Stefanie SchulteJun 18, 2017

One possible reason why we are seeing so many unconvincing business models backed by venture capital (hoping for an exit e. g. through an IPO): The stock market rarely rewards truly innovative business models.

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2117516

Obvious explanation given in this paper: The attention span of investors tends to be short, and they are often lacking expertise.

#Economics https://mastodon.cloud/media/MCik9R2fvStOPGkcvFU

Show threadoswriter
@stefanieschulte On the other hand, you are seeing a rise in small investors backing "unconvincing business models" on crowdfunding sites. Often a slick marketing presentation will convince people that a ridiculous product is commercially viable.
Jun 18, 2017 at 4:04pmWeb
Show threadStefanie SchulteJun 18, 2017
@oswriter I think this is basically the same problem as described in the paper (see page 3): "Extensive psychological evidence shows that individuals pay less attention to, and place less weight upon, complex and hard-to-process information. A type of information that is especially hard to evaluate is the originality of an innovation, which involves many dimensions of uncertainty that typically require extensive knowledge and expertise to evaluate."
Show threadoswriterJun 18, 2017
@stefanieschulte Well there's that. But I'm also thinking about cases where individuals become emotionally invested in a particular idea without stopping to consider the consequences. Do a web search for "Axanar" and you'll see what I mean. :-)
Show threadStefanie SchulteJun 18, 2017
@oswriter Are you referring to the lawsuit? In general, I think works of art are somewhat different from other businesses (especially when people fund them for their own sake and not in order to make a profit).
Show threadStefanie SchulteJun 18, 2017
@oswriter Of course, people should ask critical questions when they crowdfund a project, even if they don't expect a profit! I'm not familiar with the story of Axanar at all, but apparently, that didn't happen?
Show threadKlaske Wijkstra 🌻Jun 18, 2017
@oswriter @stefanieschulte Yes, I don'understand how useless products can be popular in crowdfunding. Sometimes the product is excellent: Puzzlephone for example or a shop where they try to avoid plastic by refilling. Puzzlephone has a lack of funding now, unfortunately.