WeWork vs Webvan — 20 Years Later
History doesn’t repeat itself, but it certainly does rhyme

  1. The first assumption is the power-law distribution of returns. Essentially, betting on the “VC Index” — making more bets and maximizing your chances of hitting the unicorn lottery. To gain access, they overvalue and overcapitalize the companies. The resulting “pay up index” is an ever-increasing pool of capital, concentrated in increasingly bad companies at high valuations. The very idea of a “Unicorn” — private companies valued at $1B+ — has become part of the problem. Since Aileen Lee invented the idea in 2013, it became a perverse incentive for manufacturing bubble valuations, attracting more capital. This return to “Get Big Fast” and the resulting capital glut is one of the root problems of WeWork and its financial cousin Uber, just as the capital glut was in 1999.
  2. The second assumption is that more capital will solve everything and that growth can go on forever. Essentially this says that with enough cash, a company can crush its competitors and dominate a space, thus paving their path to profitability. VC funds have been getting larger prior to the Vision Fund, but its arrival on the scene has amplified the trend. Suddenly, single investments in an early-stage company can be larger than entire funds would have been ten years ago, and valuations have ballooned. But while it can help the short-term goal of knocking out a competitor or penetrating a market, pouring money on a company is insufficient and often counterproductive as a business strategy, particularly when profitability issues haven’t been resolved.

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