Silicon Valley Investors Are Getting Pickier ⇥ wsj.com

Eliot Brown, Wall Street Journal (bypass the paywall using Twitter):

In 2014 and 2015, mutual funds, hedge funds and other investors pumped billions into companies that they now see as overvalued, and unlikely to pull off an initial public offering. As venture capitalists became more discerning, investment in U.S. tech startups plummeted by 30% in dollar terms last year from a year earlier.

[…]

Venture-capital firms remain flush with cash: They raised $44 billion last year, the most since the dot-com boom.

But investors are staying away from scores of initially well-funded startups that once looked like relatively safe bets, forcing these companies to fight for survival as they burn through their stockpiles of cash and scramble for new money or buyers.

On a related note, everyone’s favourite story of the past month just keeps on giving with Ben Einstein’s teardown of a Juicero:

Our usual advice to hardware founders is to focus on getting a product to market to test the core assumptions on actual target customers, and then iterate. Instead, Juicero spent $120M over two years to build a complex supply chain and perfectly engineered product that is too expensive for their target demographic.

Imagine a world where Juicero raised only $10M and built a product subject to significant constraints. Maybe the Press wouldn’t be so perfectly engineered but it might have a fewer features and cost a fraction of the original $699. Or maybe with a more iterative approach, they would have quickly found that customers vary greatly in their juice consumption patterns, and would have chosen a per-pack pricing model rather than one-size-fits-all $35/week subscription. Suddenly Juicero is incredibly compelling as a product offering, at least to this consumer.

I’m not sure it’s always the case, but limitations tend to produce better solutions to complex problems. Perhaps venture capitalists’ newfound hesitance can translate into lower-cost better products that appeal to a wider customer base. Maybe there will be fewer startups trying to solve the irritations of the wealthy.