One could also use that story to illustrate my point too. Phil Knight was being transparent with his banks on the books. His American bank thought he was cooking the books, his Japanese bank saw the growth rate of Nike's cash flows and loaned him the money based on that. It was not idle speculation in an ivory tower (or a Sand Hill Road office) like most VCs today. How many VCs even use a DD audit in the final stages of their Series D+ investment?
The second thing is that Nike had the cashflow to show in its books, unlike most of today's startups. Stuff was moving off the shelves super fast, and they were making a neat profit on every sale. It wasn't like a tech startup purposely underpricing itself initially then worrying when users don't retain after future price hikes. To put it another way, Nike would have been attractive for a PE firm today, unlike most startups today.
I completely agree with you that some/many VCs spend money on ridiculous business models. On the one hand, it seems like a waste of resources. On the other hand, you could also say that it's a great way for innovation to happen. Maybe some ideas made no sense at all, but worked and lead to a technological breakthrough? If VCs wouldn't fund moonshot ideas with many millions then who? Apart from a few universities, most universities I've been are absolutely terrible at getting people and resources aligned towards a common goal.
There's a difference between VCs funding a moonshot idea and VCs funding some stupid idea. For instance, Amgen and Genentech were founded by VCs, with VC funding, as were Google, Amazon, etc. The difference back then was that VCs actually did their due diligence as part of their duty. Back then, it was much harder to get VC funding in the first place - the science had to be at least 90% sound, the metrics had to be solid, the numbers out with an open book. For example, Google only raised a $25m Series A by the time they were already widely well known, almost a household name.
My critique is not about the VC funding model. It's about VCs not doing any due diligence these days but just chasing the next hype cycle.
That's a different kind of business problem. Each transaction is profitable but profits are not sufficient to grow fast. This is different from each transaction being a loss.
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One could also use that story to illustrate my point too. Phil Knight was being transparent with his banks on the books. His American bank thought he was cooking the books, his Japanese bank saw the growth rate of Nike's cash flows and loaned him the money based on that. It was not idle speculation in an ivory tower (or a Sand Hill Road office) like most VCs today. How many VCs even use a DD audit in the final stages of their Series D+ investment?
The second thing is that Nike had the cashflow to show in its books, unlike most of today's startups. Stuff was moving off the shelves super fast, and they were making a neat profit on every sale. It wasn't like a tech startup purposely underpricing itself initially then worrying when users don't retain after future price hikes. To put it another way, Nike would have been attractive for a PE firm today, unlike most startups today.
I completely agree with you that some/many VCs spend money on ridiculous business models. On the one hand, it seems like a waste of resources. On the other hand, you could also say that it's a great way for innovation to happen. Maybe some ideas made no sense at all, but worked and lead to a technological breakthrough? If VCs wouldn't fund moonshot ideas with many millions then who? Apart from a few universities, most universities I've been are absolutely terrible at getting people and resources aligned towards a common goal.
There's a difference between VCs funding a moonshot idea and VCs funding some stupid idea. For instance, Amgen and Genentech were founded by VCs, with VC funding, as were Google, Amazon, etc. The difference back then was that VCs actually did their due diligence as part of their duty. Back then, it was much harder to get VC funding in the first place - the science had to be at least 90% sound, the metrics had to be solid, the numbers out with an open book. For example, Google only raised a $25m Series A by the time they were already widely well known, almost a household name.
My critique is not about the VC funding model. It's about VCs not doing any due diligence these days but just chasing the next hype cycle.
That's a different kind of business problem. Each transaction is profitable but profits are not sufficient to grow fast. This is different from each transaction being a loss.
Yes, now how many startups today have a profitable transaction in the first place? Certainly not Uber, Twitter, Doordash and possibly even OpenAI.