I wouldn't call it misleading; VC-funded startups (and the decisions they make) can be incredibly unintuitive for someone who has no understanding of the VC funding model itself. There's even an entire section titled Difference in Business Philosophy, where the person being interviewed recognizes the VC-funded startups are operating under a different philosophy and towards distinctly different goals:
> Albrecht says she she quickly realized her tenants weren’t trying to build a sustainable business like her. They were swinging for the moon.
and
> Albrecht says most of the people she has met at these companies are very different from her and owners of other local food businesses. She struggled to characterize the difference, but it was more than just their corporate philosophy.
The article seems fairly balanced in that it includes examples of behaviors and seemingly illogical decisions characteristic of VC-funded startups, while also including an entire section expressing that there does seem to be something deeper at play driving this behavior, she can't rationalize what it is from her experience.
The article does feel incomplete though, as it never actually attempts to address what that fundamental difference is that Albrecht struggles to characterize. Which is the fact that VCs and VC-funded startups are gamblers with distinctly different risk profiles from traditional businesses and financiers:
- A typical small business owner is gambling with a finite bankroll, based on whatever capital they have or are able to acquire in the form of guaranteed debt. Going bust is a catastrophic outcome that they will personally bear the consequences of. So their betting strategy optimizes against going bust, resulting in a conservative play style of short odd bets of moderate value.
- The financiers those business owners have access to operate under similar dynamics, just with far larger bankrolls. This reinforces a typical business owner's behavior, as they understand their access to capital is dependent on not being seen as a long odd bet by their potential financier.
- A founder with VC-funding is similarly gambling with a limited bankroll, but well funded by someone else with no guarantees attached and an express mandate of spending it with a "go big or go home" mindset. Going bust is pretty inconsequential for this gambler - the worst outcome is that they can't get their bankroll topped up and walk away having wasted a bunch of their time gambling. So their play style is super aggressive, solely consisting of large bets on long-odd plays. Small business owners can recognize these players when they show up at the table, based on their reckless yet distinctive play style and propensity to go bust in the end. But these players defy logic to small business owners - they someone convinced someone to bankroll them despite being such obviously risky bets, their play style has absolutely no sense of self-preservation to it (ignoring safe bets even as their bankroll dwindles), and show far too little distress when they go bust. There's absolutely nothing about these players in and of themselves that allow their existence to be rationalized.
- Then you have VCs, the deep pocketed financiers that create and fuel these incomprehensible players that are flooding the gaming floor. Their gambling strategy is both elegantly simple and fundamentally different than all three of the above. They walk right past all the table games, pick a slot machine, and pull the handle. Then keep pulling it again and again until one of their spins eventually lands a jackpot. They fully know the odds of a jackpot going in, and come prepared with a bankroll to play those odds. So the only criteria they evaluate with any given bet is whether a particular machine's jackpot payout and cost to spin is a match for them.
Once you understand the gambling strategy of VCs, everything else falls into place and makes a ton of sense. But if you're missing that piece of the puzzle, it all just seems bonkers.
> Albrecht says she she quickly realized her tenants weren’t trying to build a sustainable business like her. They were swinging for the moon.
and
> Albrecht says most of the people she has met at these companies are very different from her and owners of other local food businesses. She struggled to characterize the difference, but it was more than just their corporate philosophy.
The article seems fairly balanced in that it includes examples of behaviors and seemingly illogical decisions characteristic of VC-funded startups, while also including an entire section expressing that there does seem to be something deeper at play driving this behavior, she can't rationalize what it is from her experience.
The article does feel incomplete though, as it never actually attempts to address what that fundamental difference is that Albrecht struggles to characterize. Which is the fact that VCs and VC-funded startups are gamblers with distinctly different risk profiles from traditional businesses and financiers:
- A typical small business owner is gambling with a finite bankroll, based on whatever capital they have or are able to acquire in the form of guaranteed debt. Going bust is a catastrophic outcome that they will personally bear the consequences of. So their betting strategy optimizes against going bust, resulting in a conservative play style of short odd bets of moderate value.
- The financiers those business owners have access to operate under similar dynamics, just with far larger bankrolls. This reinforces a typical business owner's behavior, as they understand their access to capital is dependent on not being seen as a long odd bet by their potential financier.
- A founder with VC-funding is similarly gambling with a limited bankroll, but well funded by someone else with no guarantees attached and an express mandate of spending it with a "go big or go home" mindset. Going bust is pretty inconsequential for this gambler - the worst outcome is that they can't get their bankroll topped up and walk away having wasted a bunch of their time gambling. So their play style is super aggressive, solely consisting of large bets on long-odd plays. Small business owners can recognize these players when they show up at the table, based on their reckless yet distinctive play style and propensity to go bust in the end. But these players defy logic to small business owners - they someone convinced someone to bankroll them despite being such obviously risky bets, their play style has absolutely no sense of self-preservation to it (ignoring safe bets even as their bankroll dwindles), and show far too little distress when they go bust. There's absolutely nothing about these players in and of themselves that allow their existence to be rationalized.
- Then you have VCs, the deep pocketed financiers that create and fuel these incomprehensible players that are flooding the gaming floor. Their gambling strategy is both elegantly simple and fundamentally different than all three of the above. They walk right past all the table games, pick a slot machine, and pull the handle. Then keep pulling it again and again until one of their spins eventually lands a jackpot. They fully know the odds of a jackpot going in, and come prepared with a bankroll to play those odds. So the only criteria they evaluate with any given bet is whether a particular machine's jackpot payout and cost to spin is a match for them.
Once you understand the gambling strategy of VCs, everything else falls into place and makes a ton of sense. But if you're missing that piece of the puzzle, it all just seems bonkers.