I think it's possible to draw a line between angel/VC with sane valuations and the "unicorn" phenomenon.
The former does not seem to be in a bubble per se, though we have seen a cool down. A "hot" market is not a "bubble" and a cool down is not a "crash." Bubbles are violent and insane and that's not what we've seen in seed/series A.
The latter may well be a bubble.
What I'm hearing about right now is that it's getting a lot harder to raise money in later stages if you don't have great revenue numbers and real revenue growth. Earlier stages have cooled a bit but not catastrophically.
A "hot" market is not a "bubble" and a cool down is not a "crash."
Then instead of a bubble, how about a "Foam?" It occurred to me about a year ago that an "ecosystem" where you had a lot of startup companies serving the needs of other startup companies would be the perfect place for one to pump-up the size and perceived potential of the "ecosystem" in a way which attracts yet more money and increases the perception of further value creation in a positive feedback loop. However, since no one company, no single investment instrument is involved, there is no single perpetrator to blame.
It's exploiting the same social proof dynamics, but in a highly distributed fashion. It's technically and legally not a Ponzi scheme, even though it's powered by the same mechanisms.
So this should probably be the next frontier in the startup world -- preventing or at least mitigating this form of corruption. Or is it just to be adopted as the "startup business cycle" -- justified by the minority of companies that come out of such foam-swells that actually create value?
> justified by the minority of companies that come out of such foam-swells that actually create value?
I think that this is, ultimately, the way that this will either remain or be replaced by something else.
If the foam-swell actually ends up producing value despite all of the other garbage that gets produced, it might very well be better than anything else that we can come up with. In the startup world, more crap is perfectly fine if it leads to more value.
You hit on a major question: how many startup-startups are there? (a.k.a. economic incest)
Things like Product Hunt, Clerky, etc. obviously qualify, but what about Stripe? They started that way but have diversified quite a bit into more stable and traditional businesses.
Lots of startup-startups: hard landing
Not very many: soft landing / minor correction
Economic incest via marketing was a major cause of the 2000-2001 dot.com crash. Many dot.coms had revenue based on selling ads to other dot.coms, so when then bottom started to fall out there was a massive cascade effect.
Of course the other major cause of 2000-2001 was that it was a leveraged public market bubble. Public markets are notoriously panicky and leverage multiplies movements. 2012-2016 is neither leveraged nor public. It's private cash investors mostly. Movements will be slower and less violent due to lack of leverage amplification.
What are ways this can be bet on since these are non-public companies?
So far I've identified:
1. Commercial real estate. Could take a short position on any public companies (ex. CBRE) though they're likely too diversified to drive them down to zero.
2. Hiring. Could bet against LinkedIn? Most local recruiters / agencies are privately owned and the public ones are diversified.
3. Ancillary services. Seems like start-ups serving start-ups so there's no publicly available position to take.
4. Tax Revenue. Assuming a contraction, can you bet on local municipalities being short on budget / revenue with a smaller tax base?
Might be a fools errand to short these if the excess capacity can be picked up by all the behemoths (Google, Facebook, Apple).
I wouldn't dare take a short position on SF residential real-estate although outlying areas might see a larger contraction.
A short position on SF real estate is probably good from several angles: possibly overheated tech market, geographic diversification of the tech industry, and strong movements to build more residential capacity.
Geographic diversification of the industry seems to be a thing. A few years ago the major SF/SV VCs were pretty much restricted to investing in Bay Area companies only. Today I see a lot of non-Bay Area things in their portfolio. YC is a stubborn holdout here but in general I see the industry diversifying. The real estate costs are a factor-- in our own case moving to the Bay would about double our burn rate. That doubled burn rate would be going only to real estate (by way of higher salaries to afford it and higher office space costs).
Investors should just start cutting checks to real estate rentiers directly and bypass the middleman.
Shorting SF real estate seems like a really, really bad idea to me. There have been a lot of articles recently about the research that SF real estate has been going up 6.6% a year for 60+ years now. Of course, there have been some downturns along the way, but the only way to profit from these downturns with a short position is basically perfect timing. I'm sure someone will do it, get lucky, make a killing, and be the subject of lots of "look how smart this person was" articles, but we probably won't see any articles about the tons of people who tried to do the same thing, were unlucky with their timing, and lost their shirts.
Because people buying homes tend to not live alone. And 150k is pretty middle of the road for established tech workers in SF, so in reality you're looking at two people making 200k each.
400k/yr can buy you a home in the Bay Area easily.
I think I'd probably say it's possible rather than easily done. But why force young couples to ante up such a huge buy-in just for the opportunity to work at all the local companies? Even the YC partners are starting to point out, correctly I think, that expensive housing is becoming a significant headwind to Silicon Valley's future.
I like the idea of shorting LinkedIn. My main fear heat would be that someone would drive the price up by acquiring them if you wait too long with cashing in on the short.
Of course, it's a ponzi scheme. How else can you explain such behaviors as the same VC investing in the same company's Series A at $10, Series B at $100, Series C at $1000, etc?
No doubt its unsustainable or exaggerated growth, but is it still a Ponzi scheme if it lasts a decade and most participants exit with more money than they started?
Ponzi schemes do not have a set time line and any successful Ponzi scheme will have most participants exit with a profit until the Ponzi scheme collapses and then the remaining participants will be holding nothing.
Is this taking into account the terms of these ridiculous valuations? According to http://www.fenwick.com/publications/pages/the-terms-behind-t... these come with "significant downside protection" and other terms that make these deals more akin to debt than equity funding.
If you stop thinking about the valuation being the price of the company, and instead being the price of a financial product which includes shares AND these protection mechanisms (e.g. liquidity preferences) do these valuations still seem irrational?
There’s little downside protection from bankruptcy or from a fire sale to strategic investors who are waiting for bankruptcy. A friend recently left a startup that had raised over $100M where the whole executive team was celebrating an $800 revenue deal. He didn’t even wait to vest. Lots of mid to late stage startups are in big trouble, and it will take time to flush it out and see who’s all hype, who’s unit economics are upside down, and who are the real companies.
Even a broken clock is right twice a day. Steve Blank has been saying this since 2011 when the economist hosted a debate between Blank and Ben Horowitz. All respect to Steve Blank though for his other work.
Given that Steve Blank is usually correct about startups, not incorrect, wouldn't a better analogy be "even a working clock is wrong twice a day"? (Which of course is a nonsensical analogy.)
It seems like a bubble could take more than 5 years to pop. Blank makes an analogy to the housing bubble, in which housing prices grew somewhat steadily from about 1970 to a peak in 2007. Economists started claiming a bubble in the early 2000s, and housing prices after the bubble popped only went back down to about where they were in the early 2000s. https://en.wikipedia.org/wiki/United_States_housing_bubble#I...
> is usually correct about startups, not incorrect, wouldn't a better
... phrase be "prematurely correct".
Not a good position to be in, but some people insist in telling the truth, poor asses.
("Premature antifascists" was how the US communists and sympathizers of the 1930s were designated later, when WW2 got underway. Embarrassingly enough, those people were highly agitated when the Axis powers were chasing communists and making trains run on time, but calmed down for the couple of years that the German-Soviet pact lasted. History is more fun than a barrel of monkeys, except for the bits where people get killed.)
The thing about the housing bubble is that while housing prices didn't decline to a normal level, the way that decline was prevented was through the massive injection of money into the system as whole (qualitative easing) and government loans to the largest banks.
This permanently broke the house-buying process as a whole to various degrees in that most people can no longer afford to buy a home to live in.
But also, it's plausible that the flood of money coming into VC is a part of this general flood of money - a flood that supports the US economy but not a "healthy" condition but with jobs around growing these inflated capital assets taking up a large number of well paid jobs, etc.
Yeah, probably the worst thing about the valley culture is that organic growth has lost it's charm. There was value in bootstrapping, making revenue, then profits and then seeking funding as a way of increasing profits by growing.
My understanding is that silicon valley VC culture started out because people were building hardware and this required some investment to get started. Software is totally different and with AWS and the like, building software is so cheap. But no, now it's basically: take money, give out stuff for free and take more money showing the free customers and get even more free questions and take even more money and so on. In the end, nobody knows the true value of the company - the founders, the VCs or the customers. True money is made by either ads, selling customer data or lock-in by making migrations to another service very expensive.
What irks me is that this scheme overly favours VCs and to some part the founders. The thing is the stream of founders who are willing to do this is never ending (same thing about privacy. the number of people willing to give up their privacy consciously is never ending). Even YC thinks of the whole thing as a game (if you followed the snapchat thing). I am cynical but this is really about rich people having fun and everyone else (customers, employees) is getting suckered. None of these companies are being built to last.
> with AWS and the like, building software is so cheap.
Yes and no. Developers aren't cheap. Lobbyists and lawyers (e.g., Uber) even less so. AWS makes it cheap to get started, but it's not so cheap once people actually start using your service.
If I were starting a business, I'd aim for organic growth. But admittedly, in hyper-competitive spaces or businesses that involve scaling a user base fast and cashing in on ad revenue after you have a lot of eyeballs, there can be a lot of legitimate up front costs.
I think it's more "the web" rather than "software", before the first dotcom boom the rule of thumb (for software and hardware companies) was that you had to have 5 profitable quarters before you went public (5, count them, 5!).
The original dotcom boom threw all that out the window, companies were going public on the smell of an oily rag and no product just because people wanted to buy a piece oif the web, we've forgotten what it takes to make a real company that lasts
You left out the "flywheel" companies. Granted there are probably too many companies calling themselves "flywheel" companies to explain away zero profits. However, in this last boom we have seen some non-hardware companies that use huge amounts of capital to spin a heavy wheel they believe will carry over. Uber (now profitable in NA) is a classic case. There have also been failures in this regard, there is no objective measure of what is and isn't a flywheel company. But we can't deny that there have been companies that have successfully executed on this strategy.
> Even YC thinks of the whole thing as a game (if you followed the snapchat thing)
I don't understand this line of thinking. Snapchat is emerging as one of the largest content platforms out there. The Snapchat pitch competition is simply a way to reach a broader audience. I have been watching the pitches daily and a large number of them have turned out to be substantive, high quality pitches. It's also a great way for young founders to learn about pitching a startup.
Arguable. I am observing my wife pitching a business to local mainland Chinese investors at the moment. It's not all that different, though I would argue less polished and critically the VC does not take the attitude "Compress thy worth in to the revealed number of minutes, or forever wallow in thy toils". Instead, the VC is approached through a series of interactions over time: mediated concept pitch, document submission, then culminating in face to face meetings.
Capital costs for software are low, but labor costs are huge. Once you try to scale past the "you and a couple of buddies from college" stage good people become extremely expensive.
>> Yeah, probably the worst thing about the valley culture is that organic growth has lost it's charm.
With the cost of living there, particularly the real estate component, you could also argue it's lost alot of its feasibility. Getting started there isn't cheap if any part of your plan requires hiring people or finding space to accomodate them early.
I'm currently faced with this. We have a bootstrapped company with offices in SF and Southern California. Office space in SoCal is easy and cheap, but trying to find just 3 desks for our new SF office has been a nightmare. Places like WeWork are asking $2500 for a tiny office with 4 desks.
(Obvious plug: If you happen to have a few desks or a small office spare, please email me.)
One of two elevators in a 15 floor building was left broken for 6 weeks at the end of last year. The second elevator still breaks for a couple days every month. I hope you enjoy a 15 minute wait to get in or out of the building. Alex is the smarmy liar who runs it, and all he can say is, "So sorry! Not my problem!" while declining to have WeWork give a damn about the building's terrible maintenance.
These morons can't get the lock on the floor to work reliably; you badge in, the reader turns green, and the door lock doesn't unlock. This has been going on for probably 5 months. We now just leave the door to the whole floor unlocked all day, which is awesome, since there's street trash all over and eventually we're going to have stuff stolen.
They can't make the A/C work; I hope you like wearing blankets at work in the winter and working in 75+ degree weather in the summer.
These idiots built a bathroom with no exhaust fan. Since our floor is full of men, imagine how it smells by the end of the day. I'm surprised there's still paint on the walls.
The only thing WeWork is competent at is cashing your rent checks.
Oh, and the offices themselves are ludicrously loud. They are giant square boxes with no sound insulation, so enjoy a total lack of productivity the second your officemates, or people in offices near you, start talking.
ps -- those phone booths they talk about? Busy most of the day.
Agree that WeWork is overpriced junk. 2 bathrooms on each floor for like 200 people. Should be so easy to beat these bozos as all they are really selling is image.
He's correct. The economy will only support "fluff" for so long. At some point, no one will be willing to acquire these companies for their price, and the public won't support an IPO at their price also. Revenue and cash flow are vital to long-term success. Increasing your sticker price just by saying your company is worth more doesn't hold up in the real world. Find a problem, solve the problem way better than anyone else is, and create a monopoly with real profits. It's not easy, but that's where the real wealth is created.
I think it was worse in the late 90s early 00s. There is this documentary called 'e-dreams' that came out in 2001. It documents a delivery startup that didn't charge anything to deliver products to customers.
They had virtually no business model (and lost money on every order) and got millions in startup capital. The whole company imploded within a year, but some of the interviews with the executives of the company are pretty telling: they never intended on making a profit. The intent was to either get bought out by a larger company or get an IPO and bank the proceeds.
E-dreams is a really good documentary for anyone interested in seeing a small sliver out of the early days of the first .com boom/bust.
I watch it once-a-year to remind me of the craziness.
This really doesn't show that the situation in the late 90s was more ridiculous than today.
First, this is a very carefully selected story, not a representative sample, so it's anyone's guess how bad a measure it is of the absurdity of the overall situation in the late 90s. If we are selective we can find similarly crazy stories from last year, so that it is only a matter of selling the story that the craziest stuff is representative.
Second, the problem is not merely that people take silly risks, the problem is when too much is staked on those silly risks. If everyone thought the market was wacky and outrageous, they wouldn't stake very much. The really serious situation, where too much is staked, is one where everyone is saying things like "can't lose" leading to a system which is structured for catastrophe.
Third, to say it was worse back then implies that we know how bad it is now, which really drives us to the heart of the issue - what evidence we have today. It doesn't really matter about how crazy we think it was in the late 90s.
I haven't seen e-dreams but the documentary sounds somewhat similar to Riot On which is actually from 2004 I believe. It is about a company called Riot Entertainment that took in millions in funding from a bunch of high profile sources, made a ton of fairly dubious decisions before imploding.
The reality is that some VCs invest in smart but risky bets and some just throw money around like it's free. Uber and Tesla are risky bets, but also have solid thinking behind their business and target specific market demands. There are risks in execution and a whole host of other problems, but the idea behind it is fairly solid.
What is not a smart investment is funding some company that is planning on making "the next social media analytics platform". There are what, 200+ companies all doing that?
The issue is mostly one of perception: What happens when investors realize this and want their money back? The house of cards comes crashing down, and might take out some smaller, legitimately innovative places in the process. Money flows out of the industry, it is no longer seen as viable. Investors see VCs as some kind of get rich scheme, it's only a matter of time before reality intercedes. When that happens, it may even take out the biggest players. VCs are a great idea but often poorly executed, basically due to greed.
even companies with little intrinsic value (i.e no ability to generate future cash flows for shareholders) can trade at high valuations for a long time (see the tulip mania)
"Nowadays, most of the liquidity is happening for large companies paying for startups and hedge funds buying into the latest round. So when this crash happens, it's mostly going to affect the later-stage investors," Blank says. That's different from what happened when the bubble burst previously, inasmuch as "It [the '99 crash] destroyed a lot of public value, not just private capital. Your grandmother got hurt as well."
Newspapers were complaining about the public being unable to invest in unicorns, with all the benefits going to wealthy private investors. Then people on HN started echoing these sentiments (the part where stuff from newspapers gets planted into the heads of normal people and becomes their opinion is really scary, I guess it must be happening to me, too. Really scary to watch this happen though, reading some weird idea in a newspaper and then reading/hearing it repeated by people the next month.)
Will newspapers remember to thank wealthy private investors for taking the hit when the bubble pops? (BTW, what AFAIK doesn't exist but could is a VC fund with publicly traded shares. Of course the average VC produces below-average returns.)
More tiresome than the current state of the valley is how people react to it. I'm here since it started. I was reading on Venture Hacks and Hacker News before Y Combinator was really a thing. People where actually talking about what a Y combinator is, the Lisp one. The moment it started to hype everybody above the age of 20 should know how it would go since it is like every other hype. It starts optimistically, everybody happy that somehting is actually happening. Then the euphory spreads. Then people start to do ridiculous things. Then everybody knows that it's ridiculous but nobody knows how to get out. Then it starts to die, slowly or in a burst. That's how life is. No surprises here. But despite that most people seem to act like they have the biggest conclusion of their life: The valley is a bubble. Wow.
In business as in IT the basic rules stay the same. If it is healthy to go public with five consecutive successful quarters, then aim for that with your business. If you are editing text better spend time learning vim or emacs than the newest flashy text editor. No need to hype the explosion or burst of any hype.
Thus, I'd rather see us discussing about how to make a business work. And I'm really disappointed that Steve Blank, who always was about core marketing values, participates in such a attention seeking article.
It's odd for Blank to continually be tooting this horn when his ideas on "The Lean Startup" are part of the problem. You can't walk into a business not knowing how the business is going to work. That's not something TBD. Sure, some "startups" manage to make it through, but if we're talking about ponzi schemes here...
When was this article written? I'm a huge fan of Steve Blank, but the attached doesn't seem current.
For entrepreneurs, Blank warns, the future is clear: "Startups are going to find it much, much harder to raise money, and the liquidity pipeline will bounce back to the good old days -- when you actually had to make money to have some liquidity event [go public]."
I don't see many companies going public nowadays, so it isn't like there's a mad dash of premature IPOs. If anything it's harder than ever to go IPO. Due to Sarbanes-Oxley companies are getting much larger before the exit. Due to activist investors, companies want to have the future 5 or 6 quarters in the bag (in addition to the past 5 or 6) before going public.
Devonshire Research Group had a very interesting analysis of Tesla. Related to OP, I found their high level matrix of identifying probable ponzi schemes interesting.
This is an interesting thing to trend, especially since it has been just over a year since @sama put out his famous bet (http://blog.samaltman.com/bubble-talk).
I think the author may be conflating (as most do) VC investments at the left side of the power-law curve, and those on the right side. Meaning that the investments on the left (that produce at least 100x returns) are likely valued correctly, whereas investments on the right (at the tail end of the power law curve -- or even those in the center) are supposedly overvalued.
Even so, the Inc author's insinuations about Uber and Airbnb are not exactly the smartest things I've ever seen written. Since I fully expect that within 10 years Uber will be running a massive network of electric, self-driving cars and busses (and perhaps even long-haul networks?) in every major and even minor city in the world. The global transportation infrastructure is absolutely worth MUCH more than $50bn.
Startups are just illiquid investments, like real estate or even like chunks of public-company equity so large that the market can't absorb their sale. Every single investor who ever existed has talked their own book; i.e. they promote the assets in which they have a stake. This is not a Ponzi scheme, it's a market. And unlike Ponzi schemes, in venture, there is an underlying asset, which is the company that's growing. Growth and profit are two different things. Profit and valuation are two different things. Valuation, or market cap, are based on the expectation of future revenue. With tech companies, these expectations can be very high, and rightly so. Even if they are grounded in human psychology, and subject to projections, distortions and the like.
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[ 2.8 ms ] story [ 135 ms ] threadNow really, how many places online can you go to get a humorous ESOS reference? Thanks HN :)
http://store.hbo.com/silicon-valley-conjoined-triangles-of-s...
The former does not seem to be in a bubble per se, though we have seen a cool down. A "hot" market is not a "bubble" and a cool down is not a "crash." Bubbles are violent and insane and that's not what we've seen in seed/series A.
The latter may well be a bubble.
What I'm hearing about right now is that it's getting a lot harder to raise money in later stages if you don't have great revenue numbers and real revenue growth. Earlier stages have cooled a bit but not catastrophically.
Then instead of a bubble, how about a "Foam?" It occurred to me about a year ago that an "ecosystem" where you had a lot of startup companies serving the needs of other startup companies would be the perfect place for one to pump-up the size and perceived potential of the "ecosystem" in a way which attracts yet more money and increases the perception of further value creation in a positive feedback loop. However, since no one company, no single investment instrument is involved, there is no single perpetrator to blame.
It's exploiting the same social proof dynamics, but in a highly distributed fashion. It's technically and legally not a Ponzi scheme, even though it's powered by the same mechanisms.
So this should probably be the next frontier in the startup world -- preventing or at least mitigating this form of corruption. Or is it just to be adopted as the "startup business cycle" -- justified by the minority of companies that come out of such foam-swells that actually create value?
"Froth" is the standard terminology for this concept.
I think that this is, ultimately, the way that this will either remain or be replaced by something else.
If the foam-swell actually ends up producing value despite all of the other garbage that gets produced, it might very well be better than anything else that we can come up with. In the startup world, more crap is perfectly fine if it leads to more value.
Things like Product Hunt, Clerky, etc. obviously qualify, but what about Stripe? They started that way but have diversified quite a bit into more stable and traditional businesses.
Lots of startup-startups: hard landing
Not very many: soft landing / minor correction
Economic incest via marketing was a major cause of the 2000-2001 dot.com crash. Many dot.coms had revenue based on selling ads to other dot.coms, so when then bottom started to fall out there was a massive cascade effect.
Of course the other major cause of 2000-2001 was that it was a leveraged public market bubble. Public markets are notoriously panicky and leverage multiplies movements. 2012-2016 is neither leveraged nor public. It's private cash investors mostly. Movements will be slower and less violent due to lack of leverage amplification.
So far I've identified:
1. Commercial real estate. Could take a short position on any public companies (ex. CBRE) though they're likely too diversified to drive them down to zero.
2. Hiring. Could bet against LinkedIn? Most local recruiters / agencies are privately owned and the public ones are diversified.
3. Ancillary services. Seems like start-ups serving start-ups so there's no publicly available position to take.
4. Tax Revenue. Assuming a contraction, can you bet on local municipalities being short on budget / revenue with a smaller tax base?
Might be a fools errand to short these if the excess capacity can be picked up by all the behemoths (Google, Facebook, Apple).
I wouldn't dare take a short position on SF residential real-estate although outlying areas might see a larger contraction.
Geographic diversification of the industry seems to be a thing. A few years ago the major SF/SV VCs were pretty much restricted to investing in Bay Area companies only. Today I see a lot of non-Bay Area things in their portfolio. YC is a stubborn holdout here but in general I see the industry diversifying. The real estate costs are a factor-- in our own case moving to the Bay would about double our burn rate. That doubled burn rate would be going only to real estate (by way of higher salaries to afford it and higher office space costs).
Investors should just start cutting checks to real estate rentiers directly and bypass the middleman.
Alas, you may be underestimating just how politically dysfunctional the Bay Area is.
Of course your argument does boil down to the old "markets can defy reality longer than you can short them." Shorting is high risk.
400k/yr can buy you a home in the Bay Area easily.
Plenty of people are bullish on VC and Silicon Valley, and almost by definition have plenty of money to bet against you.
[1] https://www.crunchbase.com/organization/linkedin/acquisition...
Mirror in SF is building a platform for that:
https://mirror.co/
Disclaimer: I'm an advisor.
Yes, a ponzi scheme requires most participants exiting with more money than they started -- until they don't.
https://en.wikipedia.org/wiki/Ponzi_scheme
If you stop thinking about the valuation being the price of the company, and instead being the price of a financial product which includes shares AND these protection mechanisms (e.g. liquidity preferences) do these valuations still seem irrational?
The Economist seems to have broken the link to the content on their site, but below is a video the Economist posted on Youtube and the articles posted on the personal blogs of Blank and Horowitz. https://www.youtube.com/watch?v=AfX9VLsUWwc http://www.bhorowitz.com/debating_the_tech_bubble_with_steve... https://steveblank.com/2011/06/15/the-next-bubble-dont-get-f... http://a16z.com/2011/06/17/debating-the-tech-bubble-with-ste... https://steveblank.com/2011/06/17/are-you-you-the-fool-at-th... https://steveblank.com/2011/06/22/the-internet-might-kill-us...
It seems like a bubble could take more than 5 years to pop. Blank makes an analogy to the housing bubble, in which housing prices grew somewhat steadily from about 1970 to a peak in 2007. Economists started claiming a bubble in the early 2000s, and housing prices after the bubble popped only went back down to about where they were in the early 2000s. https://en.wikipedia.org/wiki/United_States_housing_bubble#I...
... phrase be "prematurely correct".
Not a good position to be in, but some people insist in telling the truth, poor asses.
("Premature antifascists" was how the US communists and sympathizers of the 1930s were designated later, when WW2 got underway. Embarrassingly enough, those people were highly agitated when the Axis powers were chasing communists and making trains run on time, but calmed down for the couple of years that the German-Soviet pact lasted. History is more fun than a barrel of monkeys, except for the bits where people get killed.)
This permanently broke the house-buying process as a whole to various degrees in that most people can no longer afford to buy a home to live in.
But also, it's plausible that the flood of money coming into VC is a part of this general flood of money - a flood that supports the US economy but not a "healthy" condition but with jobs around growing these inflated capital assets taking up a large number of well paid jobs, etc.
Is a "VC firm filing for bankruptcy" the only indicator?
Can someone more knowledgeable share some thoughts on this?
0: http://www.wsj.com/articles/is-the-tech-bubble-popping-ping-...
In enough numbers to make the graph deflect.
My understanding is that silicon valley VC culture started out because people were building hardware and this required some investment to get started. Software is totally different and with AWS and the like, building software is so cheap. But no, now it's basically: take money, give out stuff for free and take more money showing the free customers and get even more free questions and take even more money and so on. In the end, nobody knows the true value of the company - the founders, the VCs or the customers. True money is made by either ads, selling customer data or lock-in by making migrations to another service very expensive.
What irks me is that this scheme overly favours VCs and to some part the founders. The thing is the stream of founders who are willing to do this is never ending (same thing about privacy. the number of people willing to give up their privacy consciously is never ending). Even YC thinks of the whole thing as a game (if you followed the snapchat thing). I am cynical but this is really about rich people having fun and everyone else (customers, employees) is getting suckered. None of these companies are being built to last.
Yes and no. Developers aren't cheap. Lobbyists and lawyers (e.g., Uber) even less so. AWS makes it cheap to get started, but it's not so cheap once people actually start using your service.
If I were starting a business, I'd aim for organic growth. But admittedly, in hyper-competitive spaces or businesses that involve scaling a user base fast and cashing in on ad revenue after you have a lot of eyeballs, there can be a lot of legitimate up front costs.
The original dotcom boom threw all that out the window, companies were going public on the smell of an oily rag and no product just because people wanted to buy a piece oif the web, we've forgotten what it takes to make a real company that lasts
I don't understand this line of thinking. Snapchat is emerging as one of the largest content platforms out there. The Snapchat pitch competition is simply a way to reach a broader audience. I have been watching the pitches daily and a large number of them have turned out to be substantive, high quality pitches. It's also a great way for young founders to learn about pitching a startup.
In the grand scheme of things, I'm not sure pitching a startup is all that valuable of a skill, outside of Silicon Valley.
With the cost of living there, particularly the real estate component, you could also argue it's lost alot of its feasibility. Getting started there isn't cheap if any part of your plan requires hiring people or finding space to accomodate them early.
(Obvious plug: If you happen to have a few desks or a small office spare, please email me.)
I work in one of their offices and it's horrid.
One of two elevators in a 15 floor building was left broken for 6 weeks at the end of last year. The second elevator still breaks for a couple days every month. I hope you enjoy a 15 minute wait to get in or out of the building. Alex is the smarmy liar who runs it, and all he can say is, "So sorry! Not my problem!" while declining to have WeWork give a damn about the building's terrible maintenance.
These morons can't get the lock on the floor to work reliably; you badge in, the reader turns green, and the door lock doesn't unlock. This has been going on for probably 5 months. We now just leave the door to the whole floor unlocked all day, which is awesome, since there's street trash all over and eventually we're going to have stuff stolen.
They can't make the A/C work; I hope you like wearing blankets at work in the winter and working in 75+ degree weather in the summer.
These idiots built a bathroom with no exhaust fan. Since our floor is full of men, imagine how it smells by the end of the day. I'm surprised there's still paint on the walls.
The only thing WeWork is competent at is cashing your rent checks.
Oh, and the offices themselves are ludicrously loud. They are giant square boxes with no sound insulation, so enjoy a total lack of productivity the second your officemates, or people in offices near you, start talking.
ps -- those phone booths they talk about? Busy most of the day.
Avoid them at all costs.
They had virtually no business model (and lost money on every order) and got millions in startup capital. The whole company imploded within a year, but some of the interviews with the executives of the company are pretty telling: they never intended on making a profit. The intent was to either get bought out by a larger company or get an IPO and bank the proceeds.
E-dreams is a really good documentary for anyone interested in seeing a small sliver out of the early days of the first .com boom/bust.
I watch it once-a-year to remind me of the craziness.
First, this is a very carefully selected story, not a representative sample, so it's anyone's guess how bad a measure it is of the absurdity of the overall situation in the late 90s. If we are selective we can find similarly crazy stories from last year, so that it is only a matter of selling the story that the craziest stuff is representative.
Second, the problem is not merely that people take silly risks, the problem is when too much is staked on those silly risks. If everyone thought the market was wacky and outrageous, they wouldn't stake very much. The really serious situation, where too much is staked, is one where everyone is saying things like "can't lose" leading to a system which is structured for catastrophe.
Third, to say it was worse back then implies that we know how bad it is now, which really drives us to the heart of the issue - what evidence we have today. It doesn't really matter about how crazy we think it was in the late 90s.
https://www.youtube.com/watch?v=g0lrIi0ce5E
What is not a smart investment is funding some company that is planning on making "the next social media analytics platform". There are what, 200+ companies all doing that?
The issue is mostly one of perception: What happens when investors realize this and want their money back? The house of cards comes crashing down, and might take out some smaller, legitimately innovative places in the process. Money flows out of the industry, it is no longer seen as viable. Investors see VCs as some kind of get rich scheme, it's only a matter of time before reality intercedes. When that happens, it may even take out the biggest players. VCs are a great idea but often poorly executed, basically due to greed.
Newspapers were complaining about the public being unable to invest in unicorns, with all the benefits going to wealthy private investors. Then people on HN started echoing these sentiments (the part where stuff from newspapers gets planted into the heads of normal people and becomes their opinion is really scary, I guess it must be happening to me, too. Really scary to watch this happen though, reading some weird idea in a newspaper and then reading/hearing it repeated by people the next month.)
Will newspapers remember to thank wealthy private investors for taking the hit when the bubble pops? (BTW, what AFAIK doesn't exist but could is a VC fund with publicly traded shares. Of course the average VC produces below-average returns.)
In business as in IT the basic rules stay the same. If it is healthy to go public with five consecutive successful quarters, then aim for that with your business. If you are editing text better spend time learning vim or emacs than the newest flashy text editor. No need to hype the explosion or burst of any hype.
Thus, I'd rather see us discussing about how to make a business work. And I'm really disappointed that Steve Blank, who always was about core marketing values, participates in such a attention seeking article.
For entrepreneurs, Blank warns, the future is clear: "Startups are going to find it much, much harder to raise money, and the liquidity pipeline will bounce back to the good old days -- when you actually had to make money to have some liquidity event [go public]."
I don't see many companies going public nowadays, so it isn't like there's a mad dash of premature IPOs. If anything it's harder than ever to go IPO. Due to Sarbanes-Oxley companies are getting much larger before the exit. Due to activist investors, companies want to have the future 5 or 6 quarters in the bag (in addition to the past 5 or 6) before going public.
https://news.ycombinator.com/item?id=11769775
I think the author may be conflating (as most do) VC investments at the left side of the power-law curve, and those on the right side. Meaning that the investments on the left (that produce at least 100x returns) are likely valued correctly, whereas investments on the right (at the tail end of the power law curve -- or even those in the center) are supposedly overvalued.
Even so, the Inc author's insinuations about Uber and Airbnb are not exactly the smartest things I've ever seen written. Since I fully expect that within 10 years Uber will be running a massive network of electric, self-driving cars and busses (and perhaps even long-haul networks?) in every major and even minor city in the world. The global transportation infrastructure is absolutely worth MUCH more than $50bn.