Mike Rothenberg’s VC firm was young, splashy, and loaded with cash. Now it’s all come crashing down
Lauren Smiley
78039
It’s Tortuga* for Investors
My Q2 2016 answer to a Quora thread, “Why are so many “fluff” companies receiving funding?” has 6,500+ views. Although I wrote it in the context of startups shilling opaque pitch decks, it’s probably at least 65% applicable to this situation.
15 Reasons Why Fluff is Funded:
- Investors made money from previously backing founders (or part of the founding team).
- Founders are under 30.
- Founders attended Stanford or Harvard.
- Founding CEO is incredibly charismatic.
- Founders previously worked at Google, Facebook, Apple, Twitter or other “hot” or “known” company.
- Startup is pursuing something in a “currently hot” category. Bitcoin circa 2015. IoT circa 2016. (Money chasing category “opportunities”).
- Startup has secured seed funding from anyone considered by the public to have been part of the PayPal Mafia.
- If it’s B2B, “SaaS” appears in the one-floor elevator pitch.
- If it’s B2C, “democratize” appears in the one-floor elevator pitch.
- Startup has formalized ‘Advisory’ roles for successful names in tech investing, such as prominent angel investors, or anyone who was among the first 25 employees at Facebook.
- Startup has convinced a notable personality in tech (Guy Kawasaki, for example) to serve in an official ‘Evangelist’ role. Touts this fact in its About Us section.
- Startup has already been covered by at least two of TechCrunch, Walt Mossberg, LifeHacker, VentureBeat, Ars Technica, Mashable, even if just in a roundup article.
- Startup team already includes someone with a Growth Hacker job title.
- Founders have an existing relationship with investors. Not necessarily financial — could be personal such as the college roommate of lead investor’s son, or a professional connection such as joint attendance at meetings of the CleanTech Circle.
- Company is “located” in the Silicon Valley, even if this means renting a desk at Rocket Space in San Francisco.
BONUS REASONS
- Investors have limited experience evaluating high-risk investments such as tech startups, and are impressed by at least two of the above list.
- Target market is quantified in the many billions. Conservatively estimated traction milestones are promoted as “If we just capture 2% of a $14B industry market that has a CAGR of 5%, we’re all going to do well, so what do you say?”
- Proposed exit path is based on tech’s version of Wall Street’s Bigger Fool philosophy.
- Fear of Missing Out: Hard to orchestrate but the fear of missing out on participating in a round can prevent investors from being really diligent about their due diligence.
- It’s history repeating itself. Fluffy investing ruled during the dotcom boom, the aftermath of which was dutifully tracked by Philip Kaplan on his website F*cked Company.
I’d be pissed if I was an investor in one of the funds that chased this dream.
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- see Pirates of the Caribbean. Tortuga was portrayed as a bit of a party place.
