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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

#71

Post by givemeethekeys »

lpolovets wrote: post #22

(Context: I'm a VC) Some great points in the post, but I also see a few additional dynamics at play: 1) The last 10 years have been great for VCs and startups, but now VCs are thinking about how to make their funds last longer. Two reasons for this: first, time diversification matters. If you think markets might go down even more, you don't want to deploy the rest of your fund quickly, you want to spread it out over…

As much as VCs and founders hate down rounds - if the public market has dropped in value by 50% for mostly macroeconomic reasons - isn't it fair to then suggest that properties on the private market should be similarly worth less?

We all hate for our homes to be worth 10% less in 2023 compared to 2022, but it is what it is, no?

Re: VCs are scared when they should be greedy

#72

Post by gumby »

throwk8s wrote: post #27
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…

> 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 wiped out the infrastructure and then went bust, leaving a desert (in dry cleaning terms) behind.

Parasite is too kind a word.

Re: VCs are scared when they should be greedy

#73

Post by roughly »

missedthecue wrote: post #32
vkou wrote: post #26

Earlier quoted context omitted.

Driver fees are already so low that between depreciation, gas, and your time, you're barely making ends meet driving. They can't squeeze the drivers any further, unless they only want people to be driving 15-year-old beaters.

Boy, this is an evergreen narrative on HN, but I don't really think it's true. The total all-in cost of a Prius (depreciation, maintenance, gasoline, etc...) is about 30 cents per mile. Uber drivers make about $1-$2 per mile which is a pretty big margin. Uber has been around for over 10 years now. Sure, not everyone is an accountant, but if Uber drained every driver's wallet, they'd have noticed by now. Interesting t…

> The total all-in cost of a Prius (depreciation, maintenance, gasoline, etc...) is about 30 cents per mile

One thing to note about Uber drivers is they’re typically putting 50-75k+ miles per year on their cars. I’m curious what that does to those depreciation/etc figures.

Re: VCs are scared when they should be greedy

#74

Post by christophilus »

throwk8s wrote: post #27
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…

> 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…

It's never happened, though. Buffett likes to say something along the lines of, "I like to invest in businesses that could be successfully run by a monkey, because eventually they will be."

My prediction is that every behemoth of today will be tomorrow's Sears Roebuck, GE, West India Trading Company, etc. At some point, they'll become mired in bureaucracy. Enough incompetence will eventually rise to the top to allow competitors to pounce.

I'd bet on that, if I had to.

That said, I may easily be wrong, and I honestly share your concern about Amazon, Google, Facebook, Apple, etc.

In particular, I want a successful OSS phone competitor to Apple and Google. I don't think something as important as our telecommunication devices should be run by a duopoly. There's no freedom in the phone market the way there is in the PC market, and I'd really like to see that change.

Re: VCs are scared when they should be greedy

#75

Post by gumby »

givemeethekeys wrote: post #71
lpolovets wrote: post #22

(Context: I'm a VC) Some great points in the post, but I also see a few additional dynamics at play: 1) The last 10 years have been great for VCs and startups, but now VCs are thinking about how to make their funds last longer. Two reasons for this: first, time diversification matters. If you think markets might go down even more, you don't want to deploy the rest of your fund quickly, you want to spread it out over…

As much as VCs and founders hate down rounds - if the public market has dropped in value by 50% for mostly macroeconomic reasons - isn't it fair to then suggest that properties on the private market should be similarly worth less? We all hate for our homes to be worth 10% less in 2023 compared to 2022, but it is what it is, no?

The dilution is what makes it so much worse in the venture market than in the public markets.

Re: VCs are scared when they should be greedy

#76

Post by lpolovets »

twoodfin wrote: post #48
lpolovets wrote: post #22

(Context: I'm a VC) Some great points in the post, but I also see a few additional dynamics at play: 1) The last 10 years have been great for VCs and startups, but now VCs are thinking about how to make their funds last longer. Two reasons for this: first, time diversification matters. If you think markets might go down even more, you don't want to deploy the rest of your fund quickly, you want to spread it out over…

2) Most VCs (and founders) hate down rounds. So a lot of existing companies are stuck because they previously raised at $X valuation, and now the market price is $0.75X, and either the VC doesn't want to push for a down round or a founder won't accept it, or both. They discussed this phenomenon at length on a recent Odd Lots podcast, and I can’t understand it as anything but a market inefficiency that some smart VC f…

I agree, I think this is an inefficiency. But it's a tough one to correct because startups are a repeated game, and everyone's worried about upsetting people they'll have to keep playing with.

I think the logic is "I like this company, but if I offer a down round then will I piss off their existing investors? Will those investors stop sharing good investment opportunities with me? ... Ah screw it, I'll just skip this down round and focus on other prospective investments."

I think multi-stage investors are probably best-positioned to address this, since they are both new and existing investors in the companies they back, so they should be able to offer market price down rounds for companies that are still promising but unable to attract external capital.

Re: VCs are scared when they should be greedy

#77

Post by lpolovets »

cynusx wrote: post #56
lpolovets wrote: post #22

(Context: I'm a VC) Some great points in the post, but I also see a few additional dynamics at play: 1) The last 10 years have been great for VCs and startups, but now VCs are thinking about how to make their funds last longer. Two reasons for this: first, time diversification matters. If you think markets might go down even more, you don't want to deploy the rest of your fund quickly, you want to spread it out over…

are these US or EU observations?

US

Re: VCs are scared when they should be greedy

#78

Post by lpolovets »

akharris wrote: post #60
lpolovets wrote: post #22

(Context: I'm a VC) Some great points in the post, but I also see a few additional dynamics at play: 1) The last 10 years have been great for VCs and startups, but now VCs are thinking about how to make their funds last longer. Two reasons for this: first, time diversification matters. If you think markets might go down even more, you don't want to deploy the rest of your fund quickly, you want to spread it out over…

Your second point is the dynamic that makes the least sense to me. In public markets, if a stock is cheaper relative to future earnings, that makes it a better buy. In our corner of the world, the opposite often holds true. There should be a tipping point where greed beats ego, but have not yet figured out how to find it.

I agree. The aversion to down rounds feels mostly psychological and overblown to me.

Re: VCs are scared when they should be greedy

#79

Post by vcfundedmylife »

jcmontx wrote: post #33
vcfundedmylife wrote: post #21

Earlier quoted context omitted.

I agree, crypto and fintech will be the first dominos to fall - they’re in free fall already. There’s a lot of copycat B2B startups that extremely dependent on crypto and fintech for their revenue. They will be the next domino to fall. After that, it would be infrastructure, security, and analytics vendors that will face a revenue crunch and will be unable to raise another round of funding. And then, all the startups…

> the final domino would be currently well funded private companies such as Airtable, Notion, Loom, and possibly even Figma How can you make such claims? These are great products

I don’t deny that they are great products with incredibly talented engineering teams.

All of that doesn’t matter when 90% of your revenue comes from series C startups that will go bust in a year, or switch to cheaper and marginally worse alternatives.

Re: VCs are scared when they should be greedy

#80

Post by vkou »

Jommi wrote: post #54
vkou wrote: post #36

Earlier quoted context omitted.

How many uber drivers are in Priuses? I haven't ridden in a single one... How many people do you personally know that make their living as an Uber driver? I don't mean pensioners making beer money, or people doing it as a side job, here. I know one. He's been doing it for a year and half, or so. He doesn't own his car. he has to lease it on a weekly basis, and he's paying through the nose for the privilege. He's doin…

the first sentence is a terrible take unfortunately, prius one of the most popular taxi and ridehailing cars ever, it's sully arund >50% of car supply in most western cities. As usual, you are conflsting your singular consumer experience of Uber with the global business giant Uber.

Oh, I don't disagree about taxis. Priuses are everywhere in that space, and for good reason. If you are going to make a living driving, you should probably drive one.

I do disagree on Ubers. I see very few Priuses, but there's a different explanation to that, that I missed. Casual drivers, people doing it as a side thing, or for beer money didn't optimize their car purchase for the purpose of driving a taxi. I suppose full-time drivers are more likely to drive one.

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