After some interesting ‘adjustments’ in our industry, here is a brief summary of the rules of the venture capital game:

  1. You create a lot of hype about a future business that is not available today.
  2. You are very convincing and manage to raise a lot of venture capital.
  3. You invest that money in a) a large salary for yourself and b) a bigger and better workforce than you can commercially justify. You then employ the best possible marketing tactics to create the impression of success.
  4. You give away your product for free to leading customers to get what on the surface appears to be an impressive installed base along with the corresponding testimonials.
  5. You raise even more money due to your image and your customer base.
  6. When no one else is willing to give you money to fund your deficit spending, your business collapses like a card house.
  7. On the basis of your ability to put together a seemingly convincing business idea and business case and with your track record for raising venture capital money, you are now highly employable and available for your “next big thing”.

This Is How Bubbles Are Created

I often wonder about start-up companies: do they actually need to have a good product, or is it the convincing story and the right person behind the start-up which increases demand and raises the company’s value, whether it has any real assets or not? This is how bubbles are created.

One of the first famous bubbles was with tulip bulbs in the 17th century in the Netherlands (also called “tulip mania”). People who, in real life, probably couldn’t tell a daisy from a daffodil, traded with contracts for tulip bulbs that hadn’t even been planted at ever increasing prices. Many lost an absolute fortune. Sometimes it’s just the same with venture capital…

Marshall E. Kavesh

Author Marshall E. Kavesh

Marshall E. Kavesh, born in 1960 in the Unites States, received his MA in Germanic Languages and Literatures at The University of Pennsylvania and his Ph.D. in Social Systems Sciences at the Wharton School of Business, continuing with postdoctoral studies Mathematical Logic at the Ludwig-Maximilian University in Munich. Prior to ECT, Marshall worked eight years in the telecommunications industry as a subcontractor for Siemens. Together with the other two company officers, Hans Huber and Walter Rott, Marshall founded ECT in 1998 and is a principle shareholder in the company. As CEO, Marshall is responsible for general management, sales, marketing and finances.

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