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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

#51

Post by klochner »

exelius wrote: post #48
paragpatelone wrote: post #31

Earlier quoted context omitted.

There is a bubble at the seed stage. There are tons of people (accredited investors) investing that stage and tons of incubators/accelerators to help introduce those startups to those investors. Platforms like Angel list are helping fund allot more companies at the seed stage by having syndicates. Now even non-accredited investors will be able to invest in startups[1]. So the seed stage is bubbling up. http://www.usn…

It's not really possible for there to be a bubble at the seed stage -- valuations at that stage are "paper" values because there's zero liquidity. Companies also tend not to stay in the seed stage for long enough to cause an asset bubble; they are either able to acquire follow-on funding (at which point they're no longer a "seed" company) or they aren't and they disappear. The seed stage is increasingly crowded, but…

Interesting point re: not staying at the seed stage long enough for a bubble. What we're seeing instead is multiple preferences layered on in subsequent rounds.

So seed/A investors think they're doing well when the company raises B,C,D,E rounds at higher valuations, when in fact many will be washed out when the company eventually IPOs or is acquired at a lower valuation than their last venture round.

Re: Dizzying Ride May Be Ending for Startups

#52

Post by mseebach »

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.

It's also not an argument that it will. I'm not saying it won't, but I find flaw with the argument that because it happened before, it will necessarily happen again, in a substantially similar way. Generals are always preparing to fight the last war.

Something will probably happen, but I don't think it's reasonable to expect that looking at 2000 will teach us much about that something. Silicon Valley is a substantially different place today from what it was during the dot-com years. While not all (few, if any) unicorns are financially healthy in any traditional sense, they all have plausible business plans, ie. ones that involves booking actual revenue from delivering actual services to actual customers for actual money. The dot-com victims almost comically did not. The investors in the valley today are sophisticated and institutional, all weathered through the dot-com bust, not mom-and-pops -- much less sensitive to small bumps and panics, again a very different environment from 2000.

Re: Dizzying Ride May Be Ending for Startups

#53

Post by debacle »

While things might wind up bad for the next round of unicorns, things are likely to be better for startups overall once the trend of "To the moon!" dies down just slightly. Hopefully we can return to a world where an acquisition isn't seen as a failure.

Re: Dizzying Ride May Be Ending for Startups

#54

Post by debacle »

iamsohungry wrote: post #22
jgrahamc wrote: post #9

It's time for a new term: a "Pegasus" (a different kind of mythical horse than a unicorn): https://twitter.com/jgrahamc/status/658702918200250368 Pegasus (n) 1. Mythical winged horse; 2. Silicon Valley 'unicorn' with high gross margin. i.e. one that might actually take off.

God, "unicorn" is already stupid enough.

Fight fire with fire.

Re: Dizzying Ride May Be Ending for Startups

#55

Post by andrewpbrett »

bryanlarsen wrote: post #16
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.

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".

Spelling - it's John Maynard Keynes, not Keanes :)

Re: Dizzying Ride May Be Ending for Startups

#56

Post by andy_ppp »

I actually think the opposite, that we are in a period of history where all the software (and arguably businesses) people use day to day go from being crap to fantastic.

A gold rush for good startups I think.

The returns from sitting the right group of people in a room and getting them to make doing something a few orders of magnitude better than it was before is always going to be fantastic.

Re: Dizzying Ride May Be Ending for Startups

#57

Post by debacle »

sp332 wrote: post #20
jgrahamc wrote: post #9

It's time for a new term: a "Pegasus" (a different kind of mythical horse than a unicorn): https://twitter.com/jgrahamc/status/658702918200250368 Pegasus (n) 1. Mythical winged horse; 2. Silicon Valley 'unicorn' with high gross margin. i.e. one that might actually take off.

A pegasus doesn't have a horn. A flying unicorn is usually called an "alicorn" but also pegacorn, unisus, or unipeg. /pedantic

To be far more pedantic, Pegasus is the name of a single flying horse, it's not the name for horses with wings.

Re: Dizzying Ride May Be Ending for Startups

#59

Post by ChuckMcM »

bcantrill wrote: post #46
spyspy wrote: post #29

Earlier quoted context omitted.

The problem with this type of reasoning is that there are always analysts predicting a bear market. Articles arguing as such come out every day. So it's easy to find an article from the late 90s that said a crash is coming and feel vindicated that that person was right among so many fools. Perhaps that analyst was brilliant and his argument was flawlessly researched, but anyone can build a bubble story over rising P/…

You're misunderstanding the essential point of @hvs's comment: it's not that some people predicted the bust (though that was certainly true), it's that the articles that indicated a bust was coming helped instill a collective sense the boom couldn't last forever. This is very important because it preconditions everyone for the bust -- and when the bust comes, it accelerates stunningly quickly. Having lived through tw…

This is exactly right, bubbles are a sort of "mass hysteria" where everyone in the herd is trying to get the most for themselves. Generally to be successful you need otherwise rational people to put aside reason and to invest in the belief that things are going up. And they do, and you get these things. And when that belief is dispelled, they go elsewhere.

What isn't well spelled out is how people step out of the bubble without losing their shirts. And that is something that is going to make this one interesting. A privately held company is illiquid. So you can't really get out, you just have to sit there and watch your value deflate.

But as Sam pointed out, a lot of these investments are more like debt than equity, they have their liquidation preferences built in, to the really interesting thing will be to see if someone comes up with a creative way to switch all the people and IP from one company to a different company without triggering a "sale".

Let's imagine that DropBox creates a wholly owned subsidiary "DroppedBox" and of course gives it a non-exclusive right to use all of DropBox's IP in perpetuity for no fee (its a subsidiary right?) and then people start transferring into that new organization to work on projects there. And then after nearly everyone is working there, it has its own equipment, staff, etc. DropBox divests itself of its subsidiary and leases back access to the servers and services to support its legacy clients. And then DropBox goes chapter 7, but DroppedBox lives on with all the customers and technology and people of the original and none of the onerous liquidation clauses that made it impossible for them to so public or move freely in the financial markets.

When the bubble has started deflating rapidly, that is the kind of behavior you can expect. Smart people skirting the edge of prudence to avoid being the ones who take the loss.

Re: Dizzying Ride May Be Ending for Startups

#60

Post by code4tee »

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.

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