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U.S. Tech Funding – What’s Going On?

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Re: U.S. Tech Funding – What’s Going On?

#101

Post by autokad »

thorfish wrote: post #3

"And the tech IPO is basically dead. The tech IPO market is at early 1980's volumes. For most of the 90's the majority of tech funding was public. This has reversed. It used to be routine to hit $20 million in revenues and go public. Not anymore." It's interesting how it seems that inequality is an unintended consequence of Sarbanes-Oxley. Before an engineer might vest after four or five years, just as the company is…

thats very interesting, I never thought of it that way but yeah its kind of true. many companies now all the money is already made before the IPO

Re: U.S. Tech Funding – What’s Going On?

#102

Post by anigbrowl »

nostrademons wrote: post #68
anigbrowl wrote: post #63

Earlier quoted context omitted.

Except that unless you are lucky, you're unlikely to become wealthy from just saving/investing ordinary income. You're both presenting it as if it were a simple choice between being frugal and engaging in consumption, but it's not.

There's more than that implicit in my comment. If you're the sort of person who views wealth as a scorecard rather than a means to consumption, why should you care whether you end up becoming wealthy or not? You'll be too busy making money to spend it. And if you're the sort of person who views wealth as a means to consumption, then of course you'd like to be wealthier, but, well, you know how to achieve that. (In ac…

Not to be argumentative (because I think we have somewhat similar opinions on the broader topic), but I am having real problems with your scorecard analogy. I have certainly met people who think that way but a) of course they want to be wealthy, because being in the game but having a low score isn't satisfying and doesn't come with any status benefits and b) even people who are obsessed with money-as-score still like to consume, partly to signify their ability to do so. Furthermore, almost all of the people with the scorecard mentality that I've encountered come from financially privileged backgrounds. I remember one person in particular who was working as a professional investor that I occasionally did some IT work for, and who confided in me that he sometimes felt it was an uphill struggle because he wasn't his father's favorite son and so had to start his investing career with only $1 million of capital. I forebore from mentioning that that was about 30 times my annual income and I would be delighted to swap my problems for his, but it was pretty dispiriting; while I don't view capitalism as a zero-sum game, there are far fewer investment opportunities open to people who have only tiny amounts of capital.

I agree that money can be a means to make choices about one's life, but only past a certain point. Poor people need money to obtain the necessities of survival, and that often doesn't leave a whole lot of options open for making life-scale economic choices. Picture a Monopoly game where some players get the standard $1500 at the outset and $200 each time they pass Go, others get $150 and $20, and one person gets $15,000 and $2000. No matter how good the players in the second group are, they're probably going to perform poorly under those conditions; likewise whoever is fortunate enough to start out controlling large sums is considerably more likely to win.

We all have the same amount of time at our disposal, and how we use that can certainly have a huge impact on our economic futures. But large capital disparities arguably provide a disincentive to maximize productivity insofar as people feel hard work will have little impact on their prospects for advancement relative to their contemporaries.

Re: U.S. Tech Funding – What’s Going On?

#103

Post by nostrademons »

foldr wrote: post #83
nostrademons wrote: post #12

Earlier quoted context omitted.

That's the way capitalism has always worked - it is up to you to make deals that increase your overall level of happiness, and it's up to your counterparties to ensure that those deals also increase their happiness. In past years, instead of "VCs" the villains have been hedge funds, private equity, corporate raiders, giant conglerates, corporations in general, investment trusts, robber barons, and colonial empires. I…

>The reason money gets drawn away from "the average person" and collects in "billionaires and large companies" is because the average person values money for what it can do for them, while billionaires and large companies value money as a scorecard. That's the reason that people buy things from people who sell things, not the reason for the unequal distribution of wealth. There is no logical necessity in people's spe…

The reason for the accumulation of wealth is because most profitable markets (i.e. ones where profits are not competed away) involve owning an asset that others a.) value and b.) cannot easily replicate. Very often these days, that asset is simply the purchasing habits of a large number of consumers. Building machinery is easy, but changing peoples' minds is hard.

The good news - from an economic mobility standpoint - is that technological change is rapid enough that peoples' purchasing habits change all the time. The bad news is that it's often pretty unpredictable which product or service they will land on.

Re: U.S. Tech Funding – What’s Going On?

#104

Post by vasilipupkin »

fsk wrote: post #99
hipcactus wrote: post #39

Earlier quoted context omitted.

Can you elaborate on this last statement?

A bank borrows at the Fed Funds Rate (say 0.1%) and buys one year Treasuries (currently 0.26%). On Treasury trades, banks can do leverage of 100x or more. So the bank's profit is 0.16 times 100 or 16%. If the Federal Reserve raised the Fed Funds Rate to 1%, then the bank would be borrowing at 1% and lending at .26%, and they'd be .74% in the hole per bond, 74% accounting for 100x leverage. Big banks are comfortable d…

the problem with this theory is the bank doesn't borrow at zero. Goldman Sachs has 380 Bln of outstanding debt, and is paying roughly AA corporate rates on that debt. Overnight bank rate is 0.13 right now, which is the Fed Funds rate

Re: U.S. Tech Funding – What’s Going On?

#105

Post by chetanahuja »

mkagenius wrote: post #74
chetanahuja wrote: post #42

Earlier quoted context omitted.

Bingo. A very large part of recent "tech" startup scene is just the good old "doing X but now with a smartphone" pattern. Or even worse "Sending a person with a smartphone to do X for you when you call them using your smartphone". I simply don't know how these businesses are supposed to be profitable at the scale they're supposed to grow to. Will Uber still be cool when it has a million quasi-employees? Will the gove…

> Will the governments around the world still allow the "quasi" part to stay intact at that scale - highly unlikely. By the time that happens, Uber will be as big as google. They will find a way - when lot of smart people work together, they generally do.

I'm not predicting Uber's demise. I'm casting doubts on continued revenue growth and margin protection to justify the skyhigh valuation (since this is a thread about private funding valuations).

Uber doesn't have a monopoly on smart people. Pretty soon each and every significant market in the world will have a local competitor who'll know how to play the local system better than Uber and not to piss off civic stakeholders to this extent. There's nothing to stop the competition either. Drivers already on the road with Uber can be easily persuaded to install a second app with a small financial incentive. It's absolutely a commodity play for them. Same for consumers. It's a classic race to the bottom competitive situation, great for consumers and perhaps even the drivers but not necessarily for the company.

Re: U.S. Tech Funding – What’s Going On?

#106

Post by jeffreyrogers »

timr wrote: post #27

Note that they use the valuations of public companies to argue that the market isn't overvalued, then spend 90% of the presentation arguing that all of the value is being "created" in the private markets, and that IPOs are dead. Moreover, they're basically arguing that it's logical for investors to pile into these late-stage deals, because waiting around for IPO is a losing strategy. If you believe this data, it does…

Yeah, I thought the same thing when reading through the slides. It's pretty disingenuous of them to do that, since I think when most people say "tech bubble" they're referring to the inability of most of the VC funded companies to go public. A couple of months ago there was a blog post by Mark Cuban that made a similar argument. It wasn't well received on HN largely because most commenters just looked at the words tech bubble and instantly disagreed, rather than seeing that his argument was really about liquidity.

Anyways, I don't have a strong opinion either way as to whether we're in a tech bubble or not and it doesn't strongly affect me since I'm not heavily invested in tech companies. But I certainly am skeptical of the high valuations that currently exist.

One last thing HN readers should be aware of. VC firms are like hedge funds. The people running them make money whether the fund does well or poorly and typically the amount invested by the general partners is quite small relative to the size of the fund (often around 1%), so when you look to VC guidance for how the VC market is doing keep in mind what their incentivizes are.

Edited to add on VC firms: Typically the investors in such funds aren't rich people either. They're often (probably in most cases) institutional investors such as pension funds and university endowments.

Re: U.S. Tech Funding – What’s Going On?

#107

Post by nzealand »

timr wrote: post #27

Note that they use the valuations of public companies to argue that the market isn't overvalued, then spend 90% of the presentation arguing that all of the value is being "created" in the private markets, and that IPOs are dead. Moreover, they're basically arguing that it's logical for investors to pile into these late-stage deals, because waiting around for IPO is a losing strategy. If you believe this data, it does…

Public tech company's price to earnings does look historically reasonable.

And private companies are slowly going public at current valuations.

Yet public tech company's earnings to revenue is unusually high.

http://www.philosophicaleconomics.com/2015/01/explosion/

Open source doesn't fully explain this, as this alone is not a barrier to entry.

As US rates slowly increase, I expect to see an increase in currency headwinds.

Re: U.S. Tech Funding – What’s Going On?

#108

Post by aswanson »

spitfire wrote: post #38
ripberge wrote: post #19

When Andreesen talks about "tech funding", what do they mean by this? A lot of VC funding that used to go to "tech" companies is now going into much less profitable types of businesses that should not be considered "tech". Businesses that most VC's don't really have a lot of experience with. For example, their investments in Soylent, Walker and Co, Dollar Shave Club. It is REALLY hard to make money in these types of…

If your business has a website, it is now a "tech" company. It's a brave new world.

Not new at all. I remember reading articles in the media in 98-99 about "tech" stocks like pets.com and etoys. Anything back then that had a website was a tech stock just like anything with an app is a tech stock these days. Nothing new to see here...

Re: U.S. Tech Funding – What’s Going On?

#109

Post by natrius »

javert wrote: post #88
Moshe_Silnorin wrote: post #69

Earlier quoted context omitted.

>Sarbanes-Oxley We'll never be rid of it. Like copyright law, It's crystallized into a self-perpetuating incentive structure. Everyone knows it's stupid, no individual has much incentive to try and change things. The ability to restore to a previous state is essential in the design of institutions, one lacking in our current governments. This is a very hard problem, but I'm hopeful prediction markets may be able to h…

Yeah, but prediction markets are basically illegal, because---again---government regulation. Prediction markets are so vastly powerful, both as a financial tool (hedging) and an information tool, that people would be screaming bloody murder if we already had them and then they were taken away.

Prediction markets are being decentralized. They will be uncensorable.

http://www.augur.net/

Re: U.S. Tech Funding – What’s Going On?

#110

Post by mahyarm »

thorfish wrote: post #13
npkarnik wrote: post #9

Earlier quoted context omitted.

Many highly valued tech companies do secondary offerings to allow average employees to get some liquidity. Sure, the general public may not "get in early" but M&A is far less risky for both VCs and general investors. If mostly "sure things" make it to IPO, it's far less likely for the general public to be exposed to the meltdowns that made the headlines circa 2000-2001. The flipside is that until the startups IPO, th…

Yeah, but as I understand it, employees can usually only sell about 20% or so in secondary offerings. Six months after the IPO, they can liquidate 100%.

Usually it's more like %10 of vested earnings, which ends up being something like %2.5-%5 of their stock.
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