Everything you thought you knew about investing in startups is wrong

THESE VC TRUISMS HAVE NOT AGED WELL—AND EXPLAIN THE MINDSET THAT PRODUCED WEWORK.

DATE CODIFIED

PRIMARY EVANGELIST

THESIS

INHERENT FLAW “Founders first”

2005 SEAN PARKER

Young founder-ceos should not be replaced by professional managers or lose board control, because they’re uniquely suited to run companies in the internet and mobile era.

This setup overcorrects the previous norm of replacing founders after raising a Series A funding round. Subsequent “innovations” gave founders super-voting control as a matter of course and let them sell shares during funding rounds with no effect on their power.

“Software is eating the world”

2011 MARC ANDREESSEN

Businesses and industries are increasingly being run on software delivered via the internet.

Markets such as real estate have different economics than, say, media and communications; having an app does not mean that you can produce high margins like a software company or deserve a tech-company valuation.

“Startup = growth”

2012 PAUL GRAHAM

“A startup is a company designed to grow fast. . . . The only essential thing is growth.”

Public-market investors ultimately care about profits, too, and every sacrifice made for growth at the expense of profitability—from taking on debt to entering new markets for the sake of a story for private investors—creates a lack of discipline within a company.

“Monopoly is the condition of every successful business”

2014 PETER THIEL

Founders need to seek out markets they can monopolize, because it’s harder to capture value created in competitive industries. Ultimately, companies with no competition are more competitive.

This monopoly-seeking ethos has been misapplied to global sectors impossible to dominate, from transportation to food to real estate. It’s also anti-democratic and increasingly the focus of regulators.

“Blitzscaling”

2015 REID HOFFMAN

To become the first major player in a large global market, one needs to build out a company very rapidly.

Even Hoffman has admitted that this approach wastes money and produces a win-big, lose-big mentality, which is great for venture capitalists and founders— but no one else.