Why are weak businesses succeeding?

Why are weak businesses succeeding? Those failing to execute, produce any unique research and development, or produce a viable customer business model. Why are they being given extra time, in the form of B and C rounds of funding to execute? Why are the stocks of weak companies going up?

The answer is easy. Cheap money. If the startup ecosystem is producing a net investment gain greater than inflation it becomes a *low risk endeavor to make an investment in any startup. Where else are you going to put your money? Many times this isn’t even an investors earned money, but money that was borrowed at a ridiculously low interest rate, meaning leverage. The ability to leverage across multiple startups with the strategy that one of them will produce a successful acquisition. It seems to make the startup space an almost “safe” place to invest. Cheap money creates a race for growth. Any growth, it could be business, sales, marketing, eyeballs, presence, or any other form of growth, just make it GROW!

You can look across the acquisitions from not only tech space, but any corporation from 2015-2019 and see the cheap money being used to acquire companies. When money is cheap you don’t need to execute as a company. What I call “fake” money is easy to produce and throw at poor business models and lousy startups. If you throw more money at the startup, you decrease your potential gains (via dilution). That’s a de-risking strategy since you are buying time for new management, more talent, and a larger sales team to come in and try to build anything that another company might find worth buying the startup for. At the bare minimum you have the employees in the company and simply trash the product.

Cheap money (low interest rates) is producing a lousy startup ecosystem. When the blood arrives on the streets and money gets more costly, the true business juggernauts, skilled leadership, and companies that were producing innovation during this cheap money phase will become clear winners for all to see.