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VCs are scared when they should be greedy

blog.aaronkharris.com

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Re: VCs are scared when they should be greedy

#101

Post by lurkervizzle »

gumby wrote: post #67
MegaButts wrote: post #3

> In contrast with the scenario in 2000, most of today’s tech companies are real businesses. How many of today's startups are just servicing each other with VC money? This isn't meant to be flippant - I'm genuinely curious (and while I bet it's a lot, I am skeptical it is overwhelming). I mean if we really look at some of the business models for these companies, they're clearly unsustainable. Uber is a prime example…

> How many of today's startups are just servicing each other with VC money? IMHO this is mostly the a phenomenon of the SAAS/platform space. Those practices don’t really apply to more traditional businesses (including high tech ones). But you made me think of something else: this phenomenon was definitely booming in the 2000 crash, when net-related hardware companies were underwriting their own sales, which ended qui…

Specific anecdote - SaaS companies selling to other SaaS companies is going to cause a mini-winter in that sector. My company (which we thankfully sold last year :praise) had several (though not exclusively) high-growth tech companies as customers.

Now, when I look at layoff announcements, I see a lot of our former customers. Additionally, with budget freezes (driven by VC RIP decks), these same companies aren't buying new software for a while, even if they would benefit from it. And many tools now are priced based on headcount. So it's sort of the perfect storm - valuation resets so you have to go a lot farther with your current funding, reduced retention revenue because your customers are paying for fewer seats and harder sales because of budget freezes. Ick.

Re: VCs are scared when they should be greedy

#103

Post by ffggvv »

gumby wrote: post #61

> Most of that advice focuses on how founders need to adjust to survive the deteriorating conditions—cutting cash burn by firing underperforming employees, slowing hiring… Makes me wonder what kind of “advice” they were giving before: you should be replacing underperforming employees at any stage of a business cycle.

tell that to fang companies. some fire less than 2% of the work force.

Re: VCs are scared when they should be greedy

#104

Post by gumby »

upupandup wrote: post #81
gumby wrote: post #67

Earlier quoted context omitted.

> How many of today's startups are just servicing each other with VC money? IMHO this is mostly the a phenomenon of the SAAS/platform space. Those practices don’t really apply to more traditional businesses (including high tech ones). But you made me think of something else: this phenomenon was definitely booming in the 2000 crash, when net-related hardware companies were underwriting their own sales, which ended qui…

Isn't this what YC does essentially? YC backed SaaS companies buy each others products, write favorable case studies and use that to convince other enterprises to buy in, and to IPO quickly they raise lot of money to have the market share that commands the multi billion valuations with insane revenue multiples? Seems like this model is beginning to fail, most YC backed IPOs are now trading in deep red. ex) coinbase e…

Yes, at least in the startup SaaS space. As lurkervizzle put it, it's a kind of ponzi scheme, though in that case I think the "victims" are investors. And mostly the seed investors, less the LPs and GPs of the VC firms.

Re: VCs are scared when they should be greedy

#105

Post by ceeplusplus »

roughly wrote: post #73
missedthecue wrote: post #32

Earlier quoted context omitted.

Boy, this is an evergreen narrative on HN, but I don't really think it's true. The total all-in cost of a Prius (depreciation, maintenance, gasoline, etc...) is about 30 cents per mile. Uber drivers make about $1-$2 per mile which is a pretty big margin. Uber has been around for over 10 years now. Sure, not everyone is an accountant, but if Uber drained every driver's wallet, they'd have noticed by now. Interesting t…

> The total all-in cost of a Prius (depreciation, maintenance, gasoline, etc...) is about 30 cents per mile One thing to note about Uber drivers is they’re typically putting 50-75k+ miles per year on their cars. I’m curious what that does to those depreciation/etc figures.

If you assume 25k MSRP on a base model Prius, and that the car will sell for $5k after 150k miles (absolute garbage offer - an actual number would be something like $10k-12k in today's market), then you get a worst case depreciation of 13 cents/mile. Let's say a Prius gets 45 mpg, gas costs $5/gal which gives you 11 cents/mile. Factor in tires and oil/brake fluid changes and maybe you get another $2k all in costs over the 150k miles, which is 1.3 cents/mile.

All in costs around 30 cents seems right. That assumes absolute worst case depreciation too. And don't forget, the government lets you deduct 58 cents/mile off your taxes, so you actually make a profit off every mile driven.

Re: VCs are scared when they should be greedy

#106

Post by gumby »

ffggvv wrote: post #103
gumby wrote: post #61

> Most of that advice focuses on how founders need to adjust to survive the deteriorating conditions—cutting cash burn by firing underperforming employees, slowing hiring… Makes me wonder what kind of “advice” they were giving before: you should be replacing underperforming employees at any stage of a business cycle.

tell that to fang companies. some fire less than 2% of the work force.

Startups can't afford to be like that. Those huge companies have a lot of fat so can get away with being slack, which is also why a company like Google can drift around in such an indifferent and aimless manner for over a decade.

BTW the "N" has long had a "fire early" philosophy, and so it will be interesting to see how their current troubles play out.

Re: VCs are scared when they should be greedy

#107

Post by xisthesqrtof9 »

kbuchanan wrote: post #50

This post reminded me a little of my real estate agent's newsletter: 2007: There's never been a better time to buy! 2008: There's never been a better time to buy! 2012: There's never been a better time to buy! 2020: There's never been a better time to buy! 2022: There's never been a better time to buy!

Easy to fuel the fire when you have unlimited wood to burn.

Re: VCs are scared when they should be greedy

#108

Post by Bubble_Pop_22 »

jacquesm wrote: post #43
seibelj wrote: post #4

Earlier quoted context omitted.

Yeah I was super confused by this. VCs generally don’t have all the money ready to invest. They may have raised a $300 mil fund but they don’t get that money until they call it in. If the LP says “no deals for 6 months” that’s how it is.

As an LP in a large fund: that's definitely not how it is. As an LP you pre-commit to a certain level, and when the capital call comes you perform or you will be found to be in default when a whole pile of clauses kicks in that you really do not want to have to deal with. You will have to have an extremely good reason (such as being already bankrupt) to be able to avoid a capital call that you have committed to.

There are LPs and LPs.

The LPs which the user above refers to are the APGs, the PFZWs type.

Re: VCs are scared when they should be greedy

#109

Post by chromaton »

excitom wrote: post #51
blakesterz wrote: post #7

Earlier quoted context omitted.

I was there in 2000, and we all thought those tech companies were real businesses! Most of today’s tech companies don't really look all that much different.

pets.com, webvan, drkoop, kozmo, garden.com ... ah, the memories.

A lot of them were just early.

pets.com => Chewy. Also PetSmart operates the pets.com domain now apparently.

webvan => Amazon Fresh, Instacart

kozmo => DoorDash, Uber Eats, etc.

Re: VCs are scared when they should be greedy

#110

Post by jacquesm »

Bubble_Pop_22 wrote: post #108
jacquesm wrote: post #43

Earlier quoted context omitted.

As an LP in a large fund: that's definitely not how it is. As an LP you pre-commit to a certain level, and when the capital call comes you perform or you will be found to be in default when a whole pile of clauses kicks in that you really do not want to have to deal with. You will have to have an extremely good reason (such as being already bankrupt) to be able to avoid a capital call that you have committed to.

There are LPs and LPs. The LPs which the user above refers to are the APGs, the PFZWs type.

Show me a contract where an LP gets to renege penalty free on their obligations to a VC and I'll be happy to believe you.

I have been part of 222 VC/PE deals to date (that's not a typo, just a coincidence) and not once has an LP reneged on their obligation to honor a capital call without penalty. That's not saying it doesn't happen, it may well happen, or it may have happened and it was kept so quiet that nobody picked up on it (which is somewhat believable, because it would reflect very badly on the fund).

Just to give you one example: a VC enters into a deal, signs a non-binding terms sheet conditional on doing DD, goes through a full DD and then has to back out of the deal because a large LP does not honor their commitment. The fall out from that would be massive.

What is far more likely to happen is that a VC can't find a good way to spend the funds committed capital. In that case there might be extensions of the funds run or they might end up simply not calling up the available capital. This I've seen a couple of times. But an LP that refuses a capital call I've yet to see. I've even seen an estate that was held to perform when an LP ended up with the very best reason for non-performance of all.

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