The grow-at-all-costs venture capital culture of the past 20-plus years ruins companies. How? Far too much focus is placed on revenue growth at the expense of sound operations and profitability. Too many venture-backed companies grow at a pace that far outstrips those companies’ ability to scale operations in a manner that supports growth.
The result is that customers and investors suffer. Many companies take far too long to achieve profitability if ever. Others have a complete disregard for operational discipline. Carvana (ticker: CVNA) comes to mind. WeWork (ticker: WE), in its previous incarnation is another example (by the way, who wants to be long office space in the CRE market?) Is anyone really surprised that Twitter (ticker: TWTR), under co-founder Jack Dorsey and the present cadre of managers did not focus on cybersecurity?
Management teams matter, even in this Fed-obsessed investing age. The question investors ought to be asking is which management teams are best qualified to navigate a choppy global economy for the next few years? Too many management teams do not have their feet held to the fire. Too many management teams are allowed to skate. Too few investors give a shit about who is running the companies they own. Venture Capitalists enable this perverse capital market behavior by backing narratives which they can quickly spool up the valuations on and flip their stake rather than backing companies led by high quality teams capable of driving sustainable growth.