Could VC be a Casualty of the Recession? • Hacker News Board

Re: Could VC be a Casualty of the Recession?

#51

Post by calambrac » Fri, Dec 05, 2008, 6:53 AM UTC

pg wrote: post #42

calambrac wrote: post #13

Earlier quoted context omitted.

Why would you want later stage investors to drop out? You have early, cheap equity; don't later stage investors reset the valuation and give you a shot at cashing out if you want? (I really don't know, I'm actually asking).

The valuation goes up between us and a series A round, but in a successful startup it should go up much more afterward.

How many companies that get a series A round end up being successful? It seems like having that opportunity to decide if you agree that the company will keep growing or that you've made enough and would rather reinvest in the next round of startups would be nice to have.

Re: Could VC be a Casualty of the Recession?

#52

Post by aneesh » Fri, Dec 05, 2008, 6:56 AM UTC

pg wrote: post #46

aneesh wrote: post #29

"we got a record number, up 40% from the same cycle a year before." I agreed with much of this article, but not that line. A lot more people have heard of YCombinator since a year ago, so all else equal, you'd expect applications to rise over that period. So comparing the number of apps with the corresponding value from a year ago isn't a fair comparison. Indeed, looking at http://siteanalytics.compete.com/ycombinato…

Perhaps I should have added that 40% was more than applications usually go up year to year. I'm pretty sure, based on conversations with founders, that this spike in applications wasn't due to people learning of our existence for the first time. Most people we interviewed seemed to have known about us for a while. I don't think application numbers are much correlated with News.YC traffic either. I think most people w…

Ah, okay. That does make it interesting.

The interviewees might be a biased sample of applicants, though. I guess you could get some insight into that by looking at data on the age distribution of the the accounts that applied, and comparing that to previous cycles. But I suppose you have better things to do :)

Re: Could VC be a Casualty of the Recession?

#53

Post by gruseom » Fri, Dec 05, 2008, 6:56 AM UTC

drwh0 wrote: post #38

gruseom wrote: post #10

Earlier quoted context omitted.

If there's any truth to pg's claim that the paradigm is shifting and that talented people are increasingly likely to start their own thing than go work for a boss (and personally, I believe there is), then one would expect just the opposite of what you assume: more wealth should be created this way in the next 5 years than in the previous 5, because more value will be. And the productivity delta between startups and…

If there's any truth to pg's claim that the paradigm is shifting and that talented people are increasingly likely to start their own thing than go work for a boss (and personally, I believe there is) no there isn't. come back in five years, the top ten internet companies will control 95% of all traffic and 99% of all revenues. this market has almost zero friction...how is it that google has already sewn up over 80% o…

I don't get this argument. Assign the top ten companies as high a percentage of whatever as you like: it won't prevent people from seizing opportunity to create value at a higher rate than large organizations are able to do. The point is that the two barriers that largely prevented talented people from doing so in the past - cost of entry and cultural beliefs - don't hold sway anymore.

The fact that some markets have matured and been commoditized hardly implies that there is no new value to be created.

Re: Could VC be a Casualty of the Recession?

#54

Post by snewe » Fri, Dec 05, 2008, 7:06 AM UTC

The conclusions really applies to VC for IT, not so much Biotech or clean energy.

Re: Could VC be a Casualty of the Recession?

#55

Post by netcan » Fri, Dec 05, 2008, 7:12 AM UTC

bokonist wrote: post #24

I think pg's right in regards to web startups. The only role I see for VC is in scaling sales and marketing. If you get your business to a point where you can spend $10 million on sales and marketing and turn it into $30 million, then taking VC makes a lot of sense. It gives you a lot of extra leverage. I do hope VC thrives in other sectors - clean energy, hardware, automobiles, biotech - etc. If Kleiners-Perkins can…

That's a fundamentally different kind of investor.

Re: Could VC be a Casualty of the Recession?

#56

Post by prakash » Fri, Dec 05, 2008, 7:12 AM UTC

The current generation of founders want to raise money from VCs, and Sequoia specifically, because Larry and Sergey took money from VCs, and Sequoia specifically.

Excluding YC and the likes, I would have thought, by now, a lot of startups would want to raise money from angels that have formerly started startups -- there are tons of them around. That would be the #1 choice.

#2 choice would be the Founders Fund, Union Square Ventures, First Round Capital, Atomico, Ambient Sound Investments and the like.

Failing these, the #3 would be the Sequoia's, KPCB, Khosla Ventures, Benchmark, Accel's, Menlo's of the world.

What do folks on HN think?

Re: Could VC be a Casualty of the Recession?

#57

Post by mattmaroon » Fri, Dec 05, 2008, 7:14 AM UTC

"The reason startups no longer depend so much on VCs is one that everyone in the startup business knows by now: it has gotten much cheaper to start a startup. "

Maybe I'm biased because I was in YC and it was mostly first-timers, but most of us don't even remember a time when it was a lot pricier.

Re: Could VC be a Casualty of the Recession?

#58

Post by brianr » Fri, Dec 05, 2008, 7:31 AM UTC

tc wrote: post #12

Wealth is created when people take existing resources and transform them into something of higher value. Money is simply one very liquid type of input that a creative entrepreneur can use to create wealth. If the marginal value of more investor capital to web entrepreneurs falls below the cost of acquiring and managing investors, then predictably web entrepreneurs will stop seeking capital. A more interesting insight…

It's worth noting that Kleiner Perkins, as one data point, got out of the web startup business some time ago

That may be their PR, but they're very much still investing in web startups. Here's a list of their investments: http://www.crunchbase.com/financial-organization/kleiner-per...

Re: Could VC be a Casualty of the Recession?

#59

Post by bryc3 » Fri, Dec 05, 2008, 7:33 AM UTC

Great post Paul. One thing to highlight is that traditional VCs, historically, don't make "venture level" returns in efficient markets.

Your examples highlight the cash efficiencies of early stage software/web based businesses from which VCs have been making a fairly vocal move away from for years. Similarly scaled efficiencies aren't yet being recognized in clean tech, new materials, networking hardware, semiconductors, pharmaceuticals and many many categories.

As for web and software, I think the lesson many firms are beginning to apply from this last wave is that there's an inflection point a company hits where its been sufficiently derisked and is poised to scale at which time the VC is more than happy to dip into their large funds and "pay up" in terms of valuations. Its what they did with Google and Facebook (among others). I think it will create a more bifurcated web/software venture environment than we have today but I don't see that as the death knell for the broader venture industry. Certainly a great opportunity for seed funds like yours and ours...bryce@oatv

Re: Could VC be a Casualty of the Recession?

#60

Post by DaniFong » Fri, Dec 05, 2008, 7:44 AM UTC

drwh0 wrote: post #34

wheels wrote: post #25

Earlier quoted context omitted.

Biotech, greentech and embedded systems are a few areas that look poised to keep growing and need a more significant amount of capitalization to get off of the ground.

but greentech will require more funding per instance than any VC firm will be able or willing to put up. show me the VC firm that is going to put over $1 billion into any single investment...when it comes to nuclear or hydrogen, a billion might only bootstrap the company. these industries are going to need massive amounts of funding. only one entity can do it - uncle sam, DARPA and the DOE

There are probably in thousands of potential greentech companies that could achieve profitability on 10 - 100 million. Probably the best example here is solar, as many companies already have achieved profitability, but there are tons of opportunities in fuels, materials, building technology, vehicle technology, water supply, agriculture, construction, data centers, refrigeration, industrial processes, road construction, and so on. There might exist companies you'd need to pump a billion into, but why attempt it?