Valley VCs Sit on Cash, Forcing Startups to Dial Back Ambition • Hacker News Board

Re: Valley VCs Sit on Cash, Forcing Startups to Dial Back Ambition

#131

Post by jacquesm » Fri, Mar 11, 2016, 10:31 AM UTC

mindcrime wrote: post #19

delecti wrote: post #3

It's really weird how this article tries to frame the situation. It's almost like the startups feel entitled to the funding. The point of funding should really be to enable faster growth than they might otherwise have been able to achieve, but if a business can't at least survive without huge influxes of investments then is it really a business that they should be investing in in the first place?

Here's the somewhat ironic "catch 22" to the whole thing: If you're a startup and you don't take VC funding, then you have the luxury of simply enjoying organic growth and funding expansion by re-investing profits into the company. Well, as long as you can do that in the face of competitive pressure. Strictly speaking, unless it's a "network effect" situation like a social network, you probably don't need to grow fas…

And, unless your competitor takes VC money. If they do you'll be left in the dust other things being equal, the founders of that company will end up owning a smaller chunk of a much larger pile. It's an arms race and if that happens the only thing that will help you is if your competitor eventually does not make it or can't scale to the point where they can make the kind of money that made them make that bet in the first place.

Re: Valley VCs Sit on Cash, Forcing Startups to Dial Back Ambition

#132

Post by patmcguire » Fri, Mar 11, 2016, 6:28 PM UTC

tdaltonc wrote: post #109

patmcguire wrote: post #66

Earlier quoted context omitted.

Macro-scale deflationary spirals happen in real economies, it's definitely a thing that can happen for investment in an industry. If there's a general belief that VCs can get more for less tomorrow, they'll wait, at which point they can probably get more for less the next day... Also, don't forget the money's all locked up for multiple years.

True. And the textbook solution for a deflationary spiral is to increase inflation. VC's have to raise rounds that run for finite periods of time. At the end of the time the have to return the money with their big returns. That means that the money is like grain rotting in a granary. There is a looming data at which all of the money becomes useless the the VC's. That's one hell of an inflation rate. It would be hard…

That's interesting, I hadn't thought of the funds being inflationary pressure. I don't know quite how to model that, in a totally rational world it's something like:

expectation of yield within x-1 years for investments in year y+1 over expectation of yield within x years for investments year y

And that's what portion of value waiting gets you. If the yield in that first year is negative, they're going to wait no matter what. 1x is better than (Although then you get into how VCs get paid, mostly on the upswing... you're probably right. 1x gets no carried interest.

Re: Valley VCs Sit on Cash, Forcing Startups to Dial Back Ambition

#133

Post by justinlardinois » Mon, Mar 14, 2016, 8:55 PM UTC

chetanahuja wrote: post #84

justinlardinois wrote: post #14

Earlier quoted context omitted.

This is amusing accurate. Wayyy too many startups, even YC funded ones, have products that are difficult to profit on, or worse, don't really have a market in the first place. For every "next Uber or Airbnb," there's hundreds of Shutdownifys.

"even YC funded ones" Hah... What makes you think YC funds significantly higher quality of startups overall compared to the general VC industry?

Not all startups are VC funded. I just threw out YC because they're known for having some degree of standards.