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

#41

Post by jorgecurio » Thu, Mar 10, 2016, 2:24 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…

> luxury of simply enjoying organic growth and funding expansion by re-investing profits into the company.

That's a GROSS over generalization. It definitely is not rosy, not when your competitors are VC funded and releasing products for free. You can't compete with free and VCs are realizing that maybe there's no money in free products.

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

#42

Post by _delirium » Thu, Mar 10, 2016, 2:26 AM UTC

BinaryIdiot wrote: post #31

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.

Yeah I never understood the idea around "we'll figure out monetization later!". Yeah maybe you will but you're operating a business. Shouldn't you, I don't know, have a good idea or 3 to do that out of the gate? Startup culture is weird sometimes.

A common assumption, which is sometimes even right, is that getting a significant number of users is harder than monetization. Put differently, your startup is most likely to fail (in this view) because it doesn't produce something that anyone wants to use, not even for free. So the main goal up front should be to figure out how to make something people will use, and then figure out how to reach them. Succeeding at that, but then failing to monetize the product, is a real failure mode too, of course. But many VCs are betting that failing to get users at all is the biggest early risk, and that it's easier to solve monetization later (if you ever get users) than it is to work on the monetization plan up front, and then later try to solve the but-we-have-no-users problem.

Part of this makes more sense if you're looking at it from the perspective of a VC betting on 100 companies, than from the perspective of a single company. The funnel they're looking for is: some subset of these companies will get a ton of users (hundreds of thousands, maybe millions), then a subset of those will be wildly profitable.

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

#43

Post by Spooky23 » Thu, Mar 10, 2016, 2:34 AM UTC

oneloop wrote: post #40

freyr wrote: post #22

Earlier quoted context omitted.

> unless it's a "network effect" situation like a social network, you probably don't need to grow fast. Uber seems like a weird example of this. It was said (and remains said) that they're operating in a winner-take-all space, and they expanded as if they were a social network. Despite the aggressive expansion and marketing, a majority of people I know in the Bay Area now use Lyft exculsively. The last few times I've…

Can anyone make a rational argument why uber-type companies are winner takes all?

You tend to coalesce into a few big brands when you sell a commodity with little differentiation.

Also, just as cabs did, über will erect regulatory barriers to entry for smaller players.

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

#44

Post by Johnny555 » Thu, Mar 10, 2016, 2:35 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…

Strictly speaking, unless it's a "network effect" situation like a social network, you probably don't need to grow fast

If you have an easy to copy idea (look at what happened to Sidecar after Uber swooped in), if you don't grow fast, someone else with more money is going to take your idea and run with it. If they grow faster than you, then you'll be squeezed out.

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

#45

Post by leesalminen » Thu, Mar 10, 2016, 2:36 AM UTC

audleman wrote: post #36

erikpukinskis wrote: post #29

Earlier quoted context omitted.

> there is pressure to grow fast, but it comes from the investors and not from the market per-se I don't even think the pressure comes from the investors per-se, it comes from the capital investments you make which necessitated the funding. Excess staff, buildings, tools, etc, all have ongoing costs and also depreciate in value. You are by definition building out excess capacity based on a growths model. If sales don…

I agree that the internal costs are a factor, but I also agree with the original point. I'll share an anecdote of the CEO of my company. We're a 2-year-old startup that hasn't reached profitability yet. We asked when that might happen, and he said we actually don't want to do that. We asked why, and he said that as soon as we start making a profit our investors will immediately start focusing on it. They will ask why…

Oh man, I am glad I don't have any VC-style investors. I've a 2 year old startup and can actually talk to my investors about why we want to experiment.

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

#46

Post by ericd » Thu, Mar 10, 2016, 2:50 AM UTC

wpietri wrote: post #11

pritianka wrote: post #7

I've been in tech only 6 years and I am already bored of these cycles of VCs becoming frenetically exuberant followed by cautious times. Their advice to startups changes depending on what time it is. It's all so predictable yet people are surprised every time. Any entrepreneur building a business factors these in and approaches fund raising based on that knowledge. I don't even know the point of these articles any mo…

> I don't even know the point of these articles any more. How else will the people who have been here less than 6 years get jaded? More usefully, it may be obvious that these things go in cycles, but knowing exactly where we are in the cycle is very valuable to anybody who is thinking about raising money, or who is working at a company that isn't yet self-sufficient.

Yeah, the frequency of these things is a sort of useful barometer for those not in the thick of raising money.

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

#47

Post by technotony » Thu, Mar 10, 2016, 3:09 AM UTC

oneloop wrote: post #40

freyr wrote: post #22

Earlier quoted context omitted.

> unless it's a "network effect" situation like a social network, you probably don't need to grow fast. Uber seems like a weird example of this. It was said (and remains said) that they're operating in a winner-take-all space, and they expanded as if they were a social network. Despite the aggressive expansion and marketing, a majority of people I know in the Bay Area now use Lyft exculsively. The last few times I've…

Can anyone make a rational argument why uber-type companies are winner takes all?

The network effects come from the driver side of the market. If you have all the drivers, then you have the quickest pick-up/most availability which means best passenger experience and then most customers. This in turn means best utilization for drivers, so you get more drivers etc etc etc.

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

#48

Post by [deleted] » Thu, Mar 10, 2016, 3:13 AM UTC

oneloop wrote: post #40

freyr wrote: post #22

Earlier quoted context omitted.

> unless it's a "network effect" situation like a social network, you probably don't need to grow fast. Uber seems like a weird example of this. It was said (and remains said) that they're operating in a winner-take-all space, and they expanded as if they were a social network. Despite the aggressive expansion and marketing, a majority of people I know in the Bay Area now use Lyft exculsively. The last few times I've…

Can anyone make a rational argument why uber-type companies are winner takes all?

[deleted]

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

#49

Post by EGreg » Thu, Mar 10, 2016, 3:17 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…

In many global markets, there is always pressure to grow fast. You can only afford to grow slowly due to the inefficiencies of the market. In the end, the Googles and Baidus of the world now rule search, the Amazons and Alibabas rule shopping, etc. They grew super fast in the beginning, churning programmers even, to get to where they are.

So VCs are like corporations or central banks or other superpowers of financing -- they grant an unfair advantage to whoever they back, to defeat the other guys. Either by offering lower prices (eg free service) until the competitor runs out of money, or R&D to get to the next level of efficiency, patent portfolio, engineering talent, brand etc.

So financing is often necessary to compete in global markets. If you don't take it, you are betting that the market is either not global or not efficient.

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

#50

Post by wott » Thu, Mar 10, 2016, 3:19 AM UTC

audleman wrote: post #39

sjg007 wrote: post #30

Earlier quoted context omitted.

It will sell. It's just the beginning of the IoT revolution.

I took a look and it is very nice, but $1500 for a toaster oven? Holy shit no.

Eh, it is otherwise the same as a $50 oven but this one also burns money!

It takes a 2.5 GHz quad core CPU to produce an awesomely accurate imitation of an analogue iron bell "Ting!", what did you think?