London does sales well, if you want a sales office you open it in london.
What it doesn't do well is spaff money indiscriminately at any old idiot with an idea. Even less so to someone with a crap idea.
Despite the article author's claim, most of the startups in the generation that I joined (2018+) have focused on getting a decent business model, rather than hyper growth above all else.
They also had to do much more with significantly less. There was less VC money sloshing about compared to the west coast, so we had to be very careful in how we optimised.
To back up the point that John is making, "Technical purity" above all else is a symptom of leadership not explaining the business needs well enough. (or not putting in place an engineering team with enough pragmatism to translate business to tech. )
I mean, good luck to him moving his HQ to NYC etc. but if I were an employee in London HM The Queen's tea cup in Windsor would be shaking from the sonic boom after I lit the reheats on my CV.
> I mean, good luck to him moving his HQ to NYC etc. but if I were an employee in London HM The Queen's tea cup in Windsor would be shaking from the sonic boom after I lit the reheats on my CV.
I wish I lived in London just to use this expressive nugget of gold.
>What it doesn't do well is spaff money indiscriminately at any old idiot with an idea.
Different philosophies. In US you throw money at ten stupid ideas hoping that even nine will be dead, one will be successful and see extreme growth, making you very rich. It's more of a gambler's approach.
I don't know if studies were made but I suspect US based startups who survive to see a large growth while in EU even the growth is small more startups are surviving.
> most of the startups in the generation that I joined (2018+) have focused on getting a decent business model, rather than hyper growth above all else.
With hyper growth at least you have the satisfaction of taking thousands of investors with you if you fall, while producing a big hole in the stock market and capture media attention. You will never be forgotten, you will have a several Wikipedia pages about you and also some legal investigations. Your name will be mentioned in bussines schools.
Wrong. The cultural difference comes from differing appetites for risk. VC's aren't gambling on their portfolio companies, they expect each and every one of them to turn into rocket ships. If there's no potential to become a rocketship, they don't invest, simple as that. Stupid ideas don't get investment.
That VCs understand that it is highly unlikely that each portfolio company will actually become a rocketship, just means that they appreciate that each investment in the portfolio carries high amounts of risk. Europe doesn't have the same appetite for risk.
Well, the line between a risky investment and a stupid investment isn't always obvious.
If my business plan is to make wifi-enabled juicing machines that cost $400 and only work on proprietary, DRMed packets I sell at a huge margin - great investment? Or stupid investment?
If my business plan is to make a $2,000 stationary bicycle, when most competing products cost <$400 - and it'll come with a subscription, but only people who've paid $$$$ upfront will be able to subscribe - great investment? Or stupid investment?
If I'm going to take out long cheap leases on office space, spruce them up a bit and sell short expensive leases? And some of the long leases will actually be from the CEO who personally owns some office buildings - great investment? Or stupid investment?
What if I run a website that lets strangers talk to each other, and I have a lot of users, barely any revenue, decades of losses, and I have no plan to make a profit. The users hate ads. Great investment? Or stupid investment?
It turns out some investments that seem dumb have worked out much better than I would have expected. Others not so much...
It seems to me like you're letting personal bias get in the way.
> Juicero
Huge margin, going for rich, health conscious consumers - great investment on paper. Shitty due diligence by investors who thought they could grade the investment by the numbers and not by the actual hardware, juice bags, etc.
> Peloton
Taking a commoditized product and differentiating with a premium offering offering high margins is literally a phenomenal investment, if you can find a market for the premium offering and can build a moat. Pharmaceutical companies do this all the time with drugs that are about to lose patent protection, put in a little tweak, get the patent moat back, market the hell out of it to get doctors to prescribe it instead of the suddenly cheap generic version.
> WeWork
You literally described a way to buy low and sell high, taking advantage of latent inefficiency in the market due to misaligned incentives on the part of real estate owners vs. short-term tenants. Basically run hotels but for entrepreneurs instead of tourists. Sounds like a pretty phenomenal investment to me! Too bad the CEO was unstable and let valuations run out of control.
> Social media
Facebook specifically actually was a pretty stupid investment. FB didn't just have a ton of users who hated ads, it had a CEO who foreswore ever deploying advertising, whose board structure kept him from ever getting fired. Pretty sure early FB investors are thankful that some business sense was knocked into Zuck before they went bankrupt.
Twitter, on the other hand, was a far better investment. If you can get strangers to talk to each other, you can get people to talk to brands. Of course that's valuable.
I can't say I agree with either of you 100%. For example, your statement that VCs expect each and every one of their investments to turn into rocket ships? Nah. If they don't know that a % of their portfolio will fail, then they're idiots. Also, FOMO. Any time there's a new hot technology, VCs soil themselves trying to get a piece of the action (AI, I'm looking at you). So they end up investing in start-ups that probably won't succeed (BUT IF THEY DO, RIGHT???)
I definitely agree that it's all about appetite for risk. I'm not sure you disagree with each other fundamentally, you're just watching from different sides and wording it accordingly. Some people buy stocks for long term investment, some people short sell, and some bet their house on a hand of poker. I'm sure they would have a bar fight if you got them talking about risk appetite.
> If they don't know that a % of their portfolio will fail, then they're idiots.
Yes, but they don't know which ones. What the commenter meant is that the VC believes each and every one of their investments has the potential to become a rocketship. So they spread the risk into several potential rocketships and hope for one of them to not crash.
Gamblers often have various reasons for continuing to gamble, but very few of them EXPECT their next hand to be a royal flush. For most of them it is exactly the case that 'if I keep going, eventually I will get a big win that offsets my losses'.
That I suppose is a type of taking risk, but I think OP was not being quite as blunt.
In a situation where you have 10 companies each with a 1/10 chance of 20x growth (and a possibility for better) or 1000 companies, each with 1/1000 chance of 5000x growth, which would you pick?
While theoretically, the two situations are similar, and given an infinite amount of money and investment opportunities, the second situation pays off better, the first is more likely to yield returns in the real world. Most people would probably call the first one 'taking risk' and the second 'gambling'.
Perhaps a bit weird to talk of Europe when speaking of London, because that's where you've got all the Russian and Arab money sloshing around. It's not exactly Barcelona or Berlin.
>Despite the article author's claim, most of the startups in the generation that I joined (2018+) have focused on getting a decent business model, rather than hyper growth above all else.
> They also had to do much more with significantly less. There was less VC money sloshing about compared to the west coast, so we had to be very careful in how we optimised.
With supporters like this the UK is in no need of enemies. It would be difficult to more pithily explain why the US is a better place to build a startup as a founder, or to explain why US startups have more money and so can pay their staff more.
> It would be difficult to more pithily explain why the US is a better place to build a startup as a founder, or to explain why US startups have more money and so can pay their staff more.
But it is really simple. In US they have a higher appetite for gambling.
This is devolving into a discussion about semantics, but in my vocabulary at least, just because you have an edge doesn't mean you're not gambling. It's about the level of risk, and investing huge amounts of capital in hopes of funding a unicorn tech startup fits the bill, to me.
US investors have a stronger focus on upside maximisation, Europe tends to focus on downside protection.
Having been on this merry-go-round in Europe, I can tell you that focusing on downside protection frequently results in poor decision making that activity prevents upside growth. In other words, worrying about the downside so much, makes it a self-fulfilling prophesy.
I’ve always thought it was stupid for VCs to worry about downside protection. Either you’re playing the VC game, and having companies go to zero is just part of the plan, or you’re not. Not being able to stomach the worst case scenario when you invest, just means you waste time that would be better spent trying to achieve the rocketship outcome everyone is looking for.
I wouldn't call it stupid unless you're participating in the VC ecosystem. If your aim is to build a sustainable business and get rich slowly by all means go for it. But if you want to get enormously rich the American way is clearly superior. Go big, fast, or go home. If the VC loses all their money who cares? Play at capitalism and lose, you lose your stakes. If you as a founder fail, well either try again or play a different game, one that doesn't involve questions like "Is the total addressable market here over a billion dollars a year?"
Nah, the way they got that contract - along with a bunch of private sector funding - was by having previous experience running a ferry boat line to the UK until the Competition Commission forced it to shut down due to being owned by Eurostar, and (from what I can tell) by already having everything lined up to actually operate ferries by the time the opportunity came along. It turns out that you don't actually need to own a single boat to run a ferry and generally wouldn't want to. Instead, you need to be able to lease one of the handful of ferry boats of a suitable size to operate from their chosen port, and it just so happens that the company which owns the only suitable boats in the world ended the existing contracts right when the new ferry line would've needed them... if they hadn't imploded due to all the key players pulling out because the press coverage had lead them to believe the whole thing was fake, including the port at the other end and the funding (which earlier media coverage made it seem didn't exist, right up until the point it was pulled).
As far as I can tell, the British media destroyed a potentially viable new company by seeding the belief it was a scam just out of sheer anti-Brexit spite. That seems like a pretty good reason not to set up business in the UK actually.
It can be work connections too. My brother worked for a startup that got bought for a 150 million and he still connects with the old ceo whom I bet my brother could get funding from now if he had a good idea.
What it doesn't do well is spaff money indiscriminately at any old idiot with an idea. Even less so to someone with a crap idea.
Despite the article author's claim, most of the startups in the generation that I joined (2018+) have focused on getting a decent business model, rather than hyper growth above all else.
They also had to do much more with significantly less. There was less VC money sloshing about compared to the west coast, so we had to be very careful in how we optimised.
To back up the point that John is making, "Technical purity" above all else is a symptom of leadership not explaining the business needs well enough. (or not putting in place an engineering team with enough pragmatism to translate business to tech. )