Preselection As Applied to Venture Capitalists: Investor Herd Dynamics

Whisper · 2013-08-13T06:23:07+00:00

if you don't know the answer, copy someone else.

This certainly could explain a lot of the foolish bubbles that investors create... when you have a room full of people, who don't know the answer, trying to copy someone else, then odds are the someone else they're copying doesn't know the answer either. Effectively, everyone begins following the first person who acts like he knows what he is doing.

[deleted] · 2013-08-15T04:24:51+00:00

[permanently deleted]

thrownaway_MGTOW · 2013-08-14T01:59:58+00:00

In this essay he describes common behaviors of venture capitalists. What struck me was the similarity of their behaviors to women.

HUMANS (male and female) are generally both "herd" and "mimicking" animals, period.

Despite the (mistaken) concept that all rich people are "alphas" (i.e. leaders rather than followers), the same kind of "herd" and "mimic" behavior generally applies to them as well.

The vast majority of successful business are not (ironically enough) the "groundbreaking" ones, but rather the "me too" ones. (Of course, the vast majority of "me too" businesses are failures, but since the vast majority of businesses, period, are failures, that ought to go without saying... but the rate of failure tends to be higher for the early "pioneers" -- the urban-myth stories that the successful companies were THE pioneers and/or first in their field is simply revisionist history.)

And there are solid reasons for this.

puaSenator · 2013-08-15T09:06:23+00:00

I was in SF during the whole Instagram madness. We just got done raising our first round of non-seed capital and were working our asses off. I heard of Instagram being valued at 50million USD. I was in shock. I thought to myself, "Are you fucking kidding me?! 50 million for a image filter app that posts to FB?!"

Soon, every investor in the valley was chasing after them. We had a low cost startup with proprietary owners rapidly expanding. Due to every investor trying to throw money at them, they were able to negotiate sweet rounds of investment. This eventually lead to them being valued at 200 million only a month or two later. I was in complete shock. This product was not worth this much, not by a long shot. But Instagram sort of created themselves a sort of "investor bubble." It was great for them, but not really the investors -- or so I thought.

Eventually, their new valuation was at 500million dollars! I was fucking floored. 50m, in my head was already way too much, much less 10x that amount. But this is where it worked in their advantage:

The people that were willing to pay ANYTHING, thus raising it's value to 500 million, had a lot on the line to ensure their investment would get a good return. This environment of well connected, top tier, investors became a wrecking ball. Everyone was talking about how aggressive the biggest VCs in the valley were talking about how Instagram is the next Jesus of mobile social media.

Due to this huge scurry created by the biggest names, it started steam rolling and creating panic for Facebook. Before you know it, this app was sold for 1000million USD (more like 700 USD after the FB shares tanked). Was this company worth this much? Not, a, fucking, chance. However, they got valued that high because of sheer momentum and panic.

In 20 years, Instagram will be completely forgot, but it will always be an amazing case example of how building investor demand is the most crucial part of a young startup.

Title	Preselection As Applied to Venture Capitalists: Investor Herd Dynamics
Author	dropit_sphere
Upvotes	17
Comments	11
Date	August 13, 2013 2:20 AM UTC (12 years ago)
Subreddit	Posted in /r/TheRedPill
Original Link	https://old.reddit.com/r/TheRedPill/comments/1k91p3/preselection_as_applied_to_venture_capitalists/
Archive Link	https://theredarchive.com/r/TheRedPill/preselection-as-applied-to-venture-capitalists.6246 https://theredarchive.com/post/6246

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