The Capital as Moat model

Fred Wilson the NY based VC, as part of a look back at the 2010s:

The massive experiment in using capital as a moat to build startups into sustainable businesses has now played out and we can call it a failure for the most part…Uber has not yet proven that it can build a profitable business… WeWork was a fast follower with this strategy and failed to get to the public markets… much of [VC capital] was wasted chasing the “capital as a moat” model.

What is notable to me about this is not whether or not it is true – I personally think it has yet to play out fully. To me it’s notable how new the model is of raising massive amounts of capital quickly up front in a bid to capture a market. Paytm is the pioneer and poster child for this in India though there are now many others too. The startup landscape seems to now think this is the norm, and so the average initial funding round gets larger and larger.

It probably started with Softbank, and the founder Son using his massive fund size as a weapon to get into deals:

“Anthony-san, you take my money. It’s good for you. It’s good for me. If you don’t take my money, not so good for you.” Like so many others before and since, Tan took Son’s money.


Regardless, if, as Fred Wilson implies, that model has played out, it’s going to lead to more sustainable business models because the alternative then is product and innovation as a moat, with profitability as a top metric.

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