=companies =startups
Periodically, someone tells me,
"You have lots of ideas; you should make a startup." But they misunderstand
what the word "startup" means.
A recently incorporated company? No, a
new restaurant isn't a startup.
A small company? No, Uber and WeWork
were considered startups.
A fast-growing company? No, Apple in 2006
wasn't a startup. Monster Energy in 2010 wasn't a startup.
What does
it mean, then? The word "startup" as used by investors is a term for the
purposes of investors. It means "a company in which large
investments might be justified". A restaurant can have a
good return on investment, but large investments in a new restaurant aren't
reasonable. A big copper mining project is a big investment, but it has too
much certainty to be a startup.
What, then, makes a company a
candidate for large investments from groups hoping to beat the market? It's
not technical due diligence - Theranos was "a startup", for example. Series
C investors and IPO buyers aren't very good at evaluating technology, and as
a result, VCs don't care about technical due diligence - except as needed to
avoid problems that would be obvious to later investors, but even comments
on reddit are more extensive than that.
The main thing investors care
about is who already invested in the startup. A company becomes a real
startup not when it's incorporated, but when it gets an investor with some
name recognition.
Of course, that first investment must have some
criteria, so what are they? The answer is usually one of:
- what
colleges the founders went to
- founder experience as a corporate
executive
- previous startups by founders
- personal connections
When investors actually care about the technology, they often want to invest specifically in something impractical, and will find some delusional people who think they can provide it. For example, Sam Altman hoping for cheap fusion power from Helion.