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

Re: Startups are pummeled in the ‘great unwinding’

#231

Post by vinayan3 » Sun, Apr 05, 2020, 12:38 AM UTC

Article's premise is right but they primarily used start-ups in the travel and transportation space for examples of insane revenue drop. If people are sheltering no one is gonna be using these services. So, it's really not surprising.

The longer term impact is going to be the lack of funding in the coming couple of years and lack of customers for the services/products coming out of startups.

How will VC funds fair in this? Are there enough LPs out there willing to put their money into this risk pool?

Re: Startups are pummeled in the ‘great unwinding’

#232

Post by ineedasername » Sun, Apr 05, 2020, 12:44 AM UTC

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…

I'm not sure why you think zero revenue is the default state. That's generally only the default during the short period of time in between selling angel investors on an idea or proof of concept and getting a first round of VC funding. Somewhere in the middle of that is launching a viable product and demonstrating a potential revenue stream while convincing investors there is a sizable addressable market you can poach from competitors or convince buyers they need a service they've never had before. Zero revenue is otherwise a short sprint towards irrelevance and insolvency.

Startups with a little bit of runway have to cut costs now to extend it, i.e. staff cuts, or they're also on a short spring towards insolvency. All business negatively impacted right now are extremely adverse to new expenditures for the next few months, and might only be slightly less so for the next six months to a year after that. All spending not absolutely essential to keeping the lights on is getting cut.

My workplace had contracts with a number of startups (and some more established) that provide industry-specific services, and as a matter of course we insist on a "force majeure" clause in contracts. As a result we are strongly moving towards terminating those contracts. We are considering it even for one or two that are close to being mission critical, because revenue loss just through June is in the range of $30,000,000. That represents roughly a 40% drop over expected revenue for that time period. Projections for the next quarter are much, much worse, even in an optimistic "we might be slightly less restricted as a society in 2-3 months" scenario.

Given this environment, startups that do not supplant an existing service for a lower cost, have VC confidence and can "hibernate" for a time, or some other type of product that can help businesses stem losses rather than just make some activity slightly easier and more seamless... only those startups will weather this storm.

Re: Startups are pummeled in the ‘great unwinding’

#233

Post by hpcjoe » Sun, Apr 05, 2020, 12:46 AM UTC

filmgirlcw wrote: post #140

scarface74 wrote: post #84

Earlier quoted context omitted.

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.

Not to mention VCs becoming more risk averse — not wanting to throw good money after bad. So not only does it need to be a profitable exit, it needs to be profitable at a good multiplier compared to every other business seeking investment.

VCs were always 'risk' averse, though this manifested in odd behaviors. Such as the herd signal, whereby one investor decided to invest attracted more capital.

One might argue that the signal indicated lower risk, but this runs at odds with the mission to find potentially large payoffs. That is, derisk enough, and you de-reward. Add to that, that there is no "sure thing", or ultimate de-risk. There are no silver bullets in this process, and signals you think may indicate one thing, actually indicate something entirely different.

Re: Startups are pummeled in the ‘great unwinding’

#234

Post by axiom92 » Sun, Apr 05, 2020, 12:47 AM UTC

sethammons wrote: post #215

axiom92 wrote: post #209

Earlier quoted context omitted.

>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.

Not OP. I've only visited the Bay Area a few times. Human filth, needles, and just so many people packed into the space. I can't imagine raising a family in that situation. Contrast that with where I am now: I have a very large house on 10+ acres of land on the edge of a lake. Each of my kids has their own room and there are lots of rooms and corners to "get away from each other". We have room for food storage, a hom…

Sounds like you were in the city (SF). The suburbs are much better!

Re: Startups are pummeled in the ‘great unwinding’

#235

Post by axiom92 » Sun, Apr 05, 2020, 12:49 AM UTC

aphextron wrote: post #220

axiom92 wrote: post #209

Earlier quoted context omitted.

>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.

It all depends what you want in life. Pittsburgh you can afford a beautiful home and support a family on $100k. That's studio apartment survival money in the bay. The portion of us who will ever make it to the big leagues and land that $300k FAANG job that allows you to buy a home and raise a family in the bay is infinitesimal. But if you just want to live that single lifestyle, enjoy the big city, and play the start…

I agree. I moved here for Grad school so I'm not making six figures anymore but it's still pretty cheap!

Re: Startups are pummeled in the ‘great unwinding’

#236

Post by icedchai » Sun, Apr 05, 2020, 12:49 AM UTC

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…

Unlikely. I've been through 2001 and 2008. Startups will cut things to the bone because most of them are cash flow negative, and that next VC round will be delayed 12+ months, maybe never.

Re: Startups are pummeled in the ‘great unwinding’

#237

Post by ThrowawayR2 » Sun, Apr 05, 2020, 12:49 AM UTC

invertY wrote: post #228

invertY wrote: post #223

Earlier quoted context omitted.

You cannot disrupt a market if the market itself ceases to exist. This is basic stuff. A whole load of VC stuff relies upon the larger market to predate, has stupidly vapid IPO targets (which the actual big boys, Central Banks, are now culling off, since their actual liquidity stuff like Reits etc are crashing) and basically 100% worthless business models. "Juicer" or whatever it was? Go look up what Glencore is doin…

Look: you just got slammed with ~10 mil unemployment in the USA. Call it 10% of workforce. Most developed countries are now running at 15-30% and it's about to get worse. Entire industries are pretty much relying on bailouts or they fold (leisure, air (non-freight), cruise, hospitality, restaurants) and the people who own the real estate (or lend it out, Reits / Mortgages) are going to get hit by their tenants / clie…

Please review the HN guidelines linked at the bottom of the page. I think the combative tone and the mention of downvotes, both of which are against the guidelines and are actively enforced by moderators and readers, is contributing to your karma woes more than the content of what you are saying.

(For whatever little it's worth, I suspect your assessment is correct.)

Re: Startups are pummeled in the ‘great unwinding’

#238

Post by nkozyra » Sun, Apr 05, 2020, 12:50 AM UTC

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…

If you're an investor, this isn't how you see things. If there's no future, you cut bait. The startup doesn't have a real runway.

Re: Startups are pummeled in the ‘great unwinding’

#239

Post by thendrill » Sun, Apr 05, 2020, 12:56 AM UTC

rexreed wrote: post #90

The news just keeps getting worse for SoftBank. "OneWeb, a satellite start-up that had raised $3 billion in venture funding from investors including SoftBank, the Japanese conglomerate, filed for bankruptcy on Friday and plans to sell itself." Can we finally admit that SoftBank's model of so-called VC funding success is really just a colossal failure? The throw-everything-into-it approach of making Unicorns a reality…

[dead]

Re: Startups are pummeled in the ‘great unwinding’

#240

Post by nateburke » Sun, Apr 05, 2020, 12:56 AM UTC

tedd4u wrote: post #33

Startups have had years to prepare, work on their plan, strengthen their fundamentals, and raise capital if necessary. I think the shock is that probably this is a faster onset and deeper drop scenario than most had modeled. Every [1] startup has been thinking for the past couple years about their plan for when the recession would come. Probably hundreds of articles written in mainstream and economic/financial press…

It is faster and deeper and scarier than anything any leader working for a startup or VC in 2019 would have DARED put in a planning deck.

No one blogged about it in 2019, no one took a "how to navigate a pandemic-induced depression" class at business school.

That's not to say there isn't opportunity. Software engineer market comp WILL go down, as many point out, on account of shrinking RSU value. The talent war is over. It will soon be a great time to start a software company, if is not already.