Startups are pummeled in the ‘great unwinding’ • Hacker News Board

Re: Startups are pummeled in the ‘great unwinding’

#201

Post by qqqwerty » Sat, Apr 04, 2020, 11:35 PM UTC

dchyrdvh wrote: post #191

qqqwerty wrote: post #159

Earlier quoted context omitted.

Stock options and RSU's are a big part of the compensation packages for that group. So lower stock prices are essentially pay cuts. And unlike 2008, many of these companies are more mature and much more exposed to the broader economy. Cloud computing, Ads, GSuite, etc... There are a handful tech companies that will probably thrive (Netflix, Zoom, etc...), but most of them are probably going to see big drops in revenu…

They live in 700K houses with 3K a month payments. Mortgages will be suspended: banks don't want foreclosures. Again, the tech bros are in the top 5% by income and assets. If they sink, then 95% will have been underwater already.

Are we talking about the same people and same area? You mentioned the top 30% of tech companies. Those folks aren't living in the far flung suburbs in the East Bay. They are living in SF and on the Peninsula, where median home prices have been well over $1M for a while now[1]. There are certainly some tech people that managed to buy real estate back in 2010-2012 at the bottom of the market, and who have been saving plenty of money for rainy days. Those folks will probably be fine. But there are plenty of others who took on large loans to buy expensive houses with incomes that were heavily based on stock based compensation.

[1] https://www.zillow.com/san-francisco-ca/home-values/

Re: Startups are pummeled in the ‘great unwinding’

#202

Post by jbay808 » Sat, Apr 04, 2020, 11:38 PM UTC

digitaltrees wrote: post #37

StavrosK wrote: post #22

Earlier quoted context omitted.

So "startup" now means "company" and "early-stage startup" means "startup". I look forward to having to call them "incipient early-stage startup".

Start up has come to mean a company attempting hyper growth as opposed to a traditional business like a mechanic or brewery.

But what about companies that achieved that hyper growth (Google, Airbnb, etc). Are they still startups? How would you view this dialogue?

"I'm working at a startup".

"Oh? Where?"

"Google."

Re: Startups are pummeled in the ‘great unwinding’

#203

Post by AdrianB1 » Sat, Apr 04, 2020, 11:39 PM UTC

TheOtherHobbes wrote: post #161

derekdahmer wrote: post #98

Earlier quoted context omitted.

Employees with high salaries at the larger more stable tech companies are doing most of the Bay Area home buying. Think FAANG, stripe, twitter, slack, etc. These companies can weather economic downturns without laying off people so Bay Area house prices don’t drop much. This was the case in 2000 and 2009. Supply is also dropping as tons of homeowners are refinancing, which balances out any drop in demand. The biggest…

Anyone who thinks FAANG will survive without a contraction is deluding themselves. What happens to the ad market during a depression? How about luxury IT hardware? Entertainment subscriptions? Web services? If there isn't a bounceback in three months or so, the entire tech sector will deflate like a balloon. FAANG will probably survive in some form because of cash reserves, but there will absolutely be cancelled proj…

The cloud service providers will survive because they have a serious and relatively stable revenue from their services; even if they drop revenue to half, they cut contractors and investments for some months or a year and they are fine. Companies that rely on ads (like FB) will take a bad hit, ads are not essential services and companies will cut hard on that.

Re: Startups are pummeled in the ‘great unwinding’

#204

Post by Stratoscope » Sat, Apr 04, 2020, 11:40 PM UTC

wozniacki wrote: post #194

akiselev wrote: post #139

Earlier quoted context omitted.

Most businesses operate that way for the same reason Starbucks doesn't check your ID every time you go to the counter to pick up a coffee. It's cheaper to just make another coffee in the rare scenario someone takes someone else's cup than to slow down everything. It is the optimal happy path that leads to far more productivity.

Are you sure youre replying to my comment? My comment was calling into question the viability & competitiveness of most restaurants that cannot weather a sudden change of fortunes. They are not be confused with long-lived, well-run and meticulously managed restaurants that stand the test of time because they offer something compelling. Most restaurants don't fit that bill and never had those ingredients baked into th…

Mobile friendly quote (don't use code formatting for quotes):

> In 2001, my co-workers at PayPal and I would often get lunch on Castro Street in Mountain View, Calif. We had our pick of restaurants, starting with obvious categories like Indian, sushi and burgers. There were more options once we settled on a type: North Indian or South Indian, cheaper or fancier, and so on. In contrast to the competitive local restaurant market, PayPal was then the only email-based payments company in the world. We employed fewer people than the restaurants on Castro Street did, but our business was much more valuable than all those restaurants combined. Starting a new South Indian restaurant is a really hard way to make money. If you lose sight of competitive reality and focus on trivial differentiating factors—maybe you think your naan is superior because of your great-grandmother's recipe—your business is unlikely to survive….

> The history of progress is a history of better monopoly businesses replacing incumbents. Monopolies drive progress because the promise of years or even decades of monopoly profits provides a powerful incentive to innovate.

Re: Startups are pummeled in the ‘great unwinding’

#205

Post by makomk » Sat, Apr 04, 2020, 11:41 PM UTC

numair wrote: post #145

seibelj wrote: post #131

Earlier quoted context omitted.

But I genuinely believe all federal government leadership is incompetent - it’s not a matter of it being “OK”, that’s just the default for every administration. Which country on earth is responding to this well without resorting to authoritarian practices?

Denmark. Norway. Singapore. New Zealand. Taiwan. The fact of the matter is, there’s too many people in America invested in a cynical notion that we should expect the government to “fail,” which makes it easier to keep everything underfunded, which almost guarantees failure (random acts of heroism not withstanding). THAT, more than any single person, is what’s killing America. And that’s a bipartisan cancer.

The Singapore model for tackling the coronavirus that all the American press were blaming the American government for being too incompetent to manage doesn't even work in Singapore, as it turns out - they're going full-on lockdown now, with all non-essential businesses forced to either work from home or close down.

Re: Startups are pummeled in the ‘great unwinding’

#206

Post by eldavido » Sat, Apr 04, 2020, 11:41 PM UTC

x0x0 wrote: post #85

rhizome wrote: post #57

Earlier quoted context omitted.

Yes, significant equity in a large valuation. If you don't want to be a "large valuation" company, then don't talk to VCs and hire a good bizdev.

Should you take VC -- while an important consideration -- is kind of a separate question. Assuming you've decided to take VC, good ones won't invest small amounts of money. And this is separate from valuation; this applies even at the A stage. The reason is they want 18%+ ownership, ideally 22%. If they get less ownership, even if they have a big enough fund to fully exercise their pro-rata rights, they don't get a b…

I don't know where this 18-22% number comes from.

A simpler explanation is that it's all driven by fund size. We all have the same 24 hours/day, 7 days/week and all investments require analysis and oversight. If I'm a VC with 600-800 million to deploy (typical large fund size), I can do, 30-40 deals/year, maybe, only if the diligence checks out, a partner is willing to commit 5-7 years to being on their board, and various other things work out.

That narrows you right away down to $20-30 million checks, maybe less if you keep reserves around for pro rata rights, but still, nobody's getting $500K out of this fund. Ownership is whatever it needs to be to generate the right returns for the fund. Also keep in mind, syndication is very common in VC so one $20 million check might be part of an overall round size of $50 million or more. Don't even bother with that if you can't show line of sight to nine, or ideally ten figures, of enterprise value.

Re: Startups are pummeled in the ‘great unwinding’

#207

Post by AdrianB1 » Sat, Apr 04, 2020, 11:42 PM UTC

kirktrue wrote: post #195

dchyrdvh wrote: post #81

Earlier quoted context omitted.

These prices are set by the top 30% employees of the big tech firms. Unless there are massive layoffs there (e.g. 250k employees are let go) and this situation lasts for a few years (they have savings for 3-5 years usually), I wouldn't expect the prices to move.

Just to make sure I am understanding you, are you stating that the top 30% of employees have 3-5 years of savings socked away that they can get to easily? If that’s true, well, I guess I am not in the top 30% of employees of big tech firms.

Statistics based on a sample size of one are not a good example.

Re: Startups are pummeled in the ‘great unwinding’

#208

Post by jussij » Sat, Apr 04, 2020, 11:43 PM UTC

scarface74 wrote: post #84

qppo wrote: post #54

Startups are in way better shape than traditional small businesses. By our very nature, we need months of runway just to keep running. We're designed to weather this kind of storm because "zero revenue" is the default state. Hearing about Bird cutting 30% of their workforce is awful. But it's nothing compared to the thin-margin Mom & Pop, or medium sized private enterprise that had 1 week of cash on hand and ceased o…

You weren’t around in 2000 or 2008 were you? Your startup is only in “better shape” as long as VCs are willing to keep funding you. VCs are only willing to keep funding you if they have confidence that you will have a profitable exit.

I suspect the fact the Dow Jones is also feeling strong downward pressure, that too will not be helping in the confidence of those same VCs.

Re: Startups are pummeled in the ‘great unwinding’

#209

Post by axiom92 » Sat, Apr 04, 2020, 11:44 PM UTC

irrational wrote: post #184

I work for a Fortune 150 company as a programmer. I've had lots of people ask me why I don't move to California and work for a startup. The main reason is because I'm risk adverse and I really don't like the Bay Area (I spent many years living in San Ramon, Alameda, Newark, etc. in my youth and have no desire to ever return). Now I have a new reason to be grateful I work for a Fortune 150 company. I've been able to w…

>I spent many years living in San Ramon, Alameda, Newark, etc. in my youth and have no desire to ever return

I understand that this is not center to the point you're making but I am curious! What makes you hate the Bay area? I lived there for ~4 years and recently moved to Pittsburgh. I can't wait to move back. In fact, the mere mention of these places evokes a strong sense of homesickness in me for some reason.

Re: Startups are pummeled in the ‘great unwinding’

#210

Post by rexreed » Sat, Apr 04, 2020, 11:44 PM UTC

tjr225 wrote: post #185

rexreed wrote: post #79

I'm sorry for some of my schadenfreude here, but really, so many of these startups are overfunded with way too many employees to begin with. They've often paid top dollar for expensive technical talent in locations with very high cost of living. I can't wait to see a pull back to solid fundamentals. I don't see why a daily vacation rental company honestly needs 240 highly paid employees. One company cited in the arti…

Schadenfreude is an absolute awful response to this. A lot of us are just trying to put food on the table and pay off student loans.

You know the numbers. 90%+ of startups fail. In an economic downturn, it's more like 99%+. If you're trying to put food on your table, startups are probably the wrong place to turn.