Tilt, Juicero And The Madness Of Silicon Valley
A couple of stories which caught my eye in the last week relate to the bizarre world of venture capital funding and the many strange business models which get funded as a result of funds desire to make a quick killing.
The first story centred around Tilt, a variation of crowd funding which tried to play the social element of fund management for students. The second Juicero, which sells $400 juicer machines that utilise a pre-packaged fruit pod to deliver fruit drinks.
Tilt raised close to $70m in VC funding before being sold to AirBnB for around $12m, whilst Juicero has sucked up around $120m so far.
Tilt never had a business model, nor did it ever have a chance of creating one. It seems to have burned through its investments on incentives to drive subscriber numbers up and make itself more attractive to potential buyers.
Juicero has a sales proposition which seems to have a very limited appeal. Overpay for the juicer and fruit packs in exchange for never again having to purchase fruit as part if your weekly shop.
Neither proposition was particularly viable from day one and the scrutiny which fund managers made of the offerings before handing over their cash has to be suspect.
Ultimately VCs back these startups in the hope that one of their long shots gets bought out by a larger company and they can exit with a profit. Something rather less likely now Marissa Meyer's access to Yahoo's chequebook has been removed.
It's a particularly crazy way for fund managers to behave, and reflects a level of craziness that seems to be endemic in Silicon Valley.
Capital should be available for ideas which have a solid basis in good business practice. That is to say, they address a customer need, do something better than currently available offerings and, most importantly, have a solid underpinning in a viable financial plan which points to a profit somewhere down the line.