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Dizzying Ride May Be Ending for Startups

nytimes.com

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Re: Dizzying Ride May Be Ending for Startups

#101

Post by Tossrock »

code4tee wrote: post #60

The only people that don't see a bubble at the moment are the people inside the bubbles. If your business has real revenue and real profit then there isn't much to worry about. If your business is valued on "hype" and theoretical valuations then you have reason to worry.

Even if a business has real revenue and real profit, there is still danger depending on the source of that revenue and profit. If there's a large downturn in the startup world, b2b/SaaS companies which profit from startups will suffer too. What will the effect to github/pagerduty be if 3/4ths of startups vaporize? "Not good", I would wager.

Ultimately, it's about the source of the money. SaaS companies are higher up the "trophic chain" than than the startups that pay for their service, but VC money can still represent a substantial portion of their revenue, just passed through an intermediate company first.

Re: Dizzying Ride May Be Ending for Startups

#103

Post by nissimk »

yummyfajitas wrote: post #45
bryanlarsen wrote: post #16

Earlier quoted context omitted.

And some of those articles were from 1998 . It can take a long time for a bubble to burst. I remember hearing about the housing bubble in 2001. It even made the front cover of the Economist in 2005. As Keanes said "The market can stay irrational for longer than you can stay solvent".

The housing bubble was a special case. It was more or less impossible to short until fairly late in the game (i.e. approximately the time when Burry actually did) - the market for CDS was not very liquid until synthetic CDOs came into the picture.

I'm pretty sure that it's also quite difficult to go short on non publicly traded equity.

Re: Dizzying Ride May Be Ending for Startups

#104

Post by ChuckMcM »

jacquesm wrote: post #82
angersock wrote: post #77

Earlier quoted context omitted.

Eh? What're you talking about? Months ago, we started a re-org to streamline our management and to help focus on our core competencies. We wanted to put more wood behind fewer arrows, and so divested ourselves of our legacy customers and technology so we could focus on our growth strengths. Now, today, surely, the growth numbers haven't been there, but we wish all the best to our former coworkers and business assets…

As long as you still own DroppedBox, no problem. But if you divest DroppedBox you'd better hope there isn't any dispute once that chapter 7 hits about the price you made for it and/or any ties of investors and or principals from 'DropBox' with those of 'DroppedBox'. Really, bankruptcy fraud is nothing to joke about, it is a very common trick to try to remove assets from a company that is on the skids but it usually d…

I completely agree with you that using bankruptcy to defraud your investors, but as @angersock points out quite humourously, there are people who make their money just on the inside of "perfectly legal". Look at some of the more creative use of the bankruptcy code at Onlive.

And since there are millions, perhaps billions of dollars worth of company at play here, the top people in this game get involved. And that is what makes it interesting. Sadly much of it won't happen in public because they are private companies.

Re: Dizzying Ride May Be Ending for Startups

#105

Post by jegutman »

hvs wrote: post #14

For those of you too young to remember, there were numerous articles written about the bubble bursting before it finally did in 2000-01. It wasn't a surprise that it did, just that no one knew precisely when it would. My point is that arguing that people have said this bubble was about to burst and that it hasn't yet isn't an argument that it won't.

Strongly, strongly, strongly disagree with this description. This is a completely unfalsifiable definition of a bubble.

On December 5, 1996 Alan Greenspan first uttered the phrase "irrational exuberance". Some people amazingly credit him with "calling the bubble" for this statement. The Nasdaq 100 closed at 835.80 that day, the lowest price the Nasdaq 100 has closed once the bubble "crashed" was at 804.64 on October 7, 2002.

This is the problem with "bubble watchers". Yes, it's possible for prices to get too high and for companies to trade at too high of valuations (or so it seems) and late 1990s had plenty of that. However, many people are constantly calling bubbles, people were calling the S&P 500 a bubble in this current rally back at 1200 and 1300. Could it go back down? Certainly, but that doesn't make the people calling it a bubble at 1200 correct if it drops from 2100 to 1800.

One of my favorite jokes about the subject: Bubble watchers have correctly predicted 9 of the last 2 bubbles.

Btw, for those interested in a sane economist talking about bubbles I highly highly recommend Scott Sumner. Here's a good old post of his on the subject:

http://www.themoneyillusion.com/?p=8063

Re: Dizzying Ride May Be Ending for Startups

#106

Post by colechristensen »

creamyhorror wrote: post #70
hvs wrote: post #14

For those of you too young to remember, there were numerous articles written about the bubble bursting before it finally did in 2000-01. It wasn't a surprise that it did, just that no one knew precisely when it would. My point is that arguing that people have said this bubble was about to burst and that it hasn't yet isn't an argument that it won't.

"Unicorns Dropping Like Flies: First Dropbox; Then Square; Now Fidelity Cuts Snapchat Valuation By 25%" - Zero Hedge https://news.ycombinator.com/item?id=10546947 * Dropbox was warned by its investment bankers that it would be unable to go public at a valuation anywhere near close to what its last private round (which had most recently risen to $10 billion from $4 billion a year ago) valued it at. * Square, last priv…

Isn't there a growing murmur that these "private valuations" are in some ways imaginary as when you look at the terms of many rounds of funding you find deals which are less like equity and more like debt?

Re: Dizzying Ride May Be Ending for Startups

#107

Post by jacquesm »

ChuckMcM wrote: post #104
jacquesm wrote: post #82

Earlier quoted context omitted.

As long as you still own DroppedBox, no problem. But if you divest DroppedBox you'd better hope there isn't any dispute once that chapter 7 hits about the price you made for it and/or any ties of investors and or principals from 'DropBox' with those of 'DroppedBox'. Really, bankruptcy fraud is nothing to joke about, it is a very common trick to try to remove assets from a company that is on the skids but it usually d…

I completely agree with you that using bankruptcy to defraud your investors, but as @angersock points out quite humourously, there are people who make their money just on the inside of "perfectly legal". Look at some of the more creative use of the bankruptcy code at Onlive. And since there are millions, perhaps billions of dollars worth of company at play here, the top people in this game get involved. And that is w…

There are even tons of people that make money just outside of perfectly legal and lots of them well into illegal! That doesn't make any of that ok though and you're definitely inviting scrutiny with such actions.

It is definitely interesting but as someone who helped someone else deal with the fall-out from a bankruptcy where the management made use of these 'technicalities' to defraud creditors I can tell you that in some cases it can end very bad for the people pulling those tricks.

In that case the sale of assets happened months before the bankruptcy but the fact that they could have reasonably known it was coming was all it took to get a judge to nail them to a tree. I'm pretty sure that if there are billions at stake that the 'smartest boys in the room' will have a trick or two up their sleeve that they can defend is entirely legal (even if at least morally bankrupt) but even being that smart doesn't always work out well and people end in jail.

Re: Dizzying Ride May Be Ending for Startups

#109

Post by austenallred »

zzalpha wrote: post #98
austenallred wrote: post #91

Earlier quoted context omitted.

> Companies that, by and large, struggle to break even without telling a compelling story for how they'll monetize (let alone achieve or retain) that huge projected subscriber base. The companies we're talking about in this discussion, late-stage (Series D and on) startups, already have a large and quickly growing user base. And, yes, most of them have real revenue. There are, of course, some that don't. Take Snapcha…

Everyone worried about whether or not Facebook would ever be able to monetize, but it brought in $4 Billion in revenue last quarter. Last quarter! So let's do a little math. From this: http://www.forbes.com/sites/kathleenchaykowski/2015/04/22/fa... We see 1.44 billion monthly active users. That translates to about $12 a year per user. Think about that. Now think about the potential growth curve. And you're telling me…

> We see 1.44 billion monthly active users. That translates to about $12 a year per user.

No, the $4 Billion in revenue was last quarter. In other words $48/user annually, not to mention the huge growth of even that number. That's why its market cap is ~$300 Billion.

> Twitter can't break even. They report 320MM monthly active users which means they're pulling in about $7 per user per year in revenues, less than Facebook, and with a growth curve that's even more alarming.

Twitter could fire 90% of its staff today and keep bringing in that same amount of revenue, being wildly profitable. But it doesn't because it's still trying to grow quickly. It also just barely started turning on revenue.

You're actually the one thinking about this the wrong way. Profit alone is just a bad way to value quickly growing companies, as it never carries all of the nuance (see Amazon - http://a16z.com/2014/09/05/why-amazon-has-no-profits-and-why...).

You're also not appreciating the growth. There's a reason PG says "startups = growth"; because growing 25% month over month compounds and gets really big really fast.

> And, mark my words, in 5 years [uber] will be shut down by regulators and class action lawsuits as folks realize they're making $10B a year on the backs of illegal contract workers.

In most cities they're not "illegal contract workers" even today. I'd bet good money that in 5 years few, if any cities, would call Uber drivers "illegal contract workers."

Re: Dizzying Ride May Be Ending for Startups

#110

Post by tmaly »

bredren wrote: post #100
tmaly wrote: post #18

I was doing a paid internship at Intel in 1999 out in Portland, OR. I remember seeing huge numbers of new hires every week. I met people out in Portland that were hired to due VB programming with no programming experience. A few months later, the music stopped and there were too few chairs to go around. I always think of the Austrian business cycle when I see such huge upswings in things

I was also at Intel in Hillsboro on a paid internship at this time. I recall a ton of projects across so many areas, with loose management. There was a guy in a QA group I worked in who just day traded.

I was in the Product Development Group working on the Itanium chipset at the time. I remember an older Engineer in the group that had written his own stock trading book. He only lost a dollar per share when the market went from 72 to 18
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