Toxic VC and the marginal-dollar problem

techcrunch.com

Amazing read! The marginal-dollar problem is so important to understand whether you are VC backed or not!

"Companies are pretty good at knowing what their best “hypotheses” are in product, sales and marketing. Each marginal investment, on average, will perform worse than the higher confidence hypothesis that was previously tested. As a company attempts to unnaturally scale, it will make lower and lower confidence investments that will typically perform worse and worse — all in the name of chasing the marginal dollar. If the startup wasn’t trying to triple an already ambitious valuation, they could proceed prudently, reject investments that don’t sufficiently return and harden their best thesis into a model that generates high-confidence results. Instead, they end up trying to spend their way out of the hole."

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