Bogus Startups burning VC money!
I got a call from a recruiter to interview for a role at a startup company. Upon arriving in the office I saw that the office is extremely swanky. Free breakfast tacos. Fridges full of soda. Beer taps. Everyone with latest Apple hardware. I could compare this office to something from a more established company.
During the interview I learnt that they have chosen a very specific community like DBAs and IT Admins and Network Guys and they build free online tool for this specific community. They have around 150K such users world wide.
So I asked how does your company make money. And they gave me a “we run ads senator” type of answer. Well you don’t make any money from ads if you have 150K users in total.
They also boasted about recently getting 50M funding from VC.
I am wondering is it really this easy.... doesn’t anyone see that this type of business model only worked in the past. How come VC pour money into such companies now.
Or maybe I am wrong .... maybe it is possible to have a swanky office with ad supported free online tools for as little as 150K users.
comments
VC’s have a portfolio. They understand 95%+ of those start ups will fail. They might invest 5 million in 20 start ups (100 million dollar fund) and 19 fail. But the 1 that survives will have a very high probability of making them more than the 100 million initial fund size.
It’s a game of numbers
Ads that provide extreme targeting and can result in multi-million dollars sales cost a lot more than end consumer ads.
Maybe better questions to ask would’ve been what’s their current revenue, what rate is it growing at, what is their projected runway with the new funding, how big is the engineering team, is the $50M just for this product or are they also trying out a new vertical or horizontal