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Winter Is Probably Coming Soon

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Re: Winter Is Probably Coming Soon

#21

Post by sytelus »

no_future wrote: post #19

Can somebody explain to me why every startup company(or at least every one that articles are written about) feels the need to raise as much VC as possible ASAP? There are so many options for developing scalable systems relatively easily and the cost of running an entirely web/software based company(read: 90% of the hot startups) today is comically low, especially with pay what you use PaaS/IaaS systems like those off…

Sure you can throw together another Snapchat in a weekend. But very soon - if you have real significant user base - you will need to build and maintain apps on all platforms. You will need someone to fix bugs, add new features and scale things better everywhere. You will need people who can create and conduct marketing campaigns (FYI - Techcrunch isn't writing about for you without getting paid and Snapchat didn't become popular without playing tons of marketing tricks). You will need guys who can do business development, accounting & taxes, create partner relationships and so on. You will also need customer support, social media management, metrics measurement, all kind of dashboards and so on. Before you know, you will end up with significant staff, needing office space, doing moral events and likes.

Per head aggregate cost of an engineer these days is upwards of $230K when you add up all health insurance, 401K, signing bonuses, office space and so on. Even if you hire just 50 employees, you can easily expect $1 million burn rate per month. For things like Snapchat, you can't anticipate much income during initial growth period. So this means you need VC for getting ~$10-20M of funding per year until you get sold, IPOed or have ad based income flowing in.

In support of your thesis, there was actually one guy who did plantyoffish.com and managed it through out everything all by himself for many years. But finally things have caught up to him. Now he has more than dozen employees. This is of course outlier case and not a typical scenario where competition will eat you alive if you don't defend your castle aggressively every day by one-uping them. And for that you need employees and bandwidth to work on lot of things at the same time, many of which likely won't work out.

Re: Winter Is Probably Coming Soon

#22

Post by timr »

nostrademons wrote: post #18
enraged_camel wrote: post #11

Earlier quoted context omitted.

What about the bootcamps? A friend of mine is considering enrolling in one. Is it a bad idea?

It's not a bad idea for people who go through them and successfully get jobs before the crunch comes. As long as they can do the job and don't get laid off, they're way better off than they would be otherwise. (And even if they do get laid off, they're probably better off than they would be otherwise - they have tangible skills that will likely be in demand for a while.) It could be very bad for the boot camps themse…

Yep. And even more to the point, there were a lot of people who were hired as "webmasters", and knew little more than some HTML. Those people were cut almost immediately when the crash came. It's not even a metaphor -- almost the exact same scenario played itself out in the late 90s. We know how it ends.

It amazes me how resistant we are to learning from experience.

Re: Winter Is Probably Coming Soon

#23

Post by no_future »

sytelus wrote: post #21
no_future wrote: post #19

Can somebody explain to me why every startup company(or at least every one that articles are written about) feels the need to raise as much VC as possible ASAP? There are so many options for developing scalable systems relatively easily and the cost of running an entirely web/software based company(read: 90% of the hot startups) today is comically low, especially with pay what you use PaaS/IaaS systems like those off…

Sure you can throw together another Snapchat in a weekend. But very soon - if you have real significant user base - you will need to build and maintain apps on all platforms. You will need someone to fix bugs, add new features and scale things better everywhere. You will need people who can create and conduct marketing campaigns (FYI - Techcrunch isn't writing about for you without getting paid and Snapchat didn't be…

Correct me if I'm wrong, but I remember reading that Snapchat was originally pretty slow to acquire users, and conducted almost no marketing campaigns. According to the founders, they focused on building a great product, and this paid of in the long run as the product gained traction through word of mouth.

Actually using them as an example was a mistake on my part, I remember reading in that same article that Snapchat actually only got VC funding when the server costs were about to become too much to pay. Spiegel, who is the founder and CEO isn't a technical person, but it looks like his cofounder is.

Here is a link: http://techcrunch.com/2012/05/12/snapchat-not-sexting/

Re: Winter Is Probably Coming Soon

#24

Post by bsder »

Translation: "Waaaaaah! I'm a VC; I'm not the only game in town anymore; and I have to pay money. Waaaaah!"

Yeah, guess what? Nobody likes VC's. They screwed everybody over in the 1999-2000 bust, so those people have stayed away ever since. And, now, the stupid 20-somethings are starting figure the same thing out, are buckling down on very small amounts of money and cashing out to Yagglesoftazon ASAP since there is very little barrier to entry on something which is solely software.

Re: Winter Is Probably Coming Soon

#25

Post by return0 »

no_future wrote: post #19

Can somebody explain to me why every startup company(or at least every one that articles are written about) feels the need to raise as much VC as possible ASAP? There are so many options for developing scalable systems relatively easily and the cost of running an entirely web/software based company(read: 90% of the hot startups) today is comically low, especially with pay what you use PaaS/IaaS systems like those off…

Most startups outside the US grow without VC capital. But in the US, with all the money trees around, you would be crazy to pass up the opportunity for free money.

Re: Winter Is Probably Coming Soon

#26

Post by [deleted] »

api wrote: post #9
venus wrote: post #7

I hope so. Currently, VC money is a horrible market distortion that encourages what is basically dumping - companies with good products and actual business models being starved of oxygen by cashed-up competitors who simply give products away for free. I'm not even sure of the economic term for it but wouldn't be surprised if it's illegal in a few years, after we've gotten more sophisticated.

A related argument had been made a lot lately about how "free" can lead to scummy business models like surveillance and manipulative black hat media tactics. You can do free sustainably if your costs are low and if you have something a tier up you can sell. That's freemium and it can work for some things. But if your costs are high or if a paid tier does not materialize... Now you have a big problem. You own a liabil…

[deleted]

Re: Winter Is Probably Coming Soon

#27

Post by pkorzeniewski »

I'm always amazed by stories of startups that generate almost no profit and yet burn millions of VC dollars. Yes, I know that VC count on that 1 out of 100 invested in companies to generate profit larger than all the other combined, but still it's a bit ridiculous and in my opinion not healthy for the industry. It's a different story if you've a bootstrapped, profitable company and want to boost the growth - you can negotiate better terms with the VC, because a) you've paying customers and have a proven business model and b) you don't need the VC money to survive, unlike a fresh company without any profits.

Re: Winter Is Probably Coming Soon

#28

Post by no_future »

return0 wrote: post #25
no_future wrote: post #19

Can somebody explain to me why every startup company(or at least every one that articles are written about) feels the need to raise as much VC as possible ASAP? There are so many options for developing scalable systems relatively easily and the cost of running an entirely web/software based company(read: 90% of the hot startups) today is comically low, especially with pay what you use PaaS/IaaS systems like those off…

Most startups outside the US grow without VC capital. But in the US, with all the money trees around, you would be crazy to pass up the opportunity for free money.

But it isn't free, free implies that they don't demand anything in return. You sell investors an ownership stake in your company, so it is the same as any other transaction. That means that they get a portion of whatever profit you make, and depending on how large of a stake they own, a say in decision making and executive matters. Forgive me if this is a bleak outlook on businesspeople, but the last thing I would want to do immediately after founding a company is sell a portion of it to some suit with a $400 haircut(smart technical investors like Paul Graham seem to be few and far between) who probably doesn't know or care about the product or technology outside of the possible return on their investment from the profit made from it, and let these people tell me how to run it, or even worse conspire against me and oust me from my own company(see: Steve Jobs).

I'm not denouncing VC as a whole, and I'm sure it is very beneficial when your company is becoming too much to run with your initial resources, and can be a big part of what accelerates big things to huge things. I'm just curious as to why the trend today seems to be to acquire as much early stage VC as possible, some companies even trying to get it before launching their product, through means like accelerators and such. $100k investment for 10% of my company? HELL NO. As I said before, if my web/software company is becoming too much for me to run with my initial group of founders, that probably means it is somewhat successful, and at that point I have more authority to dictate terms to investors. This means that I can get a larger investment from them and give them as small a piece of the company as they will accept for their investment, rather than being completely at their mercy because I haven't even launched my product and have 0 pull. Larry and Sergey as well as Zuckerberg were pretty smart about this. When their companies had users and pull they could afford to be picky about who they accepted funding from, and for good reason - they were control freaks(I mean this in the best way possible), and didn't want anything put out by their company to be not to their specifications. Obviously this worked well for them. This is my very basic understanding of how this stuff works, so once again correct me if I'm wrong.

P.S. here is a fascinating article on Page that was posted here a few months ago if you haven't read it - it brings up some of the points I made about him: http://www.businessinsider.com/larry-page-the-untold-story-2...

Re: Winter Is Probably Coming Soon

#29

Post by xcubed »

timr wrote: post #22
nostrademons wrote: post #18

Earlier quoted context omitted.

It's not a bad idea for people who go through them and successfully get jobs before the crunch comes. As long as they can do the job and don't get laid off, they're way better off than they would be otherwise. (And even if they do get laid off, they're probably better off than they would be otherwise - they have tangible skills that will likely be in demand for a while.) It could be very bad for the boot camps themse…

Yep. And even more to the point, there were a lot of people who were hired as "webmasters", and knew little more than some HTML. Those people were cut almost immediately when the crash came. It's not even a metaphor -- almost the exact same scenario played itself out in the late 90s. We know how it ends. It amazes me how resistant we are to learning from experience.

Based on seeing the last crash-

It's not really skill level that determines whether you keep a job. Having a good network and being able to hustle for opportunities are far bigger determinants.

The quiet, 50th percentile engineer who hasn't had to look for a job in 10 years, doesn't know a lot of people, low-ish EQ, works for a company that's not well-known: most at risk of struggling to find a job if laid off or company goes under.

Someone who knows little more than HTML but is a young, hustler type, big network, sociable, puts more energy into finding gigs - likely to get at least some contract work to sustain him through the

Re: Winter Is Probably Coming Soon

#30

Post by xcubed »

xcubed wrote: post #29
timr wrote: post #22

Earlier quoted context omitted.

Yep. And even more to the point, there were a lot of people who were hired as "webmasters", and knew little more than some HTML. Those people were cut almost immediately when the crash came. It's not even a metaphor -- almost the exact same scenario played itself out in the late 90s. We know how it ends. It amazes me how resistant we are to learning from experience.

Based on seeing the last crash- It's not really skill level that determines whether you keep a job. Having a good network and being able to hustle for opportunities are far bigger determinants. The quiet, 50th percentile engineer who hasn't had to look for a job in 10 years, doesn't know a lot of people, low-ish EQ, works for a company that's not well-known: most at risk of struggling to find a job if laid off or com…

*downturn
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