally audacious"

Silicon Valley hasn't a a good $$$washout since 2000.   Let's see you flex that audaciousness later this year when pink-slip Fridays become a normal end to the week.   I mean, 'Go Big or Stay Home', right...?

 

 

Mena Arkansas's picture

“Zero rates and asset purchases of central banks have, thus far, proved much more favorable to Wall Street, capitalists, shadow banks, ‘unicorns,’ and so on than it has for Main Street, workers, savers, banks and the jobs market,” the BofA team wrote.

7MM+ lost their houses during the great recession.

8MM+ lost their jobs during the great recession.

170K+ small businesses closed during the great recession.

0 bankers went to jail for causing the great recession.

I don't think "much more favorable" quite covers it.

Infield_Fly's picture
Infield_Fly (not verified) Mar 29, 2016 5:13 PM

MOAR ETOYS!!!

patrickhenry61's picture

"...mostly crap and largely worthless..." And a good money making scam. You can get millions and walk away with it, with NO accountability. Nice work if you can get it.

nicktd's picture

"Facebook could have gone public whenever it wanted. We decided the right time was 2012. It could have easily been 2010 or 2014."

This guy is a dumbfuck!!

FB ipo was a failure. No trades occurred for first 30minutes! Ended the day flat and closed down below ipo on 2nd day.

itstippy's picture

I've been trying for 30 years to get VC backing for my innovative and exciting Electric Fork prototype.  I now realize it needs an app that allows the user to control the servo unit's jabbing and scooping motions via their iThingy instead of using old-style control buttons on the device itself.  

If you've been to a restaurant recently you've no doubt noticed that the entire younger set is busy twiddling their iThingys instead of eating.  My improved Electric Fork will use Blue Tooth technology to interface with their iThingy and assist in caloric intake.  They could use the iThingy's camera to view digital images of what it is they're consuming, and even post pictures of their progress on social media.

How do I get on Shark Tank?

WilliamShatner's picture

As a Silicon Valley veteran, I'd like to say that it's true that most of the companies here are worthless... but only because they are so poorly run.

 

pitz's picture

Some of the business models are severely defective.  Like giving away so much stuff for free.  And advertising.  If you can't charge an honest $5/month or whatever the service costs to offer with a reasonable profit margin, is it really a profitable business? 

nicktd's picture

and their product suck ass

spqrusa's picture

Facebook : when the product is free, you are the product.

The only reason MySpace 2.0 is still around is the Money Masters have found a boychuk they can get behind in their nefarious world domination plans.