It seemed that Github was doing just fine accomplishing their mission and goals when they were bootstrapping, but things got ridiculous with a massive (and possibly unneeded) VC investment. Or at least an investment of that humongous sum of money.
Can someone explain the rationale behind pumping all this money into firms that clearly don't need such vast amounts of it, which only spurs exorbitant and unnecessary spending? Is it some sort of non-obvious game of unicorn musical chairs hoping for a hyper inflated exit before the music stops?
It's opportunistic investment from investors who predict continued growth.
The hook for the founders? Who knows. My guesses:
- assumption that eventually the enterprise play will win the majority of the $ in the market
- that there is possibly a winner-takes-all dynamic in the market, given the strong ecosystem benefits
Also, it's very expensive to sell top-down to enterprises. In SaaS your cost of sale is up-front (sales salaries, commissions, acquiring the customer etc) whereas the payout is typically over time. Even if the contracts are mostly paid up front, you still have to build the enterprise sales team and ramp the reps, which can take around 6 months. So it's possible that the logical premise "pumping all this money into firms that clearly don't need such vast amounts of it" may be incorrect if enterprise sales success is required for long term success and they don't have the cash to 'go enterprise'.
Will be fascinating to see how this market plays out. My money is on Sid.
but is throwing all this money at a company who clearly doesn't know how to effectively deploy it to grab that land (those expenditures are ridiculous) the best way to do it?
Well if they thought another company had better odds than GitHub they'd fund that company instead. GitHub has got to where they are at the moment so they must be doing something right, and startups are dead by default - VCs expect startups to be doing at least some things that defy the established wisdom.
The question is not who or if to fund, but how much. My question has to do with the sheer quantities of investment in Github and the obvious inefficiency and excess in that capital. They could have funded Github half as much, perhaps even less with an equal result in a "land grab" if that's what they really want. So I sense here something else is at play. There must be some investment metrics around invested capital and the sheer quantities of which that have something to do with valuations and expectations and nothing to do with how much capital the company really needs. Imagine you only need $20m and someone gives you $100m because the VCs say because the VCs say that's how much capital they need to deploy. What do you do with that "Extra" $80m? You waste it, that's what. Seems very inefficient, so there must be some other ends here.
The question of how much to fund by is the same as the question of whether to fund. As a VC you have to trust the companies you fund to spend your money wisely and give them a long leash, letting them spend their money on things you think are stupid - otherwise you're not a VC at all, you're more like the R&D department of a large corporation (which could be a reasonable and profitable thing to be, but there's presumably a reason VC has grown so much and corporate R&D has shrunk).
Can someone explain the rationale behind pumping all this money into firms that clearly don't need such vast amounts of it, which only spurs exorbitant and unnecessary spending? Is it some sort of non-obvious game of unicorn musical chairs hoping for a hyper inflated exit before the music stops?