Beauty Contest

One of the hard truths in startups, especially VC funded startups, is that perception matters more than reality. Many people are able to raise vast amounts of money at high valuations on little more than excitement about the prospect of a viable business some time in the future. Most VCs earn their living from fees, and they earn more in fees when valuations go up, followed by subsequent funding rounds, with larger amounts of capital invested. VCs don’t usually invest their own money, they typically invest other people’s money. Thus, they aren’t really incentivized to see their companies succeed, but rather they want to make their companies appear successful. That is to say, the perception of success matters more than actual success.