Startups Once Showered with Cash Now Have to Work for It • Hacker News Board

Re: Startups Once Showered with Cash Now Have to Work for It

#21

Post by hughw » Sat, May 21, 2016, 7:35 PM UTC

epistasis wrote: post #4

alecbaldwinlol wrote: post #2

Money that comes easily, goes easily. Where did the VCs get the money from [1][2]? If they didn't break a sweat, they won't hesitate to throw it around without asking questions about profitability. EDIT: People who are downvoting are trying to hide the truth of the market, whether it's a bubble or not, this is the source of the money and in turn, your livelihood ;) [1] Probably from banks who got it from the gov't wh…

VC funds getting money from banks? I've not heard of that and your link doesn't support it. Unless the government connection you're trying to assert is that low interest rates drove more money into VC funds in order to seek higher returns.

From a 2014 WSJ article [1] : "Spanish banking giant Santander in July announced a $100 million venture capital fund to invest in fintech start-ups globally, and a few months ago HSBC allocated up to $200 million for investment in early-stage tech companies with the aim of improving its technology."

[1] http://blogs.wsj.com/digits/2014/08/04/banks-lure-fintech-st...

Re: Startups Once Showered with Cash Now Have to Work for It

#22

Post by paulpauper » Sat, May 21, 2016, 7:39 PM UTC

Unlike the 90s, It has never been easy to raise $, so this belief that companies are being showered with cash indiscriminately is wrong. Ycombinator is inundated with applications, for a modest amount of money at a fairly large chunk of equity, suggesting a market that has much more supply than demand. Many start-ups get much less than a million. What we're instead seeing is a flight to quality: the cream of the crop getting showered with cash but everything else fighting for scraps.

Re: Startups Once Showered with Cash Now Have to Work for It

#23

Post by Rylinks » Sat, May 21, 2016, 7:42 PM UTC

paulpauper wrote: post #22

Unlike the 90s, It has never been easy to raise $, so this belief that companies are being showered with cash indiscriminately is wrong. Ycombinator is inundated with applications, for a modest amount of money at a fairly large chunk of equity, suggesting a market that has much more supply than demand. Many start-ups get much less than a million. What we're instead seeing is a flight to quality: the cream of the crop…

Ycombinator is a poor example. The modest amount of money is not the important part of the program.

Re: Startups Once Showered with Cash Now Have to Work for It

#24

Post by gist » Sat, May 21, 2016, 7:49 PM UTC

ChuckMcM wrote: post #15

alecbaldwinlol wrote: post #2

Money that comes easily, goes easily. Where did the VCs get the money from [1][2]? If they didn't break a sweat, they won't hesitate to throw it around without asking questions about profitability. EDIT: People who are downvoting are trying to hide the truth of the market, whether it's a bubble or not, this is the source of the money and in turn, your livelihood ;) [1] Probably from banks who got it from the gov't wh…

There are some great web sites on how venture capital works, I can recommend https://hbr.org/1998/11/how-venture-capital-works for the basic model (this was pre-dot-com bubble bursting so it got tweaked) and Fred Wilson's summary ( http://avc.com/2014/05/vc-fund-economics/ ) is a good followup. edit: Wright->Wilson, thanks gist.

> Fred Wright's summary

You mean Fred Wilson.

Re: Startups Once Showered with Cash Now Have to Work for It

#25

Post by [deleted] » Sat, May 21, 2016, 7:53 PM UTC

paulpauper wrote: post #20

aswanson wrote: post #19

Earlier quoted context omitted.

Yup, same as it ever was. I remember back in 2001 saying to myself, "Good, all the bullshit is flushed out. Anything that survives this is real and should be invested in." Too bad I didnt put a few thousand into YHOO and AMZN back then: http://finance.yahoo.com/q/hp?s=AMZN&a=04&b=16&c=1997&d=04&e...

AMZN and GOOG would have been great investments and still are

[deleted]

Re: Startups Once Showered with Cash Now Have to Work for It

#26

Post by paulpauper » Sat, May 21, 2016, 7:55 PM UTC

paulpauper wrote: post #20

aswanson wrote: post #19

Earlier quoted context omitted.

Yup, same as it ever was. I remember back in 2001 saying to myself, "Good, all the bullshit is flushed out. Anything that survives this is real and should be invested in." Too bad I didnt put a few thousand into YHOO and AMZN back then: http://finance.yahoo.com/q/hp?s=AMZN&a=04&b=16&c=1997&d=04&e...

AMZN and GOOG would have been great investments and still are

I know but it was founded in 1998 and survived.

Re: Startups Once Showered with Cash Now Have to Work for It

#27

Post by kordless » Sat, May 21, 2016, 7:56 PM UTC

> “Investors have materially more time to do diligence than before,” said Ben Ling, a partner at venture capital firm Khosla Ventures.

In other words, "We're getting less deals to look at, so we're looking at the ones we have more closely."

Re: Startups Once Showered with Cash Now Have to Work for It

#28

Post by x0x0 » Sat, May 21, 2016, 7:58 PM UTC

manigandham wrote: post #11

carsongross wrote: post #9

This is bad news for bootstrapped startups. If cash stops being a cocaine-tier obsession for these guys, we might have to compete with them. Sad.

This is great news for bootstrapped companies which are likely used to running lean, might actually be profitable, and can outrun and outlast an inflated competitor. Major cashflow changes tend to be disastrous for most companies, it's just not that easy to realign everything. If you're up against a competitor that has raised a lot easy money and now needs to show results, you should be happy to see this.

Perhaps. Or you can be stuck competing with a company that is pissing money into a hole and offering what appears to be a similar product for free. How are they ever going to become a functioning business w/ revenue > expenses? Underwear gnomes!

Been there, done that, it sucked.

Re: Startups Once Showered with Cash Now Have to Work for It

#29

Post by morgante » Sat, May 21, 2016, 8:01 PM UTC

alecbaldwinlol wrote: post #2

Money that comes easily, goes easily. Where did the VCs get the money from [1][2]? If they didn't break a sweat, they won't hesitate to throw it around without asking questions about profitability. EDIT: People who are downvoting are trying to hide the truth of the market, whether it's a bubble or not, this is the source of the money and in turn, your livelihood ;) [1] Probably from banks who got it from the gov't wh…

> People who are downvoting are trying to hide the truth of the market, whether it's a bubble or not, this is the source of the money and in turn, your livelihood ;)

You are getting downvoted because while your point about money coming easily might be correct, your link for where money comes from directly contradicts your point.

VC LPs are overwhelmingly people who (a) have a financial incentive to see good returns and (b) are qualified investors. They include family offices, mutual funds, and sovereign wealth funds.

A big part of the latest outsized valuations are actually startups which route around VCs by directly taking investments from so-called "dumb money"—investors who might actually be pretty good at managing a basket of investments, but are not qualified or experienced enough to directly established suitable valuations for startups.

Re: Startups Once Showered with Cash Now Have to Work for It

#30

Post by morgante » Sat, May 21, 2016, 8:03 PM UTC

hughw wrote: post #21

epistasis wrote: post #4

Earlier quoted context omitted.

VC funds getting money from banks? I've not heard of that and your link doesn't support it. Unless the government connection you're trying to assert is that low interest rates drove more money into VC funds in order to seek higher returns.

From a 2014 WSJ article [1] : "Spanish banking giant Santander in July announced a $100 million venture capital fund to invest in fintech start-ups globally, and a few months ago HSBC allocated up to $200 million for investment in early-stage tech companies with the aim of improving its technology." [1] http://blogs.wsj.com/digits/2014/08/04/banks-lure-fintech-st...

These are literally drops in the ocean for banks and VC in general.

Banks invest in VC the same way that auto manufacturers do: to suss out potential innovations and/or to have inside access to future disrupters. They don't do it for the returns.