VCs Should Not Over-Correct Because Of WeWork & Uber’s Failure — Know Why They Failed
Don’t Generalise & Shy Away From Risk Altogether
**This piece first appeared on johnsonkhoo.com. You can find more related stories and articles on his 10 year journey to build ASEAN’s first world-changing start-up that would help everyone in this world find true love and build lasting romantic relationships here.
WeWork & Uber’s dismal financial performance does not mean that VCs should stop investing in start-ups at high valuations and shy away from risk altogether.
It is important to know why WeWork & Uber failed to perform financially.
Both WeWork & Uber have a really heavy physical aspect to their businesses and do not really enjoy the scalability that true tech companies have.
They also have to pay their “suppliers” and incur a cost for each unit of product/service sold, the driver for Uber and the landlord for WeWork. That makes them more like a conventional business with limited margins than a scalable tech start-up that could eventually become a Google or Facebook.
That’s why they are overvalued.
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However, that does not mean that a true tech start-up today that is solving a global problem and has the scalability required to potentially become the next Google or Facebook should not get funded or be able to command high valuations.
Don’t over-generalise and think that all start-ups are overvalued just because some people got it wrong with Uber & WeWork.
That’s a mistake, and you will be missing out on a lot if you think that way.
Bad management is also another factor that caused the downfall of WeWork & Uber, but that does not mean that founders having power is a bad thing.
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Founder Control Is Still A Good Thing — Despite WeWork & Uber
Many start-ups succeed precisely because the founders had the power to hold their ground and stay true to their mission, and many failed precisely because the founders did not have power and got pressured by investors to make the wrong decisions for their companies which eventually killed their businesses.
Investors need to know exactly why Uber & WeWork failed and why they were overvalued, and not over-generalise and make the mistake of coming to false conclusions about all start-ups being overvalued and founders having power as being a bad thing.
There will still be start-ups who are truly worth a lot, and there will still be founders who truly deserve and need the power to build out their vision.
Investors just need to know how to spot them correctly.
Whoever is able to do so stand to gain a lot from their investment.
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