hey! This is andrew from a16z -- substack is still relatively new (~2 years) and the product is solving a real problem for writers. The numbers are already strong, but think about where it might be over the next 5-10 years. I think your calculation focuses too much on where it is now versus where it might go in the future
You're being pedantic. I'm not saying that literally no dating products are getting funded - in fact, I'm an advisor to CoffeeMeetsBagel which is on that list. Just that there's major resistance (which that article talks about) and there isn't very much funding for the category compared to a "hot" category like SaaS/on-demand/messaging, etc. My point is that it's an uphill battle, and I gave the reasons why for investors are skeptical.
Unfortunately there's some morality clauses in many investment funds that keep them from investing in something like that. Same class as porn, gambling, etc. Might be great for an individual investor though.
There's a few points which sound right in this essay, but I'm surprised he didn't discuss the more technical definition and its impact on the ecosystem:
1) an angel investor is someone who invests their own money
2) a venture capitalist invests out of a fund, which is mostly other peoples' money (OPM!) while taking a fee + economics from the fund (the famous "2 and 20" model)
But that's not too useful, because what's important are the behaviors that come out of the situation.
Because most angels are investing their own money, they usually don't have crazy amounts of capital to work with. Thus, they usually invest early so they can get a better percentage at a lower valuation.
Many VCs also invest early, sometimes exclusively so with smaller funds, but they are often called "seed funds" to make that distinction. A fund which invests OPM is never called an "angel" regardless of what stage they invest at.
And finally, big funds (managing 100s of millions of dollars) are what we think of usually as venture capital.
(Funds that invest even larger amounts at higher valuations are often referred to as "late stage venture capital" or "growth capital." And there's more specialized terminology later stage since more specialized financial instruments can be brought into play - SPVs/debt/mezzanine/etc)
Where Scott's essay rings true is that idea that investors of all classes are more risk averse these days- they prefer to see traction since the cost of building an app/website is rapidly decreasing. Thus, they are all behaviorally acting like "traction investors" rather than "idea investors" whereas in the past, traction investors purely consisted of the growth capital guys.
This might be worse for the ecosystem since people want you to have everything built before taking in our first dollar of investment, but you could argue it means the ecosystem's $s are being allocated more efficiently also.
"This notion also plays into Clayton Christensen's framework for disruptive innovation. Many of the most disruptive technologies started out as what Clay calls "toys". The PC is a great example of that. PCs came out of the homebrew computer movement. Geeks were building computers in their garages. And everyone thought they were nuts. But from that came the Apple Computer and the IBM PC and we were off to the races with personal computers."
The whole 1% of $100M versus 10% of $10M calculation vastly oversimplifies the outcome of these companies as binary. This is totally wrong.
In my experience in silicon valley, people start with building something small/simple (but in a big market), get little drips of funding from investors as they show progress. If they fail at any point along the way, there's value in what they've created, and they exit for whatever they get. The later you exit, typically the further along you get, and the bigger the exit. That's why the diversity of outcomes in the valley are everything from zero to billions, and companies raise anywhere from zero to a dozen rounds of funding.
At any inflection point in the business, you have lots of options: you can sell, raise more money, raise more and cash out some shares, you can quit, you can make yourself chairman and have your cofoudner run it, you can do nothing and grow it organically, etc., etc.
Each one of the choices above are part of your arsenal of options at almost any point. The people who choose to raise tons of money, not cash out at all, and then who fail- well, they made a series of active decisions to do all of that. They're big boys.
My point is, when you're building a company you can make a lot of choices along the way, and it's not just setting out for a suicide run of either 1% of $100M or 10% of $10M. Choosing to raise outside financing is sort of like deciding whether or not you want a cofounder (or 2, or 3) - it just another form of business partner. You get less %, but hopefully they add to the business in a meaningful way that leaves you better off.