Valley VCs Sit on Cash, Forcing Startups to Dial Back Ambition
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Re: Valley VCs Sit on Cash, Forcing Startups to Dial Back Ambition
#2In theory this won't affect the decision making process of top-tier VCs. A good invesment is a good investment regardless of the prevailing funding climate.
In practice, I'm guessing if the LPs get cold feet, then VCs will be forced to triage their funding decisions accordingly. How much this matters given the sheer size of some funds, I'm not sure.
Re: Valley VCs Sit on Cash, Forcing Startups to Dial Back Ambition
#3It'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?
Re: Valley VCs Sit on Cash, Forcing Startups to Dial Back Ambition
#4Investors market. Tighter conditions, preferences, ratchets.
Re: Valley VCs Sit on Cash, Forcing Startups to Dial Back Ambition
#5It'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?
Many of these businesses may make better sense as "non-profits", out to improve the welfare of the general community and funded purely by donations. I'm not sure whether donors would appreciate writing fat checks for programmers/managers/etc., but it's clear that a "hockey stick" growth could lead to a immediate path to monetization (if people know your name, you can capitalize on it when you're doing fundraising drives).
Re: Valley VCs Sit on Cash, Forcing Startups to Dial Back Ambition
#6> Valley VCs Sit on Cash, Forcing Startups to Dial Back Bullshit
FTFY
Re: Valley VCs Sit on Cash, Forcing Startups to Dial Back Ambition
#7I'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 more.
Re: Valley VCs Sit on Cash, Forcing Startups to Dial Back Ambition
#8In theory this won't affect the decision making process of top-tier VCs. A good invesment is a good investment regardless of the prevailing funding climate. In practice, I'm guessing if the LPs get cold feet, then VCs will be forced to triage their funding decisions accordingly. How much this matters given the sheer size of some funds, I'm not sure.
Agreed -> a good investment is a good investment regardless. The best startups often have raised in the worst of times.
Re: Valley VCs Sit on Cash, Forcing Startups to Dial Back Ambition
#9It'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?
It's a reasonable question, but consider three things:
One, part of the VC model is relatively frequent fundraising. You take some seed money, prove the model a bit, take an A round, prove it some more, etc. It's in nobody's interest to give all the money necessary to get to break-even at once; investors would rather make smaller bets, and founders want to sell as little equity as possible when uncertainty is high.
Two, if your goal is to never actually need another round of funding, then you'll be very conservative in how you spend your money. Bolder competitors will spend money with the expectation of getting more soon, allowing them to outpace you. So there's a strong incentive to spend as fast as possible, trusting that you'll get good enough results to earn the next round of investment.
Three, there are many interesting businesses that are only possible with huge investments. In the Internet world, Twitter and Facebook are good examples. Most ad-supported businesses really only work at scale; ditto network-effect businesses. For physical goods, Tesla's a good example: you have to sell a lot of cars to justify building a factory. Pharma, too; your second pill might cost $1 to produce, but that first pill can cost $2 billion.
I agree there's a lot of entitlement in the industry, but I think some of it's reasonable here, in that when you talk to a VC firm, they'll sing you a great song about how they are there to support you, that they'll back you all the way, etc, etc. People who haven't experience a downturn can be genuinely shocked at how fast supposedly bold, independent investors suddenly all stampede in the same direction.
Re: Valley VCs Sit on Cash, Forcing Startups to Dial Back Ambition
#10Investors market. Tighter conditions, preferences, ratchets.
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