Are softbank actually the biggest idiots in VC? It almost seems like everything they invest in is a handshake deal built on "just trust me bro" numbers.
I have brought this up in another comment, but my experience in the VC world is that it operates too heavily based on 4 types of "trust":
1) Institutional trust (Stanford, Harvard, MIT, "ex-FAANG", "ex-McKinsey", etc.),
2) Social trust (someone you know that has already established one of the three other kinds of trust),
3) Serial trust ("3-exits", "former CEO/CTO/VP of..."), and
4) Transitive trust ("Sequoia invested in X; I trust Sequoia; therefore, I should invest in X")
In many cases, this trust makes perfect sense. But it seems that in more than a handful of high profile cases, these types of investments based on trust has superseded basic due diligence, skepticism, and common sense.
I've always had this background thought that it would be a fun job to do "due diligence" on behalf of VCs. I remember being on the receiving end of some of that work, and I wasn't all that impressed.
Do today's VCs take technical due diligence seriously? If not, why not?
> 3) Serial trust ("3-exits", "former CEO/CTO/VP of..."), and
Serial trust is especially interesting for me.
Someone could have founded 3 companies that weren't good investments (possibly all lost money), and VCs will throw money at that person before they try someone new.
Transitive trust is also interesting. The majority of "rockstar VCs" made one good investment. Not really possible to rule out luck... And the majority of the people there now had nothing to due with that decision way back when.
You could be onto something here... what you have enumerated seem to be examples of various forms of "Social Proof" (for lack of a better way of saying/defining it).
It would be interesting, highly interesting, I think, to try and enumerate all of the possible forms of Social Proof.
You've definitely nailed 4 of them -- but are there others? What if we broaden our search outside of the VC world?
Whatever the case, whether we call this "Social Proof", "Trust as it manifests in the world of VC", or some other name/nomenclature -- I think you're definitely onto something here...
It's sort of like what you've said could be the summary/abstract of a Ph.D. paper. That is, I think there's some more knowledge to be gained by exploring this set of ideas further, perhaps in writing, perhaps in blog article, I don't know...
But I do know that you're definitely on to something...
I would love to see more exploration of what you've just said...
Having recently completed fundraising for a pre-seed, it's wild to me that I had VCs spending multiple weeks sometimes on "due diligence" for an idea-stage product, yet there are many examples of just yolo huge investments. It's who you know or what hype is around you in these cases I suppose.
A company in pre-seed phase has no history, so some of the other indicators of promise/trust don’t yet exist. It makes more sense for the first investor in a new company to spend some time to investigate the founders and/or the idea or market.
That, however, doesn’t mean that later or faster investment rounds are any more informed.
Softbank had a strategy of deploying a lot of capital very quickly. That is, taking many more bets than traditional “high conviction” VCs. High transaction costs (including time to close) as a consequence of deep diligence would have broken this model.
It doesn’t look like this strategy worked out well for them.
LOL I personally know an asshat VP at SoftBank — "just trust me bruh" !
In early 2017, while being ousted from another banking system, he advised me to invest in a Retail Mall Holdings company, instead of Bitcoin (because the latter is "idiotic").
I did NOT take his advice. See CBL's returns verse BTC's.
>Masayoshi Son. He had for many years the distinction of being the person who had lost the most money in history (more than $59bn[38] during the dot com crash of 2000 alone, when his SoftBank shares plummeted),[39] a feat surpassed by Elon Musk[40][41][42] in the following decades.
> “Oh, man, the number of times I’ve been asked why my company isn’t growing as fast as X and then found out X was a fraud all along.”
This, in sports, finance, startups - everywhere. Dirty players skew the dynamics of any system leading to worse outcomes for those that choose to remain honest.
We need the supposed ‘smartest guys in the room’ to be less dumb and do due diligence and we need strong consequences for founders that misstate their company’s position.
> We need the supposed ‘smartest guys in the room’ to be less dumb
Indeed. Many don't quite understand technology, and investors are no exception.
There are smart ones, but those not necessarily make good investments -- they may simply look for good future exits and leave the bomb on the laps of the next suckers.
Reddit famously started with a lot of fake users. I think the founders mentioned it in an interview. Even the Swedish guy from the show Succession was inflating his numbers. And those attributed clicks from Facebook (especially fb) and Google, better not to look too close.
Reddit is a little different as their intention was to populate the platform with content in the early days [1], not to mislead investors with fake metrics.
Mind you that Huffman and Ohanian did this manually, while founders today can use LLMs to fill their platforms with bots that can interact "naturally" with users. I wonder how many are already doing it.
I interviewed there a couple years back and a lot of things seemed really fishy.
They did not give answers to a lot of my questions.
So my spidey sense was right!
I think some users certainly act as you describe, but I suspect the majority of users will follow the early adopters after they identify and popularize a better mousetrap.
The history of social media platforms suggests to me that users are fickle and have no strong connection to any platform. Friendster, MySpace, Facebook each had their moment and then most users either left the platform or spend more time on other platforms.
We are in an interesting phase where lots of different new platforms are experimenting with differentiation strategies. There is a whole ecosystem of “political right” social media (Truth Social, Gab, Parlor, Rumbl, etc). The federated social media platforms are selling the “you won’t lose access to everything due to moderation/banning” niche. I’m sure there are Web3 (the blockchain one) social media platforms, but I can’t be bothered to look into their details.
I always felt like the big switch from myspace to facebook came because facebook had a lot of games and apps that you could play and use on the platform. ironically, because facebook took such a big cut, all those apps have gone away.
for facebook to be displaced, an app has to offer something else facebook isn't offering, and most new apps offer less - going for the simpler approach. I think that's a loosing strategy myself. I remember how long I used msn messenger just because it had the email tied into it at the time. You need to offer more, not less.
That's easy. Everyone on about computers as a thing wants newer and better computers. The average person thinks computers are crappy and stick to the large platforms if they have to use them.
s/computers/furniture/, or kitchen ware (cooking), or any other daily thing that some people have significantly above-average interest in.
This also goes for software: word processors, machine learning frameworks, browsers.
More companies than we know use this as a tactic. Even though many apps have millions of users, many of them create an account and then never log in again. The companies also provide promotional incentives to employees that run accounts to post and make sites look livelier and more communal than they truly are.
App trustworthiness is at an all time low if you ask me. It's like each store you walk in to is a scam operation out to get money for returning the littlest amount of value back. There is no more organic or honest growth, even users on platforms are faking their statistics too... This entire ecosystem will eventually end up eating itself in my opinion.
YouTube famously spent many of their first years turning a blind eye to blatant copyright infringement.
Shady “growth hacking” is more the norm than not for many of these early stage social companies that have chicken/egg Metcalfe’s Law issues for user adoption.
Please submit it again, as its own post, using "Show HN" -- this deserves more eyeballs!
Personally, I found it striking how similar this looks to the other doomscrolling sites (sure, it's only superficial, but if you don't "dig" you might not catch that it's all simulated).
Yep, cue the "free market" folks celebrating poorly-informed transactions between VCs dumping these companies on construction workers investing to try to fight inflation enough to send their kids to college.
They all want to be the WeChat of the rest of the world. They want a platform that people live inside and all other companies just become apps inside their store (where they collect a tax of course).
None of the mentioned apps have managed to do this. Maybe that is because there is no consumer interest, but it doesn't make the goal any less appealing.
They all seem to be missing the part where WeChat played out this way because the Chinese government mandated it, not because people have an inherent desire to do everything in a single "app". WeChat is an island of Chinese-controlled services and content within a sea of Western-run mobile platforms.
Only one of those doesn't require your phone number.
It'll be nice when we get to the point where we can have a proper working chat app that doesn't require one. Hangouts used to be great but Google has to always make sure their chat doesn't work.
Readit News
Do today's VCs take technical due diligence seriously? If not, why not?
Serial trust is especially interesting for me.
Someone could have founded 3 companies that weren't good investments (possibly all lost money), and VCs will throw money at that person before they try someone new.
Transitive trust is also interesting. The majority of "rockstar VCs" made one good investment. Not really possible to rule out luck... And the majority of the people there now had nothing to due with that decision way back when.
- #3 is king. If you have a track record, trust comes quickly.
- #2 is probably how 80% of investors invest.
- #1 is when an investor takes a bet on an unproven entity (i.e. precursor to #3)
- #4 is a bad investor, most likely a lemming. do not give them any power. they are dumb money with an investment strategy of "playing with the house"
You could be onto something here... what you have enumerated seem to be examples of various forms of "Social Proof" (for lack of a better way of saying/defining it).
It would be interesting, highly interesting, I think, to try and enumerate all of the possible forms of Social Proof.
You've definitely nailed 4 of them -- but are there others? What if we broaden our search outside of the VC world?
Whatever the case, whether we call this "Social Proof", "Trust as it manifests in the world of VC", or some other name/nomenclature -- I think you're definitely onto something here...
It's sort of like what you've said could be the summary/abstract of a Ph.D. paper. That is, I think there's some more knowledge to be gained by exploring this set of ideas further, perhaps in writing, perhaps in blog article, I don't know...
But I do know that you're definitely on to something...
I would love to see more exploration of what you've just said...
There's definitely something there...
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That, however, doesn’t mean that later or faster investment rounds are any more informed.
It doesn’t look like this strategy worked out well for them.
In early 2017, while being ousted from another banking system, he advised me to invest in a Retail Mall Holdings company, instead of Bitcoin (because the latter is "idiotic").
I did NOT take his advice. See CBL's returns verse BTC's.
Deleted Comment
>Masayoshi Son. He had for many years the distinction of being the person who had lost the most money in history (more than $59bn[38] during the dot com crash of 2000 alone, when his SoftBank shares plummeted),[39] a feat surpassed by Elon Musk[40][41][42] in the following decades.
This, in sports, finance, startups - everywhere. Dirty players skew the dynamics of any system leading to worse outcomes for those that choose to remain honest.
We need the supposed ‘smartest guys in the room’ to be less dumb and do due diligence and we need strong consequences for founders that misstate their company’s position.
Indeed. Many don't quite understand technology, and investors are no exception.
There are smart ones, but those not necessarily make good investments -- they may simply look for good future exits and leave the bomb on the laps of the next suckers.
Dead Comment
Dead Comment
Mind you that Huffman and Ohanian did this manually, while founders today can use LLMs to fill their platforms with bots that can interact "naturally" with users. I wonder how many are already doing it.
[1] https://www.youtube.com/watch?v=zmeDzx4SUME
I think the average person thinks social media is the drizzling shits but if they have to use it, they'll just stick to the large platforms.
The history of social media platforms suggests to me that users are fickle and have no strong connection to any platform. Friendster, MySpace, Facebook each had their moment and then most users either left the platform or spend more time on other platforms.
We are in an interesting phase where lots of different new platforms are experimenting with differentiation strategies. There is a whole ecosystem of “political right” social media (Truth Social, Gab, Parlor, Rumbl, etc). The federated social media platforms are selling the “you won’t lose access to everything due to moderation/banning” niche. I’m sure there are Web3 (the blockchain one) social media platforms, but I can’t be bothered to look into their details.
for facebook to be displaced, an app has to offer something else facebook isn't offering, and most new apps offer less - going for the simpler approach. I think that's a loosing strategy myself. I remember how long I used msn messenger just because it had the email tied into it at the time. You need to offer more, not less.
s/computers/furniture/, or kitchen ware (cooking), or any other daily thing that some people have significantly above-average interest in.
This also goes for software: word processors, machine learning frameworks, browsers.
App trustworthiness is at an all time low if you ask me. It's like each store you walk in to is a scam operation out to get money for returning the littlest amount of value back. There is no more organic or honest growth, even users on platforms are faking their statistics too... This entire ecosystem will eventually end up eating itself in my opinion.
Shady “growth hacking” is more the norm than not for many of these early stage social companies that have chicken/egg Metcalfe’s Law issues for user adoption.
Personally, I found it striking how similar this looks to the other doomscrolling sites (sure, it's only superficial, but if you don't "dig" you might not catch that it's all simulated).
Double whammy of screwing poor people with monetary policy.
Who is doing this?
None of the mentioned apps have managed to do this. Maybe that is because there is no consumer interest, but it doesn't make the goal any less appealing.
It'll be nice when we get to the point where we can have a proper working chat app that doesn't require one. Hangouts used to be great but Google has to always make sure their chat doesn't work.
Deleted Comment