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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?

#81

Post by jimbokun »

davidw wrote: post #61
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.

"Yeah, the essay needed s/startup/internet startup/"

I think if you read pg's essays for a while, you mentally do that substitution automatically.

Re: Could VC be a Casualty of the Recession?

#82

Post by marvin »

sielskr wrote: post #50
pg wrote: post #47

Earlier quoted context omitted.

I don't think there's any limit to the number that could get bought. The upside that founders are willing to trade in exchange for safety is an opportunity that would call acquirers into being if they didn't already exist. And why couldn't there be 100 or 1000 times as many public companies? Stranger things have happened in history.

There could be 100 times as many U.S. public companies while Sarbanes-Oxley remains in effect?

Obviously not, but that wasn't the point.

Re: Could VC be a Casualty of the Recession?

#83

Post by jimbokun »

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.

"What limits demand for cars is that people can't afford them, not that they don't want them."

Or that they already have them? In the U.S., isn't the ratio of eligible driving population to drivable autos approaching 1? So, twice as many cars would likely not find buyers and drive down prices a lot.

Sorry if I'm missing the bigger picture stuck on this specific detail.

Re: Could VC be a Casualty of the Recession?

#84

Post by gruseom »

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…

You guys are comparing a single saturated market to the economy as a whole. That's a category error. New markets are always emerging.

Re: Could VC be a Casualty of the Recession?

#87

Post by kenosha_kid »

For a long time VCs have prided themselves on "adding value" beyond the capital invested. I wonder if part of the phenomenon you describe is a realization, at last, that there is no value-add. Which is not necessarily a comment on VCs, but also on the increased sophistication of entrepreneurs.

Re: Could VC be a Casualty of the Recession?

#88

Post by kyletbrown »

Very interesting ... I am going thru this exactly. We had a couple vc's that are in due diligence, but in this economy, I don't think it's best for us to take the money. Our overhead (as you mention in your article) is essentially just the founder's living expenses which we have been able to cover for nearly 4 years now.

My choice is either raise vc, or sell something. Selling something is non-dilutive. VC's need to get a clue. If I take $1 or $5M, I'm going to give away 1/2 the company, so might as well as for $5M. But what the hell do I need that much money for!

Bootstrapping's back in style.

Re: Could VC be a Casualty of the Recession?

#89

Post by pg »

netman21 wrote: post #80
pg wrote: post #46

Earlier quoted context omitted.

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…

While mid-October was well after the "crash" there would have been no impact on founder's and their dreams. The types of founders that YC encourages are recent college grads who have not learned anything about economic cycles. They do not look at what is happening to housing, the stock market, the bond market, and decide to hunker down and get a job or go on to grad school. Drawing conclusions from a single data poin…

"Maybe things will be different a year from now, if the economy continues to get worse, but so far there is zero slackening of interest among potential founders."

(http://paulgraham.com/divergence.html)

Re: Could VC be a Casualty of the Recession?

#90

Post by DThrasher »

There's another explanation for the 40% rise in applications received by YCombinator. Much of YCombinator's seed-stage competition is moving up-market. All the VCs we've talked to on the east coast now target post-revenue companies, not seed-stage start-ups. If there are fewer VCs looking at early investments, you'd expect YCombinator's applications to go up.
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