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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

#131

Post by spoonjim »

lurkervizzle wrote: post #94
upupandup wrote: post #81

Earlier quoted context omitted.

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…

100% this - a good chunk of initial traction for YC companies is other YC companies - which is great in some ways to bootstrap initial growth/credibility, but the uncharitable view is that it's a Ponzi scheme in a way.

Whether or not it's a Ponzi depends on whether there's any path to get normal profitable businesses to buy the software.

Re: VCs are scared when they should be greedy

#132

Post by closewith »

gumby wrote: post #72
throwk8s wrote: post #27

Earlier quoted context omitted.

> If your unit economics don't work then you're fucked... From the company's perspective that's certainly true. As a regular person I'm more worried about the companies whose unit economics work too well. Companies like Amazon have so much momentum that it seems like they could go on indefinitely, instead of eventually failing and making room for new entrants. Companies whose unit economics don't work transfer wealth…

> Companies whose unit economics don't work transfer wealth from investors to customers, then get out of the way. Not always. Consider the rash of subsidized “we’ll pick up your dry cleaning and then save by doing the work at a centralized facility elsewhere). These parasites wiped out the network of local dry cleaners, in particular in SF. You could say, well, they wiped out the buggy whip makers. But actually they…

> Consider the rash of subsidized “we’ll pick up your dry cleaning and then save by doing the work at a centralized facility elsewhere).

Is that not the default business model of dry cleaners globally?

Chemicals like PERC are nearly completely banned in residential/commercial zones. Almost all dry cleaning in the developed world is done in centralised depots in industrial areas, for health & safety reasons.

Re: VCs are scared when they should be greedy

#133

Post by spoonjim »

seibelj wrote: post #4
thdxr wrote: post #2

while I agree with the general premise (majority of VCs are not good investors) it's important to remember the money they raised isn't sitting in a bank account. It's likely still in the LPs stock portfolio, doing a capital call when everyone is down a lot can be tricky. You need to sell the investment more even though they agreed to give you the money when you asked

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.

No, that's not how it is. If the LP doesn't pay their capital call they go into default and the returns on all the money they've invested so far can be taken away. The only LPs who default on the capital call are individual investors who are flat out broke. They will of course default on their capital call before their mortgage.

Re: VCs are scared when they should be greedy

#134

Post by skeeter2020 »

The narative here seem disengenious, framing everything as one extreme to another:

Then came the coronavirus-related market shock of 2020...everyone assumed the absolute worst...then everything ... went nuts... around the beginning of this year, when it all ground down to a halt.

I don't doubt you can find (many) examples to support this, and yes, the themes are along these lines, but this is not the absolute reality in many industries, geographies and companies. If companies that have been hit hard are still able to raise, though maybe it's more painful.

My take-aways are:

* This is not the end of the world

* Poor fundamentals will be recognized and punished (finally) but only for a while

* There are some really good deals out there

Re: VCs are scared when they should be greedy

#135

Post by MatthiasPortzel »

gumby wrote: post #72
throwk8s wrote: post #27

Earlier quoted context omitted.

> If your unit economics don't work then you're fucked... From the company's perspective that's certainly true. As a regular person I'm more worried about the companies whose unit economics work too well. Companies like Amazon have so much momentum that it seems like they could go on indefinitely, instead of eventually failing and making room for new entrants. Companies whose unit economics don't work transfer wealth…

> Companies whose unit economics don't work transfer wealth from investors to customers, then get out of the way. Not always. Consider the rash of subsidized “we’ll pick up your dry cleaning and then save by doing the work at a centralized facility elsewhere). These parasites wiped out the network of local dry cleaners, in particular in SF. You could say, well, they wiped out the buggy whip makers. But actually they…

This is the pessimistic view of Uber. If Uber was just subsidizing car rides, that would be fine. But since they’re dominating the industry in an unsustainable way, they’re hurting public and private transportation infrastructure. Cities aren’t investing in trains or buses because of Uber, but if Uber goes under, we’re going to be out of luck.

Re: VCs are scared when they should be greedy

#136

Post by grandmczeb »

gumby wrote: post #72
throwk8s wrote: post #27

Earlier quoted context omitted.

> If your unit economics don't work then you're fucked... From the company's perspective that's certainly true. As a regular person I'm more worried about the companies whose unit economics work too well. Companies like Amazon have so much momentum that it seems like they could go on indefinitely, instead of eventually failing and making room for new entrants. Companies whose unit economics don't work transfer wealth…

> Companies whose unit economics don't work transfer wealth from investors to customers, then get out of the way. Not always. Consider the rash of subsidized “we’ll pick up your dry cleaning and then save by doing the work at a centralized facility elsewhere). These parasites wiped out the network of local dry cleaners, in particular in SF. You could say, well, they wiped out the buggy whip makers. But actually they…

> These parasites wiped out the network of local dry cleaners, in particular in SF.

Huh? I’ve never had an issue finding a dry cleaning shop in SF and there’s tons that pop on Google maps - hardly seems like a dry cleaning “desert”.

Re: VCs are scared when they should be greedy

#137

Post by closewith »

ceeplusplus wrote: post #99
georgeecollins wrote: post #25

Earlier quoted context omitted.

>> Lyft and Uber are both very near profitability As they have been for over a decade. Just not actually GAAP profitable, except maybe a one off sale to DiDi. >> Established markets have been profitable for a while. So what market is Uber not established in? Are they pouring their oceans of profit from New York, Los Angeles and London into building a business in La Paz? I am sure they are trying to grow in places but…

Uber's net GAAP loss, excluding losses from investments in DiDi and other companies, is around 300m last quarter [1] which is a ~1% loss on their gross bookings. Most of that is stock based comp. Their FCF loss was only 47m last quarter. I know HN likes to hate on Uber and other gig apps but a 1% margin is something they can easily make up given their stated take rate on mobility and delivery is around 20%. > So what…

> (for airlines, this is credit card points)

In the United States, maybe, the only market where credit card points are meaningful?

Re: VCs are scared when they should be greedy

#138

Post by lurkervizzle »

potatolicious wrote: post #124
lurkervizzle wrote: post #94

Earlier quoted context omitted.

100% this - a good chunk of initial traction for YC companies is other YC companies - which is great in some ways to bootstrap initial growth/credibility, but the uncharitable view is that it's a Ponzi scheme in a way.

I think Ponzi is an overstatement, though I agree with the general sentiment. There's in principle nothing wrong with clusters of companies that are inter-dependent on selling stuff to each other. Car parts manufacturers live and die by the big car companies - and to some degree vice versa - but we would hesitate to call that a Ponzi scheme. The key is whether or not this clustered ecosystem is bringing in money from…

100% and legitimately have nothing but respect for YC. Ponzi is definitely an overstatement which I used to make the point that in-network traction is potentially a risky signal of product-market-fit which was obfuscated when everyone was being rewarded with gobs of money for early 0->$1M traction.

Re: VCs are scared when they should be greedy

#139

Post by cpursley »

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…

100% - when interest rates are over 5% and/or gas is over $5, the delivery startups are toast. The economics just don't work. Especially when people start cutting back on conveniences.

Re: VCs are scared when they should be greedy

#140

Post by reissbaker »

skippyboxedhero wrote: post #49
drchopchop wrote: post #41

Earlier quoted context omitted.

I'd disagree re: Figma and Notion. These are very sticky, best-in-class tools which have a lot of use outside of "VC-land". Figma is becoming the de-facto way to share designs across the internet. Notion has a good shot at becoming the internet's default business wiki, killing Confluence.

But the problem isn't the product. That is the mistake that people make when they say it is nothing like 2000. The problem is: way too many staff, not enough revenue, no route to profit. It doesn't matter if you have a "best-in-class" tool...where is the money coming from, how are you making payroll next month with no VCs. The main problem with tech companies isn't the products, the products are fine. The issue is th…

Notion is already profitable and has been for many years.
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