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When you consider a ponzi scheme, you usually consider Bernie Madoff. The considered Silicon Valley being a large ponzi scheme by no means actually crosses your thoughts. And that’s maybe precisely why Silicon Valley has grown to be maybe one of many largest ponzi schemes in human historical past.
All of it begins with an concept, a brand new app, a brand new platform. A disruptive concept that may for certain flip this business the other way up. So the founder manages to get the startup going however they run into an issue. Their revolutionary concept wants much more up-front capital to get to the subsequent stage. Fortunately, that’s the place the Enterprise Capital corporations, or VC’s for brief are available in.
You are available in and say “we wanna associate with you, you’re superior, we backed this firm”. You might be what quantities to a fund supervisor who is aware of numerous wealthy folks. In trade for a price, Traders hand the VC agency cash to be locked up in a fund for 10 years or extra. So, in case you increase a $100m fund, you’re assured to make a minimal of $17m.
Develop tremendous quick. The founders take the hundreds of thousands you gave them and shove it into issues like Fb advertisements, Instagram advertisements, YouTube advertisements, Amazon companies. Principally, you need them to do no matter it takes to “develop” on paper. VC corporations inform startups to not run at a revenue.
Working out of cash! So a yr or so passes by and the founders have spent all of your cash. The startup you picked grew their consumer base by 400%! So that you return to the board assembly and say “hey guys, good job, but when we wanna maintain this prepare going we’re gonna want to lift extra money” Then they inform their buddies “have a look at the expansion, it’s best to spend money on B”.
The Collection B spherical, the second funding spherical a startup goes by is logically referred to as the Collection B. Collection B cash goes into FB, Goog, Amzn, shopping for extra unprofitable development, doesn’t matter if it’s sustainable, you’ve been informed to develop.
Run out of cash + Collection C. So your good friend, VC Bob, reveals off their “returns” to his buddies at one other VC agency, they usually increase a number of extra hundreds of thousands for the Collection C funding spherical finishing Step 7. And all through all these funding rounds, since all of the VC corporations are buddy-buddy, they’ll worth these firms at no matter valuation they need!
Appear like a genius. Meaning on paper to your funding had a 4x ROI!
So for step 9, you begin a second fund to spend money on extra startups, to have extra money beneath administration, accumulating these administration charges, beginning the method throughout.
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