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Could VC be a Casualty of the Recession?

paulgraham.com

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Re: Could VC be a Casualty of the Recession?

#61

Post by davidw »

preview wrote: post #18

This is an interesting perspective, but it seems to be (potentially) true of one class of startup, but there are many others, requiring much large amounts of money to start, that will still rely on VC funding. Software startups, specifically web startups, have been a favorite of VCs (for good reasons). If those startups no longer seek VC funding, will it trigger a renaissance in funding for other startup classes (e.g…

Yeah, the essay needed s/startup/internet startup/ in at least one place, perhaps with a bit of explanation.

It all comes down to capital requirements. If you require a lot of money to get going, you need VC.

Re: Could VC be a Casualty of the Recession?

#62

Post by owkaye »

pg wrote: post #46
aneesh wrote: post #29

"we got a record number, up 40% from the same cycle a year before." I agreed with much of this article, but not that line. A lot more people have heard of YCombinator since a year ago, so all else equal, you'd expect applications to rise over that period. So comparing the number of apps with the corresponding value from a year ago isn't a fair comparison. Indeed, looking at http://siteanalytics.compete.com/ycombinato…

Perhaps I should have added that 40% was more than applications usually go up year to year. I'm pretty sure, based on conversations with founders, that this spike in applications wasn't due to people learning of our existence for the first time. Most people we interviewed seemed to have known about us for a while. I don't think application numbers are much correlated with News.YC traffic either. I think most people w…

"I'm pretty sure ... that this spike in applications wasn't due to people learning of our existence for the first time."

Maybe the spike wasn't, but my application was. I never heard of YC until three days before the deadline. It's a coincidence that I was already working on a new app so I had a reason to apply.

Re: Could VC be a Casualty of the Recession?

#63

Post by sielskr »

pg wrote: post #4
startingup wrote: post #3

I would like to believe Paul's thesis, but in the back of my mind, why do I get the feeling "He is trying to scare investors into putting money"?! Seriously, I think over-supply of start-ups will crash prices. Yes, there is no limit to wealth creation, but even so, it is easy to upper-bound wealth creation over, say, the next 5 years. We can say with confidence there won't be more than, say, $10 billion worth of web…

If I were motivated only by self-interest, I should want later stage investors to drop out. That would leave seed stage investors like YC as the only game in town. And incidentally, I don't see why it's easy to upper bound wealth creation over any time period. If everyone woke up tomorrow and started working twice as hard, what would limit their output?

Is it not the case that like a VC, a seed-stage investor maximizes his income when the startup he funds tries to hit a home-run? And are not home-runs much more likely if a VC invests in the startup?

Re: Could VC be a Casualty of the Recession?

#64

Post by robg »

pg wrote: post #46
aneesh wrote: post #29

"we got a record number, up 40% from the same cycle a year before." I agreed with much of this article, but not that line. A lot more people have heard of YCombinator since a year ago, so all else equal, you'd expect applications to rise over that period. So comparing the number of apps with the corresponding value from a year ago isn't a fair comparison. Indeed, looking at http://siteanalytics.compete.com/ycombinato…

Perhaps I should have added that 40% was more than applications usually go up year to year. I'm pretty sure, based on conversations with founders, that this spike in applications wasn't due to people learning of our existence for the first time. Most people we interviewed seemed to have known about us for a while. I don't think application numbers are much correlated with News.YC traffic either. I think most people w…

Wasn't it also the first cycle where "Startup Ideas We'd Like to Fund" came into play? That seems like a giant roadmap for anyone who may have heard about YC and never seriously considered it before.

I guess the test is: Were the pitches clustering more around those ideas?

Re: Could VC be a Casualty of the Recession?

#65

Post by [deleted] »

pg wrote: post #43
drwh0 wrote: post #35

Earlier quoted context omitted.

If everyone woke up tomorrow and started working twice as hard, what would limit their output? demand and supply, as always it is trivial for some hypothetical foobar corp to spit out twice as many widgets as they do now. but why would they? without viable demand, they indeed show a loss for their effort-spurt. as you heard the CEO of ford say today, oversupply was a major problem for the automakers. working twice as…

What limits demand for cars is that people can't afford them, not that they don't want them. But since by my assumption everyone is working twice as hard, including the buyers, there should be demand to match the supply.

[deleted]

Re: Could VC be a Casualty of the Recession?

#66

Post by timr »

gruseom wrote: post #53
drwh0 wrote: post #38

Earlier quoted context omitted.

If there's any truth to pg's claim that the paradigm is shifting and that talented people are increasingly likely to start their own thing than go work for a boss (and personally, I believe there is) no there isn't. come back in five years, the top ten internet companies will control 95% of all traffic and 99% of all revenues. this market has almost zero friction...how is it that google has already sewn up over 80% o…

I don't get this argument. Assign the top ten companies as high a percentage of whatever as you like: it won't prevent people from seizing opportunity to create value at a higher rate than large organizations are able to do. The point is that the two barriers that largely prevented talented people from doing so in the past - cost of entry and cultural beliefs - don't hold sway anymore. The fact that some markets have…

The problem is, "low cost of entry" is just another way of saying "commoditization". Your argument depends on the assumption that because it's cheaper to produce a website than (say) a motherboard, it's therefore going to be easier to create a valuable website. That's wrong.

Ultimately, there's no strategic advantage to be gained by entering an industry where the barrier to entry is so low that everyone can do it. When you're competitor N+1 in a market like that, your only hope is to compete on efficiency (i.e. the Dell model), or novelty (i.e. the Apple model). Otherwise, you're just a guy in a strip mall, selling beige boxes; you might make a living from it, but you're not going to get rich.

In short, don't think of the PC industry -- think of the teriyaki restaurant industry. It's cheap to open a teriyaki joint, and anyone can do it, but unless you're going to serve gourmet teriyaki, or find a way to produce it for less (/shudder/), it's not the place that you want to be as an aspiring entrepreneur.

Re: Could VC be a Casualty of the Recession?

#67

Post by [deleted] »

mattmaroon wrote: post #57

"The reason startups no longer depend so much on VCs is one that everyone in the startup business knows by now: it has gotten much cheaper to start a startup. " Maybe I'm biased because I was in YC and it was mostly first-timers, but most of us don't even remember a time when it was a lot pricier.

[deleted]

Re: Could VC be a Casualty of the Recession?

#69

Post by Raphael »

timr wrote: post #66
gruseom wrote: post #53

Earlier quoted context omitted.

I don't get this argument. Assign the top ten companies as high a percentage of whatever as you like: it won't prevent people from seizing opportunity to create value at a higher rate than large organizations are able to do. The point is that the two barriers that largely prevented talented people from doing so in the past - cost of entry and cultural beliefs - don't hold sway anymore. The fact that some markets have…

The problem is, "low cost of entry" is just another way of saying "commoditization". Your argument depends on the assumption that because it's cheaper to produce a website than (say) a motherboard, it's therefore going to be easier to create a valuable website. That's wrong. Ultimately, there's no strategic advantage to be gained by entering an industry where the barrier to entry is so low that everyone can do it. Wh…

Gee, after reading some of your comments, I almost feel like giving up on and going off to live in the woods.
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