It seems like you should still be able to accomplish a lot with 100 million. Maybe the problem is that startups are wasting too much money and not being productive and / or efficient enough with finances. Now it takes the average startup more money to accomplish the same amount of progress.
Learning to spend effectively with your own money, before spending the money of others can be a valuable lesson to achieve many times return per dollar. Startups benefit from swinging above their weight, and this is one big way.
Spending alone doesn't solve problems. It's similar to management by abdication and dumping the responsibility on someone else and wondering why it didn't turn out.
More money alone is never the solution, there's endless examples of huge companies with endless resources throwing money at some new project and it failing miserably. A good recent example is Verizon's attempt to compete with Netflix: https://www.thewrap.com/go90-failure-just-cost-verizon-658-m...
>Maybe the problem is that startups are wasting too much money and not being productive and / or efficient enough with finances.
Definitely. I was talking to one startup and they were on the 5th round and they started in ~2016. They bragged that they had raised $100MM, but no mention of profitability or why they were raising so much.
Tons of people think "we raised $100MM" is impressive, what's more impressive is not blowing out your cap table and diluting everyone except investors.
I always see people get fixated on dilution. As a shareholder, the most important factor should be share price. More investment at greater valuations implies a higher share price. A greater number of shareholders also leads to opportunities for liquidity for earlier shareholders.
I've been at the start-up game non-stop since the mid 1990s. You know what's really amazing today? What would have cost me $30,000 per year in infrastructure in 1999 or 2003, plus the obnoxious management of it all, is now $2k or $3k at DigitalOcean (and others) and rather easy to script and manage. After you adjust for the better hardware vs increased total Internet users scale and often increased resource demands, I also think that value proposition heavily tilts toward a greater than 10x gain versus eg 15 years ago.
Most everyone here will fully understand that effect. I'm skeptical the NYTimes et al. understands what it has done to the start-up vs capital equation however.
When Excite got started, you know what they needed? A $10,000, 10gb drive. Vinod Khosla had to provide it just so they could properly test out their search engine. Adjusting to today's scale, the equivalent might be three dozen virtual servers for tens of hours per month at a cost of $100.
I don't need venture capital to scale to a large size. It's beautiful, the VC aspect has almost entirely become optional outside of a few niche scenarios. That has provided the large capital raising start-ups with a lot of sustained bargaining power that they have never had before. If nothing else, you can simply wait longer to deal with VCs, boosting your position. That's not going away with the next crash (it will deflate some of course), that cost edge is here to stay. The leverage point is: can you actually build the thing, can you execute, do you have the ability / persistence / etc to get it done.
It really wasn't that long ago that infrastructure was the biggest cost in being able to prove out an Internet business and scale. Just to put on a good test of a product meant for scale you had to sink large sums of money in upfront. Today the people - their time - have become the biggest cost (unless you're in SF etc., then it's that and real-estate). If I want to start something today, my time is the (personal) red ink risk, rather than very large amounts of capital plowed into infrastructure.
Tech salaries, and tech valuations are both a little crazy right now. It's become very hard for non-funded startups to recruit talented engineers when Google and Facebook are happy paying six figures in stock options every year
> Now it takes the average startup more money to accomplish the same amount of progress.
Depends on exactly what you're referring to. Sales & Marketing - sure, but that's because it's a zero-sum game (advertising is at least). But I would argue the cost to technically accomplish reach scale is much cheaper today than it was 10 years ago when $100M wasn't the norm.
>So much money, and yet, the same horrible open office plans and transparent meeting rooms. Does office space in SF really cost that much?
Personally I don't think it is about actually needing the money. It is about wanting it. Thinking that if you have enough cash to burn, you'll be the next Google.
In reality, 99.99% (if not 100%) of them are going to burn through their bank and fly off a cliff in 3 years.
Yup, i don't remember if i heard this quote by DHH in one of his interviews or was in his book, but it struck to me and honestly if i ever have my own company, i'm going to try to follow Basecamp's model.
I'm paraphrasing the quote but it was something like "Not everyone needs to be next Google, Fb, Amazon. There is ton's of space for medium size $50 million/year businesses."
It's definitely more difficult but you can always try to bootstrap or take small investments and try to grow organically instead of going for 10x growth.
This just seems so much more attractive to me on a personal level. I invested a stupid amount of my time to build a webapp just on a unproven hunch that a market exists for it (i.e. if it did, I would have been a customer). Now that I'm switching to founder mode and exploring paths forward, the thought of taking a sum just a fraction as big as some of these companies is horrifying to me.
I don't want to spend my time and energy selling, and then later defending, a fantasy to investors. Nor the crushing anxiety that must come with that. I just want to build something that the economy values for it's utility, and pay my rent in the process.
Though I guess after acheiving that, I'd probably start looking up...
Definitely, i would rather earn little less and work for myself or someone sane rather than working for someone who is looking to make 10x return anyhow.
I am surprised that the NYTimes doesn’t see it as a positive sign: the structures around start-up (accelerators, investors, hosting, third party tools, etc.) have grown in maturity and relevance quite considerably. I certainly expect people familiar with YCombinator to agree.
More funding like that means more companies trusted to spend that money into creating something profitable. If this goes into people who have grown companies into a unicorn a couple of times; scaling faster local operations lead by managers with relevant experience; AWS, GCP, Twilio & Square bills, it’s certainly expensive but overall sensical.
I don’t know of an investor who, since 2000 has said: “This is silly, I can’t invest anymore.” and left, so I don’t think the game got non-sensical overall. Real-estate in SF certainly has, but high valuations proved when they made sense and gave investors confidence. There certainly has been cases where the value wasn’t justified, but very few at that level of money raised. Certainly less in proportion than the rounds with crazy valuations in 2000
"More funding like that means more companies trusted to spend that money into creating something profitable. If this goes into people who have grown companies into a unicorn a couple of times; scaling faster local operations lead by managers with relevant experience; AWS, GCP, Twilio & Square bills, it’s certainly expensive but overall sensical."
Who are these founders who have grown "a couple" of unicorns? There are huge numbers of them walking around now? More importantly: who are these mythical founders who have experience growing/managing a company by hundreds of percent in a single year? They're pretty thin on the ground. This money is going to inexperienced people. Save for (maybe) a few founders who lived through the late 90s, nobody has experience with this. It's new territory.
Also, Let's not kid ourselves: this money isn't going to AWS and Twilio. It's going to salaries, and it's going to marketing. And that's why it's risky. When you have to hire insanely quickly and buy revenue with marketing spend, it's essentially impossible to manage the growth. Overfunding is a real thing, and unless you've seen it firsthand, it's hard to internalize the perverse incentives it creates.
> It's going to salaries, and it's going to marketing. And that's why it's risky.
Risky to who though? S&M salaries are expendable. If you can achieve 90% gross margins, you can basically flip the switch, turn S&M off, and you're profitable.
> Overfunding is a real thing
Overfunding has only real two business-centric downsides: undue dilution and chaotic operations.
Google has 88k employees today, almost 20 years of existence, and an average tenure of about two years. I would estimate that people who have worked at Google and learned valuable lessons, and able to secure director-level roles in start-ups to be in the thousands; many have gone to Facebook (25k employees, 14 years, similar retention). There are hundreds of people who similarly left Facebook for Uber, Lyft, AirBnB, Booking, Coinbase, etc. I personally know at least a dozen who made that move before their new employer raised more money, and can name three friends who went from Google to Facebook and to a third now-10B$ company, moving to pre-IPO company each time. And I don’t even live in the US.
If you include probably several dozen people from PayPal (not just the six founders but the people who reported to them); hundreds of YCombinator alumni, who learned from their own failed company but leveraged the success of the friends they made in YC, and probably ended up working with; if you include people who have done their four years at DropBox, Zynga, SurveyMonkey, Twilio, etc. overall, yes, I expect to find several people with relevant experience at key positions in hundreds of companies. Some might have gone to investing full time, but they are if anything more likely to trust and advise appropriately their former colleagues.
A lot of them are “anonymous” in the sense that TechCrunch wouldn’t name-drop them, but they would be familiar with, say, SQLite, AirFlow, or know from experience whether RedShift is the right solution at scale; they would know how to setup a Salesforce cluster; who to ask about address format in South-East Asia; they know about bugs in Samsung’s Android video codecs; they would have coordinated a launch in Arab-speaking countries before, know that React works well with Big5, or know that VAT is processed differently in Islamic finance.
I expect those people to be asking for, and justifying convincingly compensations several times higher than what people could justify in 2000.
You are certainly right about marketing: I should have mentioned far better targeting and control tools. CPA probably went up overall, but more importantly: the ability to measure it, to optimise campaign, interrupt ridiculous PR stunts before they cost too much, leverage them, etc. all that has become better. Analysts measure LTV with less ridiculous estimations now. That justifies trusting people with more money because when you hit the product-market fit, you know that this money will make more.
Agreed for the most part. With that said, startups at the seed and pre-A don't need or care about any of that. Startups with 100M in financing might, although most likely don't care that much either.
Skills startups do care about at the early stages
- Self management/motivation and independence more generally
- 0 to MVP fast, well and affordably
- 0 to N customers fast, affordably
- etc.
There are so many caveats of course. Some startups (ours for instance) builds hardware so you need a few engineers that are truly full stack (plastic forming -> css). Bio startups don't need any of this. The nuances of VATs really don't matter.
I would have to disagree: it’s probably different in the US, but I worked for a start-up that decided to go through international expansion (12 countries at once) after Series B: that the CFO knew about nuances of VAT in each country was key to lower the burn rate.
I’m seen many people from the companies that I listed, some who joined very early, some who joined after they had more than 100M raised, have the right experience to start a company, or join early.
My point is not that those people are essential, or even that their are a majority at big companies; my point is that, with people who can justify several significant failures and success, especially public ones like accelerators and major companies, you have stronger signal, more trust and one could interpret larger rounds as a sign of institutional progress.
US companies don't need to care about this, that's why their startups are so much more successful. They have a single market with 300 million customers.
Don't get me wrong, there are nuances between states and a few subtleties, but it's negligible compared to expanding across European countries or Asia.
"Google has 88k employees today, almost 20 years of existence, and an average tenure of about two years. I would estimate that people who have worked at Google and learned valuable lessons, and able to secure director-level roles in start-ups to be in the thousands; many have gone to Facebook (25k employees, 14 years, similar retention). There are hundreds of people who similarly left Facebook for Uber, Lyft, AirBnB, Booking, Coinbase, etc. I personally know at least a dozen who made that move before their new employer raised more money, and can name three friends who went from Google to Facebook and to a third now-10B$ company, moving to pre-IPO company each time."
So basically, you're counting almost anyone who worked at a big company or a successful startup in the last 20 years, even though virtually none of these people have any experience founding or building a company.
I’m counting on people who can leverage their experience there into becoming a valued contributor for a start-up with 15-150 employees. That’s neither only the founders, or every single early employee. For the second time: I don’t think that the strict dichotomy everyone-or-the-founder that you cast on top of my point helps you understand it.
I think the engineers who worked in the teams that built things like BigTable at Google, RedShift at Amazon, React at Facebook, AirFlow at AirBnB, etc. all have a CV that, in a company trying to address a related problem, would be valuable. Many are given more responsibility, so you probably want to think less of a specific role and more of progression: an engineer who went from junior to senior internally in a handful or years, and was then promoted to principal at a new company, or from senior to principal and promoted to director.
I know (from my own repeated experience) that either that experience or the ability to reproduce framework rapidly is not just a big trump card in interviews, but also often quoted to investors, especially early on. I reported for a year and a half to someone who introduced himself as having “killed the Fail Whale” (Twitter’s infamous symbol that the service was down): he lead an engineering team in charge of the refactoring and service reliability. His name won’t mean much to you, but I know that this experience justified a comfortable compensation when he changed jobs, and a title of VP; his experience also justified an order of magnitude more money raised. There was little doubt he could use that money to grow and lead the then 35-engineer team and prevent the website from going down as often as it used to. It took him several months, some external consultants, a dozen more engineers, but at not point was he worried: he knew the culture, the methods, the priorities that would lead to a stable site, in spite of the insane growth.
When he refused to my team some key requests, he was very convincing because he was able to detail how that would make keeping the site up more difficult; and he was clear about priorities. We found a solution asking someone else, a principal engineer: he had joined as his first job a competitor to AirBnB, worked there four years until he was senior, wasn’t convinced they could win market shares, got hired by us as a principal because of his experience. He was also one of the dozen of personnel whose skill was explicitly known by the investors.
About half of the senior engineers (that’s more than a dozen) were hired from companies where either I, or one of those two people worked, on our explicit recommendations.
I don’t know if there are early staff at Google that “do not have experience […] building a company”. I’ve had the pleasure to talk to chefs (i.e. senior cooking staff) who moved from Google to Facebook, the facilities manager who did the same, a couple of the bus drivers: they all got recommended, promoted, because they genuinely provided exceptional service, shown fantastic initiative and understood what that type of company values.
I couldn’t imagine companies without that kind of support, managerial, operational, technical, etc. I would certainly never describe the people who built those companies with me like you did, and I can’t imagine that the founders and CEOs of the companies that I‘ve named would either. None lives under the illusion that they did it alone.
Ex-FAMGA [SWE/PM] builds a new CRM for X, or stack management library. Leaves FAMGA with a nice $300,000 cushion in the bank and goes to a scout Angel group for Sequoia and raises $5M to build and launch their product, product gets some traction, they sell it Google for $40M...and the cycle continues.
"And this is exactly the story that works for VC."
LOL, well...clearly, a lot of things "work for VC" that doesn't actually work. I don't think a VC would tell you otherwise, either. They're throwing mud at the wall, and seeing what sticks.
> Who are these founders who have grown "a couple" of unicorns?
His comment said “people” not “founders”. Plenty of c-level execs have grown multiple unicorns. Plenty of employees have worked at multiple unicorns in the early stages.
Rand Fishkin (founder of Moz) commented on this phenomenon the other day [1] by saying: "Make $10mm. Crickets. Raise $10mm. Everyone writes about you." and "This is how we get a culture that trains founders to raise $$ > make $$."
Might I suggest to some budding founders that you try the revenue-funded approach. It's not as fast or as glamorous but the payout when you're successful is so much more significant.
I thought those particular examples were caused by federal subsidies and regulations juicing the demand side of the price curve via Medicare/Medicaid, Fannie/Freddie/FHA/USDA, and guaranteed student loans.
As I understand it, QE (and monetary policy more broadly) juices the supply side of the price curve, leading to a general rise in prices due to the increased supply of the metric we use to measure prices (i.e. dollars).
So it's likely QE has led to a general devaluing of the dollar that would lead upward pressure on all prices. The reason the three industries you mentioned have outpaced every other seems to be federal policies like subsidies and regulation juicing the demand side of the curve.
It also seems like those three industries are fairly insulated from globalization and, to an extent, automation, which accounts for a lot of the downwards pressure on prices, offsetting some of the devaluing effects of QE.
==So it's likely QE has led to a general devaluing of the dollar that would lead upward pressure on all prices.==
QE started 10 years ago, why is it only showing up in the "all prices" data now?
Inflation was historically low from 2009 to 2016, but is coming fast and hard now. This lends credence to the OP comment that it is flowing down to main street from higher economic levels. The higher economic levels are "assets" like homes, public and private stock, crypto, art, etc.
==The reason the three industries you mentioned have outpaced every other seems to be federal policies like subsidies and regulation juicing the demand side of the curve.==
Have the countries with more government subsidies and regulations in healthcare (almost all of them) seen the same inflation in helathcare costs?
Thanks for sharing this chart. You are right that things jumped on 2000, but I'm not so sure it is outside the broader trendline. For example, it went from 8.2% of GDP in 1980 to 11.3% by 1990.
I'm wondering as well, how much of this is due to monetary policy pushing investors into higher-risk investments. That's been the point of QE and negative interest rates, right, although I don't recall hearing it framed as an attempt to push investors into taking on more risk?
==I don't recall hearing it framed as an attempt to push investors into taking on more risk?==
Because that was never the goal. Investors are taking more risks because they have to in order to find return in a world where the interest rate was basically zero for 8 years.
And in the EU, going by financial reporting, that seems to have been the goal. I just haven't seen it mentioned that this means investors taking on more risk.
No that’s not the point of QE. The point of QE is to allow the government to continue deficit spending without running out of money. The treasury lowers the interest rate and then creates new money to buy cheap debt from the government when there would otherwise be no takers.
The interest rate affects everybody, which allowed troubled banks to lend cheaply to each other in the wake of the financial crisis (good) but also means that low-risk investments generate very little return (bad). It’s the later that has pushed investors into riskier assets - whether or not that’s beneficial depends upon how much systemic risk there now is... which is not obvious, after all mortgage-backed securities were supposed to be safe but we all know how that worked out.
The treasury would like to raise interest rates but this means that consumer debt will cost more each month and is painful for homeowners especially. So it’s a slow process. We may already have trapped ourselves in unstainably cheap consumer debt - much like those 2005-vintage mortgage “teaser rates”.
There are always takers for government debt. QE is supposed to crowd them out, so they invest their money elsewhere. Always seems needlessly indirect to me. Helicopter money is far more likely to be actually spent.
I admit I'm not very familiar with the discussion around QE in the USA, but in the EU, a lot of the reporting about interest rates has specifically quoted an increase in investments as a desired result of low interest rates; pushing money out of cash and bonds into "useful" investments.
Better to call this “asset inflation”, not to be confused with good old fashioned consumer inflation.
Given that we’re talking about high-risk, high-return investments of foreign money I don’t see why asset inflation is a particularly important factor - such investments will always be appealing. This money is being used to create good jobs and expand the real economy.
Inflation of existing assets, not startups, is far more problematic for QE, e.g. housing, stock market, where there’s no value being created.
As an entrepreneur I’ve never understood how closing a round of funding is somehow a badge of success. In fact it is quite the opposite. The ultimate businesses are those that are highly profitable and can scale using their own funding. Successful bootstrappers are the best entrepreneurs.
I'd generally agree, however, seeking to team up with others for a greater good is also a healthy sign for an entrepreneur.
"Hey, you have some capital, and we have this great thing that can serve the world. We're capital constrained, either for quality or for growth, how about we partner to make the world a better place?"
I think that pitch significantly misaligns with the goals of most VCs. If you promised them "how about we partner up to earn billions of dollars?" you would probably find many more people willing to invest.
> The ultimate businesses are those that are highly profitable and can scale using their own funding
I'd like to fly across the sky on a unicorn while drinking whiskey with a leprechaun, but it's not really in the cards.
How many bootstrapped businesses can you think of in the Fortune 100/500? It's very rare to get to that size without the capital to make mistakes. Bootstrapped businesses generally have very little room for risk, and the ones with business models that can both be executed on and monetized profitably to > $100MM revenue/yr can probably be counted on two hands (e.g. GitHub, Plenty Of Fish, Braintree, GoPro).
>the ones with business models that can both be executed on and monetized profitably to > $100MM revenue/yr can probably be counted on two hands (e.g. GitHub, Plenty Of Fish, Braintree, GoPro).
If you or even a small handful of people own 100% of a company, you don't need $100MM ARR to get rich beyond need.
You won't become Bezos but bootstrapped companies don't need to become unicorns to make everyone there be filthy rich. There are tons of people who bootstrapped companies and are very well-off from it.
On every major body of water in or on the boundary of the US, there are yachts. The yacht owners are overwhelming full or part owners of a successful business. Except maybe for near San Francisco or Boston, nearly none of the owners took venture capital.
Lesson: The people in the US quite comfortable financially rarely took venture capital.
Actually the best businesses are those that can scale using no funding. Or employees. And a sole founder who does everything by sheer force of will. /s
In some class of products, once you have a product market fit, you can start scaling marketing and such, which are easy to scale but require capital to operate. Funding round is one way to acquire capital.
It's actually pretty easy to calculate. Labor costs can account for up to 70% of total business costs so, out of $100, roughly $70mm is spent on salaries. The "one-third rule" for landlords to determine eligibility for rent means you can spend up to roughly 33% of your income on rent. So 33% out of $70mm is $23 million. You can say that 23% of every VC dollar goes towards landlords.
Also some of the employee's non-rent spending will go to local businesses which will spend some of that money on rent and some of that money on salaries and so on with the new set of employees.
One could save money by living in Manhattan and flying to San Francisco for work. If time zones and transit were unrealistically fast and permitted such an exercise.
Is this really true? I used to live in Berkeley (for college) and my rent was $600. I lived with 4 other people, but it was very livable and comfortable overall, for college at least. This is only a few months ago. I'm not saying housing prices aren't batshit crazy in the Bay Area but it doesn't seem likely to be able to live in Manhattan and fly SF everyday cheaper. I currently live in Boston with a relatively more comfortable housing situation and my rent is $950. I would imagine similar rooms in Berkeley like this would be ~$1200 or something.
I tried doing something very similar to this. It ended up being so draining I couldn't do it long-term.
Specifically, I was in Washington DC and the startup I wanted to work for was in San Jose. My then-girlfriend (now fiancé) has the kind of job that can only be done in DC. I agreed to fly out for a week every month or so and work remotely the rest of the time. I did it for a little over a year but the travel wore me out and I struggled to find a healthy routine working from home.
I see threads like this and think that the solution to this problem has to be more remote work. I just wish I could be one of the people for whom it works as well in practice as it does in theory.
The solution is equal parts "more remote work" and "you don't need to be based in the Valley to be a tech company, so go make your physical location somewhere that people can afford". It's this whole chicken vs. egg of "The valley attracts talent so we should be where the talent is".
I spent a lot of time asking myself the question "would this company be successful if it had been started in St Louis?". On the one hand, they could offer an incredible salary to cost of living ratio. However, when I thought about my coworkers, a good number of them had spouses/significant others who worked for Facebook/Apple/Google. Also, there was a lot of value in knowing that if this company went belly-up, there would always be another company nearby to work for.
At least in this case, the decision to be located in the valley was rational at the individual level, even if it may be irrational collectively.
I think Seattle, Boston, LA, and NYC also have critical masses of talent that make them acceptable for starting a tech company, but unfortunately those places aren't really affordable either. The decrease in proximity to talent and capital probably isn't worth the marginal savings in cost of living.
If anyone is going to break the chicken vs. egg cycle and set up shop somewhere truly affordable, I think it will have to be one of the big companies, opening up a satellite office and offering employees the ability to choose where they want to work. They're all so profitable that they don't seem to mind the money that's going to Bay Area landowners. I wonder how expensive things will have to get before they start to get creative.
The Valley attracts talent only because that’s where all the startup jobs are. If you don’t want to work in startups, or if startups would branch out and stop glomming on to single locations, this would equalize more.
It's really more the established tech companies that draw the talent out here. In this generation, that's Google/Apple/Facebook; before that, SGI/Tandem/Sun/Cisco/Oracle/Yahoo; before that, HP/IBM/Ampex/Shockley/Lockheed/Stanford. They're the ones with generous relocation packages, a national brand name, and the ability to give an attractive offer to anyone in the world.
The startup ecosystem feeds off of that and California's outlawing of noncompetes. Employees get bored at working at a big company and have an idea for some way to employ the technology they've learned towards another industry. There's ample angel investors & VC floating around because of the profitability of previous companies. Oftentimes they have a spouse at one of the big companies who can continue to provide stability & health insurance.
The list of famous companies out here that can trace their ancestry back to one of [Shockley, Ampex, Stanford, IBM, HP] includes Fairchild, Intel, AMD, NVidia, Kleiner Perkins, Sequoia Capital, Atari, Dolby, Oracle, Salesforce, Memorex, Seagate, Apple, General Magic, Radius, Claris, E-Bay, StumbleUpon, Uber, Danger, Android, Nest, Be, NeXT, SGI, Cisco, Sun, Tandem, Siri, Yahoo, Google, Odeo, Twitter, Square, YCombinator, Netgear, Netscape, LoudCloud, Ning, a16z, Instagram, Whatsapp, Paypal, Slide, Yelp, Palantir, YouTube, LinkedIn, and likely many others. That's using a definition of "trace their ancestry back" as "a founder previously was an employee of or student at one of the other organizations in the set." Pretty much the only major Silicon Valley companies that are not included are the various YC companies (Reddit, AirBnB, Dropbox, Stripe, etc.) and Facebook, all of which would be if you extend the definition of "ancestry" to include "seed funder was in the set". (YC is in the set via Stanford => Yahoo => YC, Facebook's first investor was Peter Thiel, who got his BA and JD from Stanford.)
I disagree. Office space is relatively cheap compared to employee salaries. For a 25 person startup in SF, office space pencils out to the cost of 1-2 employees depending on the quality of the office. We have capacity to cram in up to 35.
I think the last startup I worked for in London had the monthly rent peak at half or 1/3rd of the gross salaries when they reached 25 people.
That's when they moved to a high quality office in a prime location on a rooftop. With a lot of free space, to accommodate hiring 1 person per week for the next year.
The math: most companies are doing roughly 150 ft2/employee. You can get good office space for $60 ft2; quite nice office space for $80 ft2. On the lower end, that will come out (+ services) to $5.50-$6 ft2/mo. So maybe $800 - $1200/emp/month.
Note you can do much better than that $60 if you don't want to be close to caltrain. I looked at stuff in the $40 range that was your standard peninsula office park.
As for housing costs... the bay area is fucking stupid. Next round (I'm a founder) we're going to be opening an engineering office anywhere else. Candidates are probably Chicago (ugh that flight), Oregon, Seattle, maybe Reno. The difference is is $150k barely making it or a pretty decent salary.
It's not just housing either. A founder friend bought health insurance for employees in Oregon. She thought her broker screwed up the price was so low.
Don't even get me started on the fuckwits in our government and the commute situation.
This is true for any business and any area in the world. Like for example, a thriving diamond polishing industry caused increase in land price tenfold or more in Surat city in India.
In biotech (by which I mean therapeutics), out of ~150 "major"* VC investments from 1/2018 to 7/2018, 14% of deals have been over $100M. Many of these have been Series A deals [0].
Many of these rounds are tranched (ie you only get a certain amount upfront, then get the rest if you hit milestones), but I think I saw data suggesting only 30-40% were tranched.
I think this phenomenon is largely due to 1) more money going into biotech VC but 2) very little increase in the number of good startups. Many startups are created in house by 5-10 VCs (though this is changing, especially with increasing number of well funded Chinese startups), so there's limited bandwidth. Therapeutics is so different from any other type of startup that pretty much all the incubators / educational materials don't apply, and the only ppl who know how to start startups are those who've developed drugs at big companies or have started successful companies before
* Announced Series A through later deals, and some large seed deals ($5m+)
[0] source is a website where i've been tracking major biotech VC investments. i'm a hobbyist programmer and its on a free heroku plan, and i'm in the early stages of turning what was a personal project into a product so expect bugs and not-ideal performance. but deal coverage is comparable to other biotech databases.
Biotech investment has been accelerating significantly over the past year.
A few years ago, you’d see a handful of rounds over $100M. There have been several in the past couple of months.
And you make a good point about Asian investments in biotech. The Hong Kong exchange had its first biotech IPO and there have been several big rounds in Asian as well!
From my consumer's perspective, the most annoying part is when a company provides a service I like, they look like they could be reasonably profitable for an investment of x but not for 10x, and then they suddenly raise to 10x or more. It's inevitable then that they will eventually ruin the existing service in search (usually futile) for some mythical product/market fit that was somehow projected be appropriately profitable for that 10x investment.
It's particularly irritating with paid services, where all of a sudden paying customers turn from highly valued into a legacy nuisance.
I worked for a startup with a well liked paid product built through iteration (test prep product). Then it was dropped on the ground and discontinued cause they raised a hundred million and now needed to build the founders vision, a free consumer project designed and built for years without showing it to potential users. Didn’t work out. So I’ve seen that happen.
It is so sad when too much money destroys products / companies.
IMHO great products are only built when the ultimate stakeholder is the user and this can get very difficult to maintain when you are effectively not financed by your users.
Shit, this sounds like a previous startup I left. Product-market fit acquired, growing steadily, near-profitability. Then Series C, and sudden pivot to more ambitious product. A few months/years later (I left before this, seeing the danger) most of the staff gets laid off. :\",
This is basically a gross misallocation of these kinds of investment deals, but you're probably right and it's all too common. It says something about oversight as well.
There is a very real rationality behind SoftBanks ideal that they want to do things 'big' and 'dominate'. So, so many markets go to a single or small number of winners, and the surpluses tend to go to one winner.
SoftBanks strategy of finding 'something that is working' and then giving a company maximum firepower to basically replicate that thing and dominate globally, makes sense for them.
Now - some things don't scale well, and some things need a lot of market adaptation ... but the logic is sound.
Softbank 'threatening' a company that doesn't take their money is not very nice, at the same time, it's not really a threat, rather it's just the communication of their rational strategy: 'we take companies that have figured it out and give them the means to win the market'. Logically, if ABC Corp doesn't want to go that route, they'll be looking at DEF Corp and GHI Corp.. This is not new, just the scale if it all seems daunting.
The difference we're seeing in scale is due to the new reality that it's no longer about 'winning America', now it's about 'winning the world'. Much in the same way Hollywood films now, the big ones, are designed for international markets and without a theme, the stars, a story that will 'win' globally, the massive budget cannot be justified.
The notion of companies pivoting on something that's working, towards some 'grand vision' is kind of sad, but in a way understandable ... every one of us Entrepreneurial minded people have an 'irrational' bone where we want to 'do this thing' that compels us forward, it's just a matter of being very pragmatic about it.
$100M is a big round B or C or whatever, it's there to scale something, not to 'find a bigger product market fit'.
It's one of the classic mistakes of taking on too much money ... but it can be mitigated by really thoughtful leadership. If you take the money on the right terms, and spend it only as you needed it surely it can be mitigated, especially with the right kind of coaching, maybe by people who have been there.
I think the problem is that funds like SoftBank have a very "winner take all" attitude about startups. They threatened my startup by basically saying that if you don't take the XXX millions of dollars, we'll be happy to give it your competitor who will out-fund you. These vcs want to pump a company so full of cash that they essentially take market domination of a vertical.
> They threatened my startup by basically saying that if you don't take the XXX millions of dollars, we'll be happy to give it your competitor who will out-fund you.
The reality though is that most of the companies who take the money end up just giving most of it to Google or whoever and then going bankrupt 18 months later. At this point I think society would probably be better off if raising VC funding was banned for early stage SaaS startups since it's really just a form of dumping, but at least much of the damage is eventually self correcting.
Depends on the nature of the service, the range goes from something that could be served globally from a single box to basically reselling an upstream cloud provider.
But gp was talking about hiring persons, not servers. Advertising can be scaled back much easier than over-hiring. Even if almost everybody is fired again, the inefficiencies that established themselves during the headcount glut can usually not be unlearned again.
> Server costs tend to scale well with your customer base.
They used to, when they were your servers. Now that they're AWS's server, there can be a 10x price premium, which amplifies the problem introduced by provisioning for scalability at all costs.
When it's nobody's job to worry about costs, it's very easy for them to tend to balloon out of control. Of course, there's not much point in worrying about a $1M cloud bill with $100M in the bank.
It is scary to see how some companies do marketing and PR... Shoveling 10s of millions into companies that do not deliver short term value at all... You need ads and press and whatever to sell product, but there are many ways to do that. The Coca Cola ‘we need to be a household brand’ way is the most expensive and is probably not what a startup should be spending on, yet they do, a lot.
Coca-Cola doesn't spend a lot of money on marketing by choice. Selling a commodity is expensive because your only differentiation is brand and possibly distribution. P&G is another example.
I've noticed this too... shit I've even been on the dev side of it. I'm glad they pointed this out in the "Silicon Valley" show where Richard is told he could have just not excepted so much money.
I would love someone to write a blog post/article on this effect.
Came here to say roughly the same thing.
I really don't understand some of the numbers, especially for easily replicated business models.
e.g. 120M for MyDreamPlus, a co-working space start-up
Some back of the envelope stuff
approx $200/desk/month
If they could fill a 1000 desks a month it would take 50 years to reach 120M.
I've no idea what they consider what the company might be worth.
Probably real estate speculation. They probably will start purchasing real estate, use the rents to defray the mortgage, and then flip the real estate.
It's much like nuts in California's Central Valley. You generally make about even on the nuts or even a loss. But you make all the profit when you harvest the wood of the stock you grafted onto (generally something like Walnut).
The finance guys come in and make an expected lifetime value of a customer. So at $200 a month, that's $2400 a year. But right away they assume the average person will stay with them for 5 years, so thats $12,000 per signup.
Now that they have this figure, all math is based off it. So if you sign up 100 people you just made 1.2M of expected value. So if you want to be worth 120M you just need to be able to get 10,000 signups.
Of course, when reality hits this all falls apart. Customers churn with new competition, so the 5 years was too optimistic. You also to lower your rate to $100 a month to keep up with the market, and costs increase.
That's why you try to get acquired before that happens.
There really is a different mentality when it comes to startups.
When I think about any of my ideas I shoot them down because I can't see any value in them longer than 5 years or diminishing returns.
Can anyone recommend some good reading on where the value comes from or how it can be created?
>It's inevitable then that they will eventually ruin the existing service in search (usually futile) for some mythical product/market fit that was somehow projected be appropriately profitable for that 10x investment.
Or they will just be bought up and the result for the end user can be seen again and again.
Once a startup raises such insane amounts, they are forced to grow at the same speed. Which in alot of cases is just not feasible. That leaves only a buyout.
Or start-ups that are set up to just kinda help out like Patreon but now that they took massive investment they have to be greedy about what was supposed to be a charitable endeavor
An important point: I looked up the deals mentioned the article and they were all late stage, where such numbers are unsurprising. One company was a bit over 2 years old (and then did a Softbank deal); the others were 6-9 years old.
The article makes it sound like enormous A round deals are being done in commerce and tech.
Many of these rounds are replacements for what would otherwise be IPOs or other public financing rounds.
Flywire was founded in 2009 and in 2017 processed over $2B in payments. [1] Gusto was founded in 2011 with a rumored valuation of over a billion and $100M+ in revenues. Convene was founded in 2009 and was doing $18.6M in revenue in 2015 [2]. All of them have acquired other companies.
Before 2000 these would be public companies; hell, before 2000 there were public companies that were barely 2 years old and had virtually no revenue. The investors for these rounds are largely the same firms who would be playing in the public markets.
> what would otherwise be IPOs or other public financing rounds
The NYSE and Nasdaq do a lot of hype about how much money they raise for companies in IPOs and secondary offerings. But if you look at the numbers since World War II (and even before), very little of the money corporate America raises comes from the stock market. US corporations raise money via bonds, term loans, credit lines and so on. The stock markets facilitate stocks moving from one shareholder to another, but have (relatively) little involvement in raising cash.
As you note, companies are staying private much longer nowadays. Facebook didn't go public until it was worth $100 billion.
There are certainly benefits to staying private; no pesky shareholders to potentially overthrow you, less stringent reporting requirements and regulations, etc.
Of course, the reporting requirements and regulation compliance could also be considered a feature and not a bug, but those things are generally not considered a good thing for startups.
Indeed. It's a complete joke and a big reason why "the rich get richer". I, for example, believe that artificial meat will be one of the biggest industries in the world once governments outlaw the cruel and barbaric practice of producing the "real thing". I also want to support the beginning of that industry. But is there any way for me to do that? No. The deals are done in private with a few very rich individuals. If those companies ever go public it's just a way to cash out because they are already turning a profit.
Does anyone care to guess how many of these will return the principal? How many will turn a profit? Of those that turn a profit, how many will be engaging in some form of regulatory arbitrage (i.e. Uber and labor/taxi regulation)?
lots of literature is available on this (granted, not always clear what their source of info is).
In general, many funds at that stage are playing the unicorn game (and many raising 100M are already a unicorn or at least not too far away). Unicorn economics is basically, 1/10 will hit >1B in value while X% will be mediocre outcomes and Y% will fail. The 1 unicorn will return the fund generally speaking, after accounting for X, Y, opportunity costs (this is high given the strength of the markets lately) and interest.
I don't think the ultimate goal for many of these startups is to make a profit. I think most investors are expecting to be acquired by a tech giant at a huge premium.
These trends and actions aren't arbitrary. It's a reaction to the fact that the world is becoming increasingly "Winner take All". VCs, having enough information to recognize this fact, are now shoveling more and more money into fewer and fewer investments.
On the plus side, I hope that means we'll get more companies that are truely taking on Moon Shot problems and not just building another useless app we don't need.
The danger on the other side, is companies that use those large funds for rent seeking behaviors that hurt consumers in the long run.
Pretty ironic that a couple days ago there was some article claiming that China was about to collapse because it was going through "an orgy of investment" in an attempt to grow whilst its recent projects did not generate any actual revenue.
A professor friend notes a similar dynamic in grant applications. Certain big philanthropic groups only have bandwidth to look at grants that are >=$1M -- with predictable effects (grants balloon, the amount of time spent thinking about how to spend each marginal dollar asymptotes to zero, etc.).
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[ 3.3 ms ] story [ 243 ms ] threadSpending alone doesn't solve problems. It's similar to management by abdication and dumping the responsibility on someone else and wondering why it didn't turn out.
Definitely. I was talking to one startup and they were on the 5th round and they started in ~2016. They bragged that they had raised $100MM, but no mention of profitability or why they were raising so much.
Tons of people think "we raised $100MM" is impressive, what's more impressive is not blowing out your cap table and diluting everyone except investors.
Most everyone here will fully understand that effect. I'm skeptical the NYTimes et al. understands what it has done to the start-up vs capital equation however.
When Excite got started, you know what they needed? A $10,000, 10gb drive. Vinod Khosla had to provide it just so they could properly test out their search engine. Adjusting to today's scale, the equivalent might be three dozen virtual servers for tens of hours per month at a cost of $100.
I don't need venture capital to scale to a large size. It's beautiful, the VC aspect has almost entirely become optional outside of a few niche scenarios. That has provided the large capital raising start-ups with a lot of sustained bargaining power that they have never had before. If nothing else, you can simply wait longer to deal with VCs, boosting your position. That's not going away with the next crash (it will deflate some of course), that cost edge is here to stay. The leverage point is: can you actually build the thing, can you execute, do you have the ability / persistence / etc to get it done.
It really wasn't that long ago that infrastructure was the biggest cost in being able to prove out an Internet business and scale. Just to put on a good test of a product meant for scale you had to sink large sums of money in upfront. Today the people - their time - have become the biggest cost (unless you're in SF etc., then it's that and real-estate). If I want to start something today, my time is the (personal) red ink risk, rather than very large amounts of capital plowed into infrastructure.
Tech is likely to remain a key component of the next doubling of the worldwide economy (roughly every 15 years), make sure you capture some of that...
Depends on exactly what you're referring to. Sales & Marketing - sure, but that's because it's a zero-sum game (advertising is at least). But I would argue the cost to technically accomplish reach scale is much cheaper today than it was 10 years ago when $100M wasn't the norm.
Personally I don't think it is about actually needing the money. It is about wanting it. Thinking that if you have enough cash to burn, you'll be the next Google.
In reality, 99.99% (if not 100%) of them are going to burn through their bank and fly off a cliff in 3 years.
I'm paraphrasing the quote but it was something like "Not everyone needs to be next Google, Fb, Amazon. There is ton's of space for medium size $50 million/year businesses."
I don't want to spend my time and energy selling, and then later defending, a fantasy to investors. Nor the crushing anxiety that must come with that. I just want to build something that the economy values for it's utility, and pay my rent in the process.
Though I guess after acheiving that, I'd probably start looking up...
More funding like that means more companies trusted to spend that money into creating something profitable. If this goes into people who have grown companies into a unicorn a couple of times; scaling faster local operations lead by managers with relevant experience; AWS, GCP, Twilio & Square bills, it’s certainly expensive but overall sensical.
I don’t know of an investor who, since 2000 has said: “This is silly, I can’t invest anymore.” and left, so I don’t think the game got non-sensical overall. Real-estate in SF certainly has, but high valuations proved when they made sense and gave investors confidence. There certainly has been cases where the value wasn’t justified, but very few at that level of money raised. Certainly less in proportion than the rounds with crazy valuations in 2000
Who are these founders who have grown "a couple" of unicorns? There are huge numbers of them walking around now? More importantly: who are these mythical founders who have experience growing/managing a company by hundreds of percent in a single year? They're pretty thin on the ground. This money is going to inexperienced people. Save for (maybe) a few founders who lived through the late 90s, nobody has experience with this. It's new territory.
Also, Let's not kid ourselves: this money isn't going to AWS and Twilio. It's going to salaries, and it's going to marketing. And that's why it's risky. When you have to hire insanely quickly and buy revenue with marketing spend, it's essentially impossible to manage the growth. Overfunding is a real thing, and unless you've seen it firsthand, it's hard to internalize the perverse incentives it creates.
Risky to who though? S&M salaries are expendable. If you can achieve 90% gross margins, you can basically flip the switch, turn S&M off, and you're profitable.
> Overfunding is a real thing
Overfunding has only real two business-centric downsides: undue dilution and chaotic operations.
As they say though, revenue solves everything.
If you include probably several dozen people from PayPal (not just the six founders but the people who reported to them); hundreds of YCombinator alumni, who learned from their own failed company but leveraged the success of the friends they made in YC, and probably ended up working with; if you include people who have done their four years at DropBox, Zynga, SurveyMonkey, Twilio, etc. overall, yes, I expect to find several people with relevant experience at key positions in hundreds of companies. Some might have gone to investing full time, but they are if anything more likely to trust and advise appropriately their former colleagues.
A lot of them are “anonymous” in the sense that TechCrunch wouldn’t name-drop them, but they would be familiar with, say, SQLite, AirFlow, or know from experience whether RedShift is the right solution at scale; they would know how to setup a Salesforce cluster; who to ask about address format in South-East Asia; they know about bugs in Samsung’s Android video codecs; they would have coordinated a launch in Arab-speaking countries before, know that React works well with Big5, or know that VAT is processed differently in Islamic finance.
I expect those people to be asking for, and justifying convincingly compensations several times higher than what people could justify in 2000.
You are certainly right about marketing: I should have mentioned far better targeting and control tools. CPA probably went up overall, but more importantly: the ability to measure it, to optimise campaign, interrupt ridiculous PR stunts before they cost too much, leverage them, etc. all that has become better. Analysts measure LTV with less ridiculous estimations now. That justifies trusting people with more money because when you hit the product-market fit, you know that this money will make more.
Startups don't care about Salesforce or Arabic translations before they are many years old and have thousands of employees.
Skills startups do care about at the early stages - Self management/motivation and independence more generally - 0 to MVP fast, well and affordably - 0 to N customers fast, affordably - etc.
There are so many caveats of course. Some startups (ours for instance) builds hardware so you need a few engineers that are truly full stack (plastic forming -> css). Bio startups don't need any of this. The nuances of VATs really don't matter.
I’m seen many people from the companies that I listed, some who joined very early, some who joined after they had more than 100M raised, have the right experience to start a company, or join early.
My point is not that those people are essential, or even that their are a majority at big companies; my point is that, with people who can justify several significant failures and success, especially public ones like accelerators and major companies, you have stronger signal, more trust and one could interpret larger rounds as a sign of institutional progress.
Don't get me wrong, there are nuances between states and a few subtleties, but it's negligible compared to expanding across European countries or Asia.
So basically, you're counting almost anyone who worked at a big company or a successful startup in the last 20 years, even though virtually none of these people have any experience founding or building a company.
I think the engineers who worked in the teams that built things like BigTable at Google, RedShift at Amazon, React at Facebook, AirFlow at AirBnB, etc. all have a CV that, in a company trying to address a related problem, would be valuable. Many are given more responsibility, so you probably want to think less of a specific role and more of progression: an engineer who went from junior to senior internally in a handful or years, and was then promoted to principal at a new company, or from senior to principal and promoted to director.
I know (from my own repeated experience) that either that experience or the ability to reproduce framework rapidly is not just a big trump card in interviews, but also often quoted to investors, especially early on. I reported for a year and a half to someone who introduced himself as having “killed the Fail Whale” (Twitter’s infamous symbol that the service was down): he lead an engineering team in charge of the refactoring and service reliability. His name won’t mean much to you, but I know that this experience justified a comfortable compensation when he changed jobs, and a title of VP; his experience also justified an order of magnitude more money raised. There was little doubt he could use that money to grow and lead the then 35-engineer team and prevent the website from going down as often as it used to. It took him several months, some external consultants, a dozen more engineers, but at not point was he worried: he knew the culture, the methods, the priorities that would lead to a stable site, in spite of the insane growth.
When he refused to my team some key requests, he was very convincing because he was able to detail how that would make keeping the site up more difficult; and he was clear about priorities. We found a solution asking someone else, a principal engineer: he had joined as his first job a competitor to AirBnB, worked there four years until he was senior, wasn’t convinced they could win market shares, got hired by us as a principal because of his experience. He was also one of the dozen of personnel whose skill was explicitly known by the investors.
About half of the senior engineers (that’s more than a dozen) were hired from companies where either I, or one of those two people worked, on our explicit recommendations.
I don’t know if there are early staff at Google that “do not have experience […] building a company”. I’ve had the pleasure to talk to chefs (i.e. senior cooking staff) who moved from Google to Facebook, the facilities manager who did the same, a couple of the bus drivers: they all got recommended, promoted, because they genuinely provided exceptional service, shown fantastic initiative and understood what that type of company values.
I couldn’t imagine companies without that kind of support, managerial, operational, technical, etc. I would certainly never describe the people who built those companies with me like you did, and I can’t imagine that the founders and CEOs of the companies that I‘ve named would either. None lives under the illusion that they did it alone.
Ex-FAMGA [SWE/PM] builds a new CRM for X, or stack management library. Leaves FAMGA with a nice $300,000 cushion in the bank and goes to a scout Angel group for Sequoia and raises $5M to build and launch their product, product gets some traction, they sell it Google for $40M...and the cycle continues.
LOL, well...clearly, a lot of things "work for VC" that doesn't actually work. I don't think a VC would tell you otherwise, either. They're throwing mud at the wall, and seeing what sticks.
His comment said “people” not “founders”. Plenty of c-level execs have grown multiple unicorns. Plenty of employees have worked at multiple unicorns in the early stages.
Might I suggest to some budding founders that you try the revenue-funded approach. It's not as fast or as glamorous but the payout when you're successful is so much more significant.
[1] https://twitter.com/randfish/status/1028863855353417728
It has definitely hit main street
As I understand it, QE (and monetary policy more broadly) juices the supply side of the price curve, leading to a general rise in prices due to the increased supply of the metric we use to measure prices (i.e. dollars).
So it's likely QE has led to a general devaluing of the dollar that would lead upward pressure on all prices. The reason the three industries you mentioned have outpaced every other seems to be federal policies like subsidies and regulation juicing the demand side of the curve.
It also seems like those three industries are fairly insulated from globalization and, to an extent, automation, which accounts for a lot of the downwards pressure on prices, offsetting some of the devaluing effects of QE.
QE started 10 years ago, why is it only showing up in the "all prices" data now?
Inflation was historically low from 2009 to 2016, but is coming fast and hard now. This lends credence to the OP comment that it is flowing down to main street from higher economic levels. The higher economic levels are "assets" like homes, public and private stock, crypto, art, etc.
==The reason the three industries you mentioned have outpaced every other seems to be federal policies like subsidies and regulation juicing the demand side of the curve.==
Have the countries with more government subsidies and regulations in healthcare (almost all of them) seen the same inflation in helathcare costs?
https://www.healthsystemtracker.org/chart-collection/health-...
Looking at that chart, something happened in 2000 that caused our increase healthcare in cost as a percentage of GPD to accelerate.
Because that was never the goal. Investors are taking more risks because they have to in order to find return in a world where the interest rate was basically zero for 8 years.
The interest rate affects everybody, which allowed troubled banks to lend cheaply to each other in the wake of the financial crisis (good) but also means that low-risk investments generate very little return (bad). It’s the later that has pushed investors into riskier assets - whether or not that’s beneficial depends upon how much systemic risk there now is... which is not obvious, after all mortgage-backed securities were supposed to be safe but we all know how that worked out.
The treasury would like to raise interest rates but this means that consumer debt will cost more each month and is painful for homeowners especially. So it’s a slow process. We may already have trapped ourselves in unstainably cheap consumer debt - much like those 2005-vintage mortgage “teaser rates”.
If you want to compare apples to apples you need to set the numbers in the context and inflation (of any kind) is part of that context.
Given that we’re talking about high-risk, high-return investments of foreign money I don’t see why asset inflation is a particularly important factor - such investments will always be appealing. This money is being used to create good jobs and expand the real economy.
Inflation of existing assets, not startups, is far more problematic for QE, e.g. housing, stock market, where there’s no value being created.
"Hey, you have some capital, and we have this great thing that can serve the world. We're capital constrained, either for quality or for growth, how about we partner to make the world a better place?"
I'd like to fly across the sky on a unicorn while drinking whiskey with a leprechaun, but it's not really in the cards.
How many bootstrapped businesses can you think of in the Fortune 100/500? It's very rare to get to that size without the capital to make mistakes. Bootstrapped businesses generally have very little room for risk, and the ones with business models that can both be executed on and monetized profitably to > $100MM revenue/yr can probably be counted on two hands (e.g. GitHub, Plenty Of Fish, Braintree, GoPro).
If you or even a small handful of people own 100% of a company, you don't need $100MM ARR to get rich beyond need.
You won't become Bezos but bootstrapped companies don't need to become unicorns to make everyone there be filthy rich. There are tons of people who bootstrapped companies and are very well-off from it.
Lesson: The people in the US quite comfortable financially rarely took venture capital.
it's also really not obvious how, for so many different types of companies, you would scale up without being funded
Going public is also raising money--among other things.
You'd have to actually know what people are spending on housing, after accounting for spouses/roommates.
It could end more being more or less than 23 million, easily.
e.g. I spend ~22%
Also, some people will own their home or live at a family owned home.
https://finance.yahoo.com/news/peter-thiel-vast-majority-cap...
One could save money by living in Manhattan and flying to San Francisco for work. If time zones and transit were unrealistically fast and permitted such an exercise.
But that's a much shorter flight. It wouldn't surprise me if it worked for, say, Las Vegas to San Francisco.
Specifically, I was in Washington DC and the startup I wanted to work for was in San Jose. My then-girlfriend (now fiancé) has the kind of job that can only be done in DC. I agreed to fly out for a week every month or so and work remotely the rest of the time. I did it for a little over a year but the travel wore me out and I struggled to find a healthy routine working from home.
I see threads like this and think that the solution to this problem has to be more remote work. I just wish I could be one of the people for whom it works as well in practice as it does in theory.
At least in this case, the decision to be located in the valley was rational at the individual level, even if it may be irrational collectively.
I think Seattle, Boston, LA, and NYC also have critical masses of talent that make them acceptable for starting a tech company, but unfortunately those places aren't really affordable either. The decrease in proximity to talent and capital probably isn't worth the marginal savings in cost of living.
If anyone is going to break the chicken vs. egg cycle and set up shop somewhere truly affordable, I think it will have to be one of the big companies, opening up a satellite office and offering employees the ability to choose where they want to work. They're all so profitable that they don't seem to mind the money that's going to Bay Area landowners. I wonder how expensive things will have to get before they start to get creative.
The startup ecosystem feeds off of that and California's outlawing of noncompetes. Employees get bored at working at a big company and have an idea for some way to employ the technology they've learned towards another industry. There's ample angel investors & VC floating around because of the profitability of previous companies. Oftentimes they have a spouse at one of the big companies who can continue to provide stability & health insurance.
The list of famous companies out here that can trace their ancestry back to one of [Shockley, Ampex, Stanford, IBM, HP] includes Fairchild, Intel, AMD, NVidia, Kleiner Perkins, Sequoia Capital, Atari, Dolby, Oracle, Salesforce, Memorex, Seagate, Apple, General Magic, Radius, Claris, E-Bay, StumbleUpon, Uber, Danger, Android, Nest, Be, NeXT, SGI, Cisco, Sun, Tandem, Siri, Yahoo, Google, Odeo, Twitter, Square, YCombinator, Netgear, Netscape, LoudCloud, Ning, a16z, Instagram, Whatsapp, Paypal, Slide, Yelp, Palantir, YouTube, LinkedIn, and likely many others. That's using a definition of "trace their ancestry back" as "a founder previously was an employee of or student at one of the other organizations in the set." Pretty much the only major Silicon Valley companies that are not included are the various YC companies (Reddit, AirBnB, Dropbox, Stripe, etc.) and Facebook, all of which would be if you extend the definition of "ancestry" to include "seed funder was in the set". (YC is in the set via Stanford => Yahoo => YC, Facebook's first investor was Peter Thiel, who got his BA and JD from Stanford.)
Companies spend the the majority of their costs on office space, then employees spend the majority of their salaries on a home.
I was thinking 100k-200k for some reason :/
Some people commute an hour and get roommates and can pay < $1000
That's when they moved to a high quality office in a prime location on a rooftop. With a lot of free space, to accommodate hiring 1 person per week for the next year.
Have my doubts about this. Would love to see your sources
The math: most companies are doing roughly 150 ft2/employee. You can get good office space for $60 ft2; quite nice office space for $80 ft2. On the lower end, that will come out (+ services) to $5.50-$6 ft2/mo. So maybe $800 - $1200/emp/month.
Note you can do much better than that $60 if you don't want to be close to caltrain. I looked at stuff in the $40 range that was your standard peninsula office park.
As for housing costs... the bay area is fucking stupid. Next round (I'm a founder) we're going to be opening an engineering office anywhere else. Candidates are probably Chicago (ugh that flight), Oregon, Seattle, maybe Reno. The difference is is $150k barely making it or a pretty decent salary.
It's not just housing either. A founder friend bought health insurance for employees in Oregon. She thought her broker screwed up the price was so low.
Don't even get me started on the fuckwits in our government and the commute situation.
Office cost savings are $0. We can't incrementally buy office space. Plus a week of travel to sfbay costs order $4k each time.
Many of these rounds are tranched (ie you only get a certain amount upfront, then get the rest if you hit milestones), but I think I saw data suggesting only 30-40% were tranched.
I think this phenomenon is largely due to 1) more money going into biotech VC but 2) very little increase in the number of good startups. Many startups are created in house by 5-10 VCs (though this is changing, especially with increasing number of well funded Chinese startups), so there's limited bandwidth. Therapeutics is so different from any other type of startup that pretty much all the incubators / educational materials don't apply, and the only ppl who know how to start startups are those who've developed drugs at big companies or have started successful companies before
* Announced Series A through later deals, and some large seed deals ($5m+)
[0] source is a website where i've been tracking major biotech VC investments. i'm a hobbyist programmer and its on a free heroku plan, and i'm in the early stages of turning what was a personal project into a product so expect bugs and not-ideal performance. but deal coverage is comparable to other biotech databases.
https://bio-vc-tracker.herokuapp.com/
A few years ago, you’d see a handful of rounds over $100M. There have been several in the past couple of months.
And you make a good point about Asian investments in biotech. The Hong Kong exchange had its first biotech IPO and there have been several big rounds in Asian as well!
It's particularly irritating with paid services, where all of a sudden paying customers turn from highly valued into a legacy nuisance.
IMHO great products are only built when the ultimate stakeholder is the user and this can get very difficult to maintain when you are effectively not financed by your users.
There is a very real rationality behind SoftBanks ideal that they want to do things 'big' and 'dominate'. So, so many markets go to a single or small number of winners, and the surpluses tend to go to one winner.
SoftBanks strategy of finding 'something that is working' and then giving a company maximum firepower to basically replicate that thing and dominate globally, makes sense for them.
Now - some things don't scale well, and some things need a lot of market adaptation ... but the logic is sound.
Softbank 'threatening' a company that doesn't take their money is not very nice, at the same time, it's not really a threat, rather it's just the communication of their rational strategy: 'we take companies that have figured it out and give them the means to win the market'. Logically, if ABC Corp doesn't want to go that route, they'll be looking at DEF Corp and GHI Corp.. This is not new, just the scale if it all seems daunting.
The difference we're seeing in scale is due to the new reality that it's no longer about 'winning America', now it's about 'winning the world'. Much in the same way Hollywood films now, the big ones, are designed for international markets and without a theme, the stars, a story that will 'win' globally, the massive budget cannot be justified.
The notion of companies pivoting on something that's working, towards some 'grand vision' is kind of sad, but in a way understandable ... every one of us Entrepreneurial minded people have an 'irrational' bone where we want to 'do this thing' that compels us forward, it's just a matter of being very pragmatic about it.
$100M is a big round B or C or whatever, it's there to scale something, not to 'find a bigger product market fit'.
It's one of the classic mistakes of taking on too much money ... but it can be mitigated by really thoughtful leadership. If you take the money on the right terms, and spend it only as you needed it surely it can be mitigated, especially with the right kind of coaching, maybe by people who have been there.
The reality though is that most of the companies who take the money end up just giving most of it to Google or whoever and then going bankrupt 18 months later. At this point I think society would probably be better off if raising VC funding was banned for early stage SaaS startups since it's really just a form of dumping, but at least much of the damage is eventually self correcting.
More common to over-hire, I think. Server costs tend to scale well with your customer base.
But gp was talking about hiring persons, not servers. Advertising can be scaled back much easier than over-hiring. Even if almost everybody is fired again, the inefficiencies that established themselves during the headcount glut can usually not be unlearned again.
They used to, when they were your servers. Now that they're AWS's server, there can be a 10x price premium, which amplifies the problem introduced by provisioning for scalability at all costs.
When it's nobody's job to worry about costs, it's very easy for them to tend to balloon out of control. Of course, there's not much point in worrying about a $1M cloud bill with $100M in the bank.
I would love someone to write a blog post/article on this effect.
Instapaper, ugh. So frustrating to see a service I loved get absorbed by Pinterest and then spit back out. Meanwhile I've churned over to Pocket.
Some back of the envelope stuff approx $200/desk/month
If they could fill a 1000 desks a month it would take 50 years to reach 120M. I've no idea what they consider what the company might be worth.
Anyone have any insight on what I'm missing?
It's much like nuts in California's Central Valley. You generally make about even on the nuts or even a loss. But you make all the profit when you harvest the wood of the stock you grafted onto (generally something like Walnut).
Now that they have this figure, all math is based off it. So if you sign up 100 people you just made 1.2M of expected value. So if you want to be worth 120M you just need to be able to get 10,000 signups.
Of course, when reality hits this all falls apart. Customers churn with new competition, so the 5 years was too optimistic. You also to lower your rate to $100 a month to keep up with the market, and costs increase.
That's why you try to get acquired before that happens.
Can anyone recommend some good reading on where the value comes from or how it can be created?
Or they will just be bought up and the result for the end user can be seen again and again.
Once a startup raises such insane amounts, they are forced to grow at the same speed. Which in alot of cases is just not feasible. That leaves only a buyout.
Smyte comes to mind here.
https://www.theregister.co.uk/2018/06/22/twitter_swallows_sm...
The article makes it sound like enormous A round deals are being done in commerce and tech.
Flywire was founded in 2009 and in 2017 processed over $2B in payments. [1] Gusto was founded in 2011 with a rumored valuation of over a billion and $100M+ in revenues. Convene was founded in 2009 and was doing $18.6M in revenue in 2015 [2]. All of them have acquired other companies.
Before 2000 these would be public companies; hell, before 2000 there were public companies that were barely 2 years old and had virtually no revenue. The investors for these rounds are largely the same firms who would be playing in the public markets.
[1] https://www.flywire.com/pT/articles/how-two-boston-startups-...
[2] https://www.forbes.com/companies/convene/
The NYSE and Nasdaq do a lot of hype about how much money they raise for companies in IPOs and secondary offerings. But if you look at the numbers since World War II (and even before), very little of the money corporate America raises comes from the stock market. US corporations raise money via bonds, term loans, credit lines and so on. The stock markets facilitate stocks moving from one shareholder to another, but have (relatively) little involvement in raising cash.
As you note, companies are staying private much longer nowadays. Facebook didn't go public until it was worth $100 billion.
Of course, the reporting requirements and regulation compliance could also be considered a feature and not a bug, but those things are generally not considered a good thing for startups.
In general, many funds at that stage are playing the unicorn game (and many raising 100M are already a unicorn or at least not too far away). Unicorn economics is basically, 1/10 will hit >1B in value while X% will be mediocre outcomes and Y% will fail. The 1 unicorn will return the fund generally speaking, after accounting for X, Y, opportunity costs (this is high given the strength of the markets lately) and interest.
On the plus side, I hope that means we'll get more companies that are truely taking on Moon Shot problems and not just building another useless app we don't need.
The danger on the other side, is companies that use those large funds for rent seeking behaviors that hurt consumers in the long run.