Beware the Banana Stands: Silicon Valley’s Incinerators of Capital

This piece is an attempt to collect my thoughts on a type of business I’ve found particularly hard to analyze over time as an investor. I call them “Banana Stand Businesses,” a phrase taught to me early in my career by Antonio Rodriguez, a mentor, GP at Matrix and Arrested-Development fan, though I expect my definition has drifted a bit from those days. Businesses like this have incinerated billions of dollars of capital and humbled many brilliant, hardworking investors and management teams. In this piece, I’ll do my best to explain what I mean with the phrase, why they’re so addictive to investors/management teams, why they’re so difficult to spot in the loss-making state, and (in an effort to help myself avoid them) brainstorm some best practices for picking up on them during diligence. What Makes a Business a "Banana Stand:" I've identified four key traits. 1. Customers love the product 2. The company is growing quickly (often in hypergrowth) 3. It is losing money (which, nowadays,

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