alt Hacker NewsMoney is not given to good ideas (though, it doesn’t hurt). Money is given to friends. If you look at how VC (or really any network) funding circulates, it’s just people who are allowed to enter that circle and money just flows between them constantly. On one hand, you have trusted people who you are willing to give money, on the other hand, this inherently creates a clique.
It reminds me how the Bohemian Club’s slogan, “Weaving Spiders Come Not Here” is a bit farcical given that it is impossible for the club members not to engage in commerce.
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echelon • today at 8:39 AM
> Money is given to friends.
Money is given to ideas that might become billion dollar businesses and teams that look like they can do it. Pedigree, domain expertise, previous exits.
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"Money is given to friends."
While that's completely true, I do think it misses a key underlying point: VCs (and many breeds of investor) are not ultimately selecting for value creating ideas, or for their friends: they're selecting for investments they believe _other people_ will pay more for later.
In the case of startups, those people are most likely other VCs (at later rounds), private equity (at private sale) or retail investors (at IPO).
Very rarely is the actual company profitable at any of those stages, demonstrably and famously.
So the whole process is selecting for hype-potential, which itself is somewhat correlated to the usual things people get annoyed about with startup cliches: founders who went to MIT; founders who are charismatic; founders who are friends with VCs; etc...
So yeah, they invest in their friends, but not because they're their friends. Because they know they can more reliably exit those investments at a higher value.