Series BS

From Crunchbase today – “YPlan provides a platform for users to discover things to do and buy tickets via its mobile app. Founded in London in 2012, YPlan is now available in Edinburgh, San Francisco, New York and Las Vegas, YPlan will use the new cash to pivot into a self-service platform that allows all event organizers to add and manage their own listings.”

When will people learn that we don’t need new apps and services in already crowded markets? There are only so many waking hours in which to fill up people’s minds. Putting it another way, we can only mentally manage a couple of brands in every one of the thousands of B2C internet app sub-segments. Even then, most people struggle.

Because of this I suspect that aggregation in super-categories will eventually occur. For example, one of the travel players will suck up Trip Advisor, Air BnB, Pin Drop, Flight Track, WeatherPro, XE Currency, Perfect World Clock, Foodspotting, Better Translator, and even YPlan into one super travel app service. The trick will be making it simple to use.

Every university in Australia has some sort of incubator. And there are now tens of corporate and commercial incubators in each city. All of these are filled with startups with 2 or 3 kids doing some sort of Yplan. Underfunded, and with a unshakeable belief in their ability to go viral based on their special social media skills, all of these guys really believe that they are going to replace the incumbents in their chosen sub-segment; or get bought by the incumbents due to the sheer beauty and genius of their tweak on the standard app.

YPlan’s Series B funding press release made me laugh because they used the Silicon Valley bullshit term “pivot”.

What this means is that the original business idea was a failure – they couldn’t make it work. Or they might argue they weren’t sufficiently funded to make it work, but this ignores the fact that, if so, this is because the risks factors of funding it were too high – wrong business model. So they changed it to get Series B funding and some VC’s bought it.

Fail fast, they say. Pivot, if needed. It’s the team not the business model that makes a great start-up. A great team will fail fast and then find another opportunity if the first one doesn’t work out.

And the use of the term “pivot” is designed to give this process a sense of authenticity, professionalism and even hints that the the pivot was planned to some degree.

If you have ever seen a B2C internet play that enters into the fray late in the day then you know three things; one, they are odds-on to fail, and, two, when they do they will pivot, and three, when they pivot they will proposes a B2B play in the supply chain they are already working in.

I wonder if anyone has done a study on the ROI on start-ups that pivot? My guess is that for internet plays that do a pivot that the non-participating prior investors get a negative return and that the post-pivot investors probably have a lower return on their post-pivot investment than investors into non-pivot deals, at equivalent rounds and equivalent tier VC’s.

That’s just a guess.

Why do pivots get funded? Well for existing investors that double up, it’s just very hard to write off sunk capital. Even the most battle hardened VC has an unreasonable bias towards hope when there is a semi-reasonable story on the table. And new investors in the deal, well they might buy the story that they are getting an extra cheap deal because all that sunk capital has bought the team expensive insights and networks into the industry. We call that a free set of steak knives! Who buys that story?

Oddly VCs don’t often commission quantitative research into their own industry. Research that could use readily available data and that would make all their decision-making more reliable. What they actually do is follow the pack and hope the pack is right. Which it sort of is, on average, because there is an ‘evolutionary’ process going on ensuring that failure modes of investing do not get funded; but this feedback loop can take time to process and in the meantime a lot of VCs can lose a lot of money.