Why there are no "ridiculous" ideas in Silicon Valley
Except, apparently, an edit button for Twitter
|VC Starter Kit||May 24, 2020||3|
There are three certainties in life: death, taxes, and people ridiculing VCs for investing in “yet another dumb company”
I wanted to highlight part of a podcast that came out recently where the topic of ridiculous startup ideas was brought up. The response is what I imagine many people in Silicon Valley go through and it is part of what makes the SV mindset so unique. If you don’t have the Silicon Valley perspective, you would be perplexed about why VCs fund ideas that seems ludicrous on first glance. The next time you see outrage about the latest VC investment in an “expensive juice company” or “yet another social fad”, keep in mind that VCs invest behind what they could see a business becoming — not what it looks like today.
The entire podcast is not worth your time if you already understand how venture capital works, but if you want to spend an hour listening to it, here’s what it covers:
the basics of how venture capital works
how employees should value options
common misconceptions about venture.
Amelia: What is the most ridiculous startup idea you've ever heard.
Sumukh: I think what I'm going to describe happens to everyone in Silicon Valley at some point (and in other tech hubs), but I've stopped thinking of startup ideas as ridiculous. And the reason for that is because I remember going to this conference, I think it was a Thiel Fellowship summit or conference or something like that, and I remember talking to this person in San Francisco and they were like, I was like, Oh, what are you working on?
And they were telling me that they were working on like building a global computer or something like that. And I was like, that's cool I guess, sounds crazy, you know? And I asked them what the name of their project was and they said, Oh, I'm calling it Ethereum. And that's something that's been wildly successful.
The next year I went to another summit or conference and I met someone who was like, yeah, I'm working on like hotels in India and I'm like, that's interesting. I mean India is not like super online yet and you want to do like hotels and in rural India and like other parts of India, I don't know if that'll work.
And that person was the founder of this company called Oyo Rooms, which is worth like, I don't know, like $17 billion, something like that. And so, yeah, at this point, I don't think of any startup ideas as ridiculous anymore. It's all just kind of interesting and has different like potential market sizing goals.
So that's my answer. I mean, I've seen some ridiculous ones, but I've also seen like crazy ideas succeed, so I try not be dismissive of anything I hear.
Amelia: So, what I'm hearing is the more ridiculous, the better.
Sumukh: Yeah. In some ways that's totally true. I think as long as you have buy in on the fundamentals, investors will respect you more if you have like a crazy idea.
Here's another misconception. Something that founders think will make VCs happy is when they go and pitch them and they say, I'm going to sell my company to Google. This is going to be like a perfect acquisition for Google. That's not something that VCs want to hear. What they want to hear is that you're going to build this to be a successful standalone company that's going to IPO and be very profitable.
It that you are setting your ambition to be higher than an acquisition. So yeah, sometimes the crazier the better. And that's why you see companies that are ostensibly juice companies raise like a hundred million dollars. But what you don't see is on the back end, they're like promising that they're going to revolutionize all food delivery and they're going to be selling to restaurants and like offices and individuals.
There will be a grand vision behind the thing that investors have invested into.
Summary in Meme Form