This article was written by Ken Leaver who comes from a product & commercial background. He has founded multiple companies and held senior product positions at SEA tech companies like Lazada and Pomelo Fashion.
Now Ken runs his own agency that helps early stage startups with content and traction called End Game.
Guest Author: Ken Leaver
When VC money is used to wipe out local small businesses without adding any value
Was talking to a friend the other day about a company I know as it was founded by someone i know and i’d had a peek on the inside some years back.
They’ve raised well over $20m over the years and after a number of years are burning cash and ‘trying to become profitable’.
But for me they are a perfect example of what is so flawed about the VC world…
Let me recap their model:
1- They provide an offline b2b service that till they’d come along was often performed by local small businesses
2- By raising $millions in funding they had a huge pile of cash by which to blanket all the paid marketing channels and acquire customers more expensively than their local competitors (ie they outbid them on channels like Google).
3- They then outsourced the execution of this service to offshore labor, which is already what many of their local competitors were doing.
And I would deem that they were actually executing it 30-40% more expensively by the amount of cash they were burning. Note that their local competitors were all profitable by default as they had no funding and were in existence for years.
4- The company showed their attractive growth figures to investors to raise more cash. And flashed fancy words like ‘AI’… which in reality when I looked at how this AI was used i considered it a joke.
5- To this day i would say they are doing a service more expensively with a shittier customer experience (as evidenced by the customer feedback that has gone public) than the local competitors they are wiping out and have already wiped out.
Even if they do manage to breakeven one day… they will have done so because they wiped out tons of small businesses by using VC money without really adding any value to the equation (as evidenced by direct customer feedback).
Is that good for anyone?
Who is at fault in this situation?
Answer: Mainly the VC’s that invested in it and the system of vc money that fuels this type of crazy behavior.
