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back to article Are Valley VCs playing hide-the-money?

Nick Bilton has written a hard-hitting expose of an alleged trend in venture capital, accusing venture capitalists of encouraging portfolio companies to forgo sales to allow them to fabricate inflated valuations based on hype and a prayer. The only problem with the article is that it doesn't appear to be true. While it is true …

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It would help your case significantly...

If you didn't use the period 1995-2012 to try to refute the case that Silicon Valley has created few significant companies in the past decade.

That's like using The Beatles and the Doors as examples to refute an assertion that no good music has been made by the current generation.

As you say, the mere denial of venture capitalists that they've failed to create value is not evidence that it's true, but a denial 'backed up' by plumping the period from 10 years to 17 to take into account the successful few 'first wave' dot com firms does start to look like evidence.

It's also not true that a giant wave of poorly allocated VC funding to web 2.0 would cramp the tech sector. Quite the opposite in fact. The main overheads for a web 2.0 company are either hardware (from Cisco, HP and the like) or spending on services from Google, Amazon, Microsoft and the bidding up of tech sector salaries all of which serve to make the sector look very healthy.

Bilton's claim that Web 2.0 and the wider tech sector are being kept artificially inflated by a tsunami of poorly allocated VC funds which will never see a sensible return is not refuted either by harking back to 1995 nor by pointing to the boom that that artificial inflation has caused.

Quite the opposite, in fact.

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Coat

So the question is: do VCs deliberately help the companies they invest in inflate their valuation so that they can be sold on for a profit?

Isn't that a bit like "Do bears shit in the woods?"

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Investors don't care about revenue, they care about ROI

"And, as Cloudera CEO Mike Olson articulates, while there may be pockets of insanity where revenues really aren't a goal for either investors or entrepreneurs, for some they remain critical:"

Entrepeneurs maybe, but revenue isn't a goal for investors. ROI is. Generally several thousand percent to make up for the risks they take. Hence the 'venture' in venture capital. How they achieve this is irrelevant.

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Re: Lily's counter eexamples

Let's see

Facebook - not publicly available yet, and the press release shenanigans so far reek of price manipulation for Zucherman's benefit, particularly given they have no visible income stream to support their business model.

LinkedIn - okay, they've at least made it to publicly available. While they potentially have a revenue stream to support them, I still haven't seen anything indicating they know how to tap it let alone having it support the company.

Workday - never heard of them.

Palo Alto Networks - sound vaguely familiar, but odds are I'm miss-remembering something from the 1990s.

So, no; he doesn't have a valid counter-example in that list. Doesn't mean he's wrong, but I'd expect him to put up something valid if he's trying to refute.

I expect Bilton is overstating his case, but that doesn't mean it isn't a problem. The heart of the issue is how much of a problem. Neither Bilton nor Lily seem to have a handle on that.

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Re: Lily's counter eexamples

Facebook have no visible revenue stream? Are you joking? Their ad revenue basically allows them to print money.

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"""

While I don't have any data on the total number of tech companies in 1995 versus 2012, I'd hazard a guess...

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Why base the entirety of your article on a supposition? You couldn't be arsed to get lists of F500 companies in 1995 and 2012 and categorize them by sector, but are happy to eulogize about what your supposition means?

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