1/ The traditional narrative is that there is too much (VC+tourist) money chasing too few deals. This is undoubtably true, BUT...
2/...describing this as an over-abundance of supply (of capital) and scare demand (for capital). does not tell the whole story.
3/ Anyone involved in in the VC space knows that "hot" companies are the scarce resource - not capital. Capital is a commodity.
4/ Part of what I think is going on is actually the INVERSE of the traditional narrative: there is too much supply (of equity) in "hot" startups because founders and funders are encouraging over-sized rounds way too early in companies with messed up unit economics.
5/ In other words, it's not as simple as a "rational" market response to too much capital for two few "good" deals. It's also about rounds that just shouldn't be happening by any rational measure - and founders willing to dilute themselves.
6/ If you are a founder of a company that you KNOW is not likely to get profitable any time soon - and still has terrible unit economics - your only hope is to over-finance and hope to last long enough to figure it out.
7/ Founders are therefore highly incentivized to offer way too much equity in their companies in exchange for massive cash infusions - and investors desperate to ride a rocketship and eager to "deploy" their oversized checkbooks are lining up.
8/ To paraphase the amazing @profgalloway, a lot of these situations are actually "mutually consensual hallucinations" between founders and funders...
@profgalloway 9/ ...in which massive piles of cold hard cash and the chance to maybe one day grow into a sustainable business is worth much much more to founders than equity in a healthy, "organically" scaling business.
@profgalloway 10/ So it's not just an over-abundance of capital - it's an over-abundance of founders very willing to dilute and more interested in raising huge war chests than getting the unit economics rights.
@profgalloway 11/ The trigger for this tweetstorm, BTW, is report after report of rounds being done that are (1) WAY too big, (2) WAY too early, and (3) WAY under-priced relative to the round size - i.e. massive dilution that everyone seems to be cool with. Not cool.
@freddy33 2/ Aside from a few MIAHs (massively irrational acqui-hires), I don't think there's a single case of where "AI" itself was a significant driver of revenues or valuation.
@freddy33 3/ AI tools are commodity. Value is elsewhere (systems, product, sales, integration, operations, domain expertise)
@freddy33 4/ It's 2018. If you haven't been working some form of AI/ML/DL into your software/SaaS for the past 5-10 years, what have you been doing?
@freddy33 5/ And the honest/experienced among us will admit that the quality of their algos almost never was the thing that made the difference. (It's important, it helps, but - ultimately - it's table stakes when it comes to real software.)
