What lies beneath
A successful start-up is nothing short of a miracle. There is no reason otherwise why an arbitrage opportunity to make money would lie on the table unnoticed by corporations with hordes of cash on their books. Anyone would agree if they look at the factors that had to come together to make say, Google possible.
Nobody, including the founders knew that a search engine would become the entry point to the Internet and control 90% of Internet revenues.
There is probably one place in the world where this miracle called start-up is more likely to happen than anywhere else - the Silicon Valley.
The density and breadth of the Silicon Valley network does sometimes let start-ups cheat death.
Silicon Valley works because there is such a high density of people working on start-ups.
One of the biggest misconceptions about the valley is that you do not need to have preexisting connections to get value from the network.
The propaganda engines of the Valley would like us to think that the place is an utopia. That, the Silicon Valley is a community of outsiders that have come together to help each other.
They would want us to think that if you build something good, people will help you with boundless love in their heart.
The reality is quite different. The valley in its current state works just like a nexus - a network of extremely connected venture capitalists, media outlets and dot com entrepreneurs who work together making sure they stand as a barrier for a commoner to enter their ranks.
A great idea or a great product is only a small part of establishing a real business. Most of the valley businesses for example are turn key projects. An entrepreneur with a preexisting connection approaches a venture capitalist in his network and gets his idea funded. The venture capitalist in turn has connections in the boards of major corporations. As soon as the product shows a proof of concept the VC could approach the corporation’s board members and push an acquisition of the portfolio company. And this happens sometimes at the cost of the smaller shareholders when the corporation loses value due to the acquisition. The VC and his network makes a profit by exiting at the right time.
At other times the VC would use the media to influence early adopters. For example, Tech Crunch often publishes articles about start-ups in the portfolios of certain VC firms. This leads to artificially hyping some start-ups thus creating an inflated bubble before an IPO. The VCs exit the company before the other shareholders realize that the start-up was a bad investment.
Several such techniques were articulated in a book that I recently read. Written by a seasoned entrepreneur and investor, Raj Chowdhury, The Dark Secret of the Silicon Valley speaks how billionaires of the valley are manipulating the playing field in their favor.
The techniques are cringe inducing and left me baffled as to what lengths these Venture Capitalists would go to dupe innocent wage earners and small investors.