> For the complete documentation index, see [llms.txt](https://samypesse.gitbook.io/pmarca-notes/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://samypesse.gitbook.io/pmarca-notes/vcchallenge.md). # Challenge of VCs *Published on Twitter,* [*25 Sep 2014*](https://twitter.com/pmarca/status/515533417329340416) One response to [the tweetstorm about Burn Rates](/pmarca-notes/burnrates.md): > "Why isn't this just hypocritical VCs overfunding reckless founders of out-of-control startups?" In fairness, there is probably some of that, though we & the investors we respect try hard not to indulge recklessness & irresponsibility. But while it's irresponsible to vaporize cash & your company, it can also be irresponsible to NOT invest to become #1 in a big new market. Particularly now, since there are SO many more people on the Internet & SO many more businesses that can consume cloud/SAAS vs 15 yrs ago. Tension: Overinvest, escalate burn, risk down round, vaporize when market turns; OR Underinvest, starve growth, don't win market, implode. Why is this so important? In tech-driven markets, overwhelming economic returns tend to go to the company with the highest market share. And, the winning company with the highest market share can invest the most in R\&D, build the best and most advanced products. **The prize**. Via Glengarry Glen Ross: Reward for **market position #1 is 90% of the economic value**. #2, a set of steak knives. #3, you're fired. The challenge for CEOs and boards of tech startups is to thread the needle, just enough investment to take the #1 position, but not more. Meeting this challenge has resulted in thousands of venture-capital-backed companies creating millions of jobs over last 50 years. This challenge becomes far harder when money is flowing freely, since more competitors get funded. Very tricky. Requires deep judgment. BUT opting out of the race generally guarantees you won't be #1 or even #2. Not a good idea either. Just as serious a risk as blowing up. No single answer. Up to VCs, CEOs, boards, and later-round investors to think very carefully about this for each specific circumstance. --- # Agent Instructions This documentation is published with GitBook. GitBook is the documentation platform designed so that both humans and AI agents can read, navigate, and reason over technical content effectively. Learn more at gitbook.com. ## Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. Perform an HTTP GET request on the current page URL with the `ask` query parameter, and the optional `goal` query parameter: ``` GET https://samypesse.gitbook.io/pmarca-notes/vcchallenge.md?ask=&goal= ``` `ask` is the immediate question: it should be specific, self-contained, and written in natural language. `goal` is optional and describes the broader end goal you are ultimately trying to accomplish on behalf of the user. GitBook uses it to tailor the answer towards what is most useful for that goal. The response will contain a direct answer to the question and relevant excerpts and sources from the documentation. Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.