Paul Graham's Letter to YC Companies
What does this mean for you? If it means new startups raise their first money on worse terms than they would have a few months ago, that's not the end of the world, because by historical standards valuations had been high. Airbnb and Dropbox prove you can raise money at a fraction of recent valuations and do just fine. What I do worry about is (a) it may be harder to raise money at all, regardless of price and (b) that companies that previously raised money at high valuations will now face "down rounds," which can be damaging.
What to do?
If you haven't raised money yet, lower your expectations for fundraising. How much should you lower them? We don't know yet how hard it will be to raise money or what will happen to valuations for those who do. Which means it's more important than ever to be flexible about the valuation you expect and the amount you want to raise (which, odd as it may seem, are connected). First talk to investors about whether they want to invest at all, then negotiate price.
If you raised money on a convertible note with a high cap, you may be about to get an illustration of the difference between a valuation cap on a note and an actual valuation. I.e. when you do raise an equity round, the valuation may be below the cap. I don't think this is a problem, except for the possibility that your previous high cap will cause the round to seem to potential investors like a down one. If that's a problem, the solution is not to emphasize that number in conversations with potential investors in an equity round.
If you raised money in an equity round at a high valuation, you may find that if you need money you can only get it at a lower one. Which is bad, because "down rounds" not only dilute you horribly, but make you seem and perhaps even feel like damaged goods.
The best solution is not to need money. The less you need investor money, (a) the more investors like you, in all markets, and (b) the less you're harmed by bad markets.
I often tell startups after raising money that they should act as if it's the last they're ever going to get. In the past that has been a useful heuristic, because doing that is the best way to ensure it's easy to raise more. But if the funding market tanks, it's going to be more than a heuristic.
The startups that really get hosed are going to be the ones that have easy money built into the structure of their company: the ones that raise a lot on easy terms, and are then led thereby to spend a lot, and to pay little attention to profitability. That kind of startup gets destroyed when markets tighten up. So don't be that startup. If you've raised a lot, don't spend it; not merely for the obvious reason that you'll run out faster, but because it will turn you into the wrong sort of company to thrive in bad times.
--pg
203 comments
[ 3.4 ms ] story [ 225 ms ] threadThe goal of the VC game is to get 10x+ returns. That only happens for early or mid-stage investors if there are investors down the line investing at higher valuations. Those late stage investors depend on the IPO exit. If the late-stage investors lose confidence (which is what appears to have happened), the mid-stage investors lose confidence and thus the entire market contracts.
From the other side, the entire wall street game is crashing. People, for better or for worse, are convinced that the entire equities game is a sham. Volumes (which lead to commissions and revenue for the firms) are down in all of the asset classes, and the bonds have reached near-ponzi yields (swiss bonds actually have negative yield, which means investors are actually paying interest ...), so the "retail investor" who traditionally buy into the IPOs aren't playing a significant role anymore
That said, I have more faith in pg's market timing abilities than in Sequoia's.
The email is counter-intuitive because being truthful and signalling a possible crunch speeds up the observation. It also gets you trampled as the herd looks at the lead changing directions ~ http://news.ycombinator.com/item?id=4067278 but it also forces teams to 'adapt' quickly.
Bubble 2.0 - Ship a product, make sure you have enough users, and money will follow you.
Post this bubble, is it going to be: "Make profits, because that is where your money is"?
I am not implying bubble as a bad thing, fwiw.
edit: grammar
Facebook is an amazing company with some of the best people in Silicon Valley working to make Facebook a once-in-a-generation company.
But if Google debuted at $25b, and grew into a $200b company, how can Facebook grow by a similar multiple starting at a $100b valuation?
In my opinion, opening at $38/share sucked all the oxygen out of the room, in the IPO market, especially the later stage market, and potentially downstream as well.
Instead of debuting at $50b or even $75b, the delta was the price of the collective hope of entrepreneurs and early stage startups everywhere.
Because at the end of the day many investors will ask, "If even Facebook couldn't do it, who can?"
The price of leaving a little money on the table for most retail investors would have been worth the good will and Facebook's reputation. Because Facebook really is a great company that is doing and will continue to do great things, but PG is saying the air is gone, and no one knows if more will come.
Is all this a bad thing? Perhaps more companies should be valued based on revenue in stead of API calls/month etc.
The money that was there to be made in the Facebook IPO was made before Facebook went public in the secondary market. For professional investors that are getting in at the seed round until the C round or so, Facebook isn't indicative of a problem. Those investors can still make money, it's just that they are going to exit via secondary markets now instead of an IPO.
Will Facebook get back to $100b and beyond? yes as soon as it starts making more money.
Some people (including me) just think the E is going to move up, rather than the P move down. I made this mistake with LNKD -- thinking it was an absurd P/E, not realizing that the costs were relatively constant and that increasing revenue would produce huge increases in profits.
In 2004 Google Maps didn't exist. Android was an independent entity. The Google server farms were still few and far between. It was a search-based advertising company and nothing more. You could argue they're still fundamentally the same, but that's just because they have a rock-solid foundation to expand from.
Facebook in 2020 could be a completely different company and who knows, maybe a $500B one.
There is also a possibility that Facebook won't be able to monetize with the same effectiveness as Google. It's also possible that Facebook will have fewer active users in 2020.
Valueing a company purely in terms of its current cashflows and assets without taking into account its potential is wrong. I'm not saying that. Companies have quality and Facebook is absolutely a quality company. This way of thinking about businesses (good companies & bad companies) is rightly ingrained in the way we talk about companies. Talking about them as over/under valued companies seems shortsighted and it is, especially if you are talking about startups. When good startup investors make their most hopeful investments, valuation comes second.
This is also true of bigger companies. Google has quality that Yahoo doesn't. Facebook has quality that Groupon doesn't. Warren Buffet evaluates companies this way - great companies at a fair price.
but..
every rule of thumb has a reductio ad absurdum. "Valuation doesn't matter if the company is a great company" only goes so far. The way Facebook was/is valued takes into account their potential to grow like Google. It takes into account their potential to be the biggest company in the world. It doesn't take into account their potential to fail. The way its priced even defines as failure outcomes that should be defined as success. If Facebook can double its profits every 3 years for the next 10 years they'll probably still be a moderate failure for those who bought at $100b. If they double every 5 years, it'll be a bomb.
The clearest message in PG's letter is simply "The startups that really get hosed are going to be the ones that have easy money ... So don't be that startup."
If you have a viable business then you can either a) proceed without venture capital or b) prove yourselves enough that you'll get the terms you need. Yes, (a) may make you move slower, and (b) means that potentially brilliant ideas that have a bright side just past the edge of horizon are more difficult to get off the ground, but this has always been the case.
One of my mentors always quotes "you don't know the value of your captain until you hit turbulent waters". These are our turbulent waters. For those of you ready for it, this is a time of opportunity.
Also why did this disappear from the front page, and then reappear?
[0]: http://www.businessinsider.com/facebook-fallout-y-combinator...
I've been having a hard time formulating what I'm about to write so I apologize if it doesn't make a lot of sense. I can't help feeling that the Facebooks and Twitters are using the web in a way that there really isn't a proper infrastructure for. They seem to be quite expensive to maintain and, by nature don't generate lots of money by what they do. In my opinion, if they charged they wouldn't be able to build the big networks of interconnected users that defines their value.
I think there are ways past this conundrum but I don't think that profit motive will be the what pushes them and I think they will require a somewhat different infrastructure than we have now.
Just curious, but I'd like to hear your opinion on why this is the case, vs all the naysayers that are betting against the company now. Do you have any specific point you find that Facebook can leverage to maintain success?
Plus Mark himself is such a fearsomely effective person. And so young; he's only a little older now than Larry and Sergey were when they started Google; so he still has the energy and mental flexibility that's usually the only asset of founders just starting out.
All it takes is for Facebook to go from $4 a user/yr to $8, or for teenagers to say "email me, I don't check facebook often". A powerful coil indeed.
Facebook exists because I would not like 500 friends to email me every day about their photos or jokes. That sort of thing doesn't scale well with emails.
They have now become a tax on life - like email. A set of hygiene actions you have to perform every day.
Do not underestimate how much the next generation does not want to conform to the restrictions of the previous generation.
It's entirely possible future generations do not want to be tracked and targeted 24/7 - they may choose to just switch off and drop out.
50% youth unemployment in some first world countries right now. These guys may just decide to do things differently - what is social technology doing for them right now?
You're dead right that each generation wants to be in a social space that feels "theirs", but I don't think that precludes using the same infrastructure.
When I was a teen, I drove on the same roads and used the same telco and USPS as my parents, even at my most rebellious times. In Facebook's case, each user "feels" a tiny piece of the overall universe, and one which is vastly disproportionately populated with people they've mutually selected. That, coupled with meeting jwz's use case above, makes me feel that Facebook is pretty well positioned to succeed.
Those industries exist because of the government monopoly, a new better social network can arise in an instant.
For example, even slight change to the feeds, like inserting what vaguely seems like an Ad, raises a huge uproar from people.
In contrast Google had got Adwords figured out (but it was not as widely known) before their IPO.
I'm pretty conspiracy-theorish on the whole Facebook thing. A part of me wants to believe Mark managed to hack the entire system. He got the maximum amount of money out of the IPO to build up a huge cash reserve for his company. He made his big acquisition before the IPO; future acquisitions may be harder now that the share price is what it is. But he has also sent a shock wave through the entire eco-system. If things cool off a bit, he'll be able to find more talent to work at Facebook at more reasonable prices. He won't have current employees looking to run off and start a bubbly startup. It just seems like a brilliant hack :) I'm probably reading far too much into the whole situation.
During this cooling off period, Facebook can disregard their short term share price and experiment wildly until they figure out something that works. There's not an investor alive who thinks there's anybody more capable than Mark Zuckerberg for Facebook CEO. Nobody will oust him in the short- to medium-term.
Facebook is a very much in the same position that Amazon.com was in around 2001. They have the means to figure this out. Other startups trying to follow suit don't have this luxury any more. But Facebook sure does.
EDIT: For context, this was a contrarian opinion of Amazon.com in 2001 http://money.cnn.com/magazines/fortune/fortune_archive/2001/...
IMO, its like this. We spend a lot of time here on HN. Just like a whole lot more people do on Facebook. But we come to HN for a specific purpose to engage in these kind of discussions. Just like it will be difficult for PG to convert this into something else which makes more money (PG gave the example of a market place), I think it will be no simpler for Mark Zuckerberg.
PS: This was my take on FB, before the IPO http://news.ycombinator.com/item?id=3949048
Even Google knows that's dangerous.
Just like we come to HN for discussions, which our social circle on FB is not able to satisfy. Similarly, people will continue to go to the best search engine for searching for information.
Even today, if you want to get an overall sense of what people are thinking in general, you go to twitter search. Facebook you mostly search for persons, and what they are doing. It will be very difficult to change that.
PS: I realize my first para is speculative. And the rest is opinion.
There is no reason why Facebook can't become that. If Apple can make phones and Google can make phone OS. If Microsoft can make gaming consoles.
There is nothing stopping FB from doing it.
Google put G+ on its home page, with not much success. Similarly, why should FB get a leverage out of just putting search on its home page. Unless the search is really better than Google's. What advantage FB has over say blekko in competing in search?
Ads, movies, music, even games aren't really what will help then make huge amounts of money. Transactions will.
Let me take just take one example of 'movies' from your sentence. Would you think of Youtube or Facebook as a natural choice for watching paid videos/movies?
Likewise, IMO, there will be specific things for specific purposes.
I will proffer that the specific purpose for FB usage are things like vanity and managing one's image (how one wants to be seen in their social circle).
Recently I am seeing some 'xyz watched some <abc video> on Social cam' kind of statuses on FB, of some xyzs who I am sure have not noticed such broadcast to their friends. These kind of mistakes, might just result in some very embarrassed and angry people.
(Am I the only one scared of clicking on anything, on any web page on the Internet, that is wrapped in 'Facebook blue' ?)
I believe the privacy concerns of these kind are going to spread to a wider base of people.
Edit: rephrase
This is true. Since I observed this. I take care to log out of Gmail/Facebook/Twitter once I am done with them. And I never browse anything when I'm logged into into one of those sites.
>>Am I the only one scared of clicking on anything, on any web page on the Internet, that is wrapped in 'Facebook blue' ?
A lot of people are scared. I had to call friend to tell him personally that the <abc video> he watched that is showing up as the status might be embarrassing and he had to login and delete that from this status.
It would do techies a lot of good to realize this is not true for most people. People do not have "specific sites for specific purposes". To most people the web browser is the internet. The distinction between different pages is fuzzy at best. And at this point facebook itself is the internet to a lot people. If facebook offered a compelling X experience (X can be anything here), people absolutely will use it. Do not fool yourself into thinking most internet users compartmentalize their internet usage. They absolutely do not. That is the power of facebook.
Agree on your point that barrier to entry is higher for G+ than FB Search (if it launches).
Regarding Search: I would ask, how many people overall use Google search and how many use Facebook in the world. I would guess that the number is sort of equivalent, with google search users being slightly more than FB users.
And if that's the case, then what is to make people not use google search and shift to FB search (which is yet to be, BTW!), unless the quality is vastly superior. Which in my opinion is not an easy thing to achieve.
Also regarding any generic feature X, I doubt if people who are very new to Internet can start flashing their credit cards, if FB asks them to. Yes, they could be perhaps made to click on any thing, which again means just Ads. But, even in this, I think, we could be underestimating the intelligence of an avg. Internet user.
Also Google Adwords has a strong knowledge of user intent. And hence the Ads are useful for sellers. Over here, they are like TV Ads, but with a difference. And that difference is they can be ignored.
edit: minor rephrase
The point is, I don't think facebook has to do anything fundamentally better than google to win many converts. The results just can't be obviously worse. And for what most people search for, I don't think this is hard. Celebrities, sports, products, etc; I'd say that's low hanging fruit considering the amount of brainpower facebook has on its payroll. The long tail search that google is famous for isn't likely to matter to the facebook user targetted here.
An obvious case study to a company leveraging their userbase to grow out of their original business model is Amazon with its kindle. It was a great product certainly, but the benefit having it advertised on the top of their landing page can't be overstated. So many people are intent on putting facebook in a social box and saying "well they can't monetize social so they're doomed" is short-sighted. Social is just the hook, there are literally endless ways they can monetize all those eyes.
I think they're just waiting until they've completely solidified their #1 position to concentrate on making more money. It will seem obvious in hindsight that they make $20+ billion, the way it does for Google now. It may never be quite as good as Google though, but max potential is especially hard to predict.
True.
But if you are constrained by your team (ie, you can't work on everything at once, which Facebook says is their biggest constraint) and you have plenty of easy money from investors, why would you try and profit now and risk another service taking your audience when you could possibly build something that can profit for years to come?
You're right that they haven't tried to make money yet. I once raged to a friend at Google that Facebook's use of ads displayed an utter lack of creativity or seriousness about building a business. (I also argued that Google should not try to tackle Facebook on its home turf, but if it really wanted to attack it head-on, it would need to build a destination site instead of merely "socializing" all their products. Sadly, that destination site turned out to be G+, and then they used it to socialize their products.)
There are two Facebooks. One is an identity service, built on a noisy social graph accreted over the years, which Zuckerburg is hoping to make as fundamental as DNS for the modern non-anonymized web. The other is a micro-blogging and photo sharing site on top of that identity service. Both are going to be hard to make money with.
It is really difficult to directly monetize the core identity service. They can attempt to provide the service as a bona fide piece of Internet technology (e.g. opening up retail locations to verify accounts in-person, or by partnering with wireless providers that sell their eventual phone), but then governments and others will get into the act and require open API access to the user information and graph data. As soon as that happens, they've given out their crown jewels.
Any other mechanism for monetizing the identity service is tantamount to providing advertising on the back of your driver's license, or making your social security card into a frequent-diner loyalty card. People won't like it, privacy advocates and anti-corporate doomsayers will have a field day, and governments will start interfering with their core tech. (A good strategy for Google might be to work on a stealth, open-ID based "Plan B" to have in their back pocket, for the day if/when Facebook does shoot itself in this foot like this. They've certainly screwed the privacy pooch before.)
And as for the other half of Facebook, they are in a crowded, fickle space, and their offering there isn't actually that great (and I say that as a user and a technologist). Twitter, Pinterest, and a host of small startups are very real threats. Mark paid $1B to keep Instagram from Twitter and maybe Google; how many more of those can he afford? Furthermore, Apple has enough cash in the bank to buy two Facebooks, even at its massively inflated P/E, and its gaming platform is tied to a much broader, more sustainable group of customers than Zynga's "whales". I've personally spent over $100 on iOS games - and barely noticed that that was the case. It was easy, casual, natural, and I will probably continue to dump more money into the iOS ecosystem, because it works great. I've spent exactly $1.98 to buy two Zynga games, mostly to get rid of the annoying ads, and I've stopped playing both.
Lastly, Amazon, whose customer profiles include credit cards and addresses, and whose social information is tied in to actual purchasing intent, has yet to reveal the punchline in its Kindle strategy. Just as 'selling books' was not the ultimate purpose of the company, I am fairly certain that 'reading books' is not the ultimate purpose of the Kindle. One concept: A Kindle fire with a barcode scanner turns every single aisle in every brick & mortar store in the country (with 3G signal) into a showroom for Amazon. Add passive background RFID scanning as the user walks the aisles, and it's a brave new world of retail.
TLDR: Mark is a smart and capable guy, now backed with fresh cash, but he's got to apply some creative thinking to demonstrate that he can actually milk his cash cow. His worst case scenario is to become basically Verisign, and I have not seen them demonstrate any new thinking to suggest this will not be the case.
Any economical transaction involves a social transaction as well. Facebook, can be the underlying architecture of every economy.
Facebook is at the core of a large, new economic ecosystem: apps, websites, ads, mobile, causes, almost everything you can think of. They can enter in any business, and for sure they are going to expand these below, to rich an enormous amount of revenue over the next years.
Ads: I don’t know about any platform that will be able to show ads to (soon) +1B people. Their current page views is impressive, around 1 trillion/month. Ads revenue still small, compared to the amount of users they have, because the right formula to show the ads to the right people takes time to arrive at a perfect level. But when it does, it will be like a sniper, it will show a product/service you want, the moment you want. The social graph is becoming the DNA of the entire world population, it will increase its value as time passes.
Platform/Apps: They have built one of the biggest platforms with 9MM apps. Third-party apps integration and the entire FB platform is just one the most powerful things on the internet. It allowed new companies to plug into the FB community and scale a new user base quickly. FB is basically becoming an app ecosystem, maybe more powerful than Apple itself. Millions of devs are implementing their FB authentication system “FB connect”, giving FB the ability to know every detail about an app usage, the ability to gather data and visualize those data to people that matter to them. Moreover, with the new App Center they can send a big portion of traffic to various mobile app stores and take a cut out of the revenue for all those “price x install” apps: in May 2012, 90MM users were sent directly to Apple’s App Store. 7 of iOS Top 10 apps and 8 of Android Top 10 apps are integrated with Facebook. App maketing is very lucrative. The ‘LIKE” button is having a tremendous impact on media, brands and basically on the overall internet traffic; it’s a viral machine. And being able to show “events/actions” in a user timeline, is incredibly powerful; listen, watch, read, cook…can you get an idea?
Specific APIs: There is some sort of overlap between APIs and FB platform. As of today all FB APIs are free. But I don’t believe in giving for free additional value will last forever. Directly or indirectly FB will start to monetize its API calls. Directly by charging the premium usage of the Social Graph data or other specific ad-hoc new APIs and indirectly by taking a cut of the revenue that third-party developers are generating by leveraging FB APIs. The Social Graph owns more than 100 Petabytes of user data, that’s 2x the size of the entire written works of mankind. 12,8% of the world population generates real-time data, analyzed and stored by Facebook. Obviously, some APIs will remain free but the rest will be a cash machine.
Coupons/Deals: They failed here, but they will not give up. With FB Mobile, they know where you are. They can show you related deals the moment you enter in club or a grocery. A Groupon-like experience, but empowered with a more accurate location, your personal tastes and of course, friends with their recommendations.
Facebook Credits/Payments: I believe this is going to be a tremendous revenue stream over the years. It may even surpass the Ads revenue one day. I envision a world, where every time you have to pay over the internet and offline you will have to just click a button: “Pay with Facebook Credits” from Ebay to Expedia or use your FB mobile app at the cashier. It will become the universal currency.
Much more: there are a tons of things that they can do, from user subscriptions (imagine having just 10% of the users paying $9/month to access premium services); travels, to organize weddings. But you know what? They don’t need to, there is the platform for that.
Facebook is basically becoming a new kind of telco. Facebook is speed. A new version of Facebook is released every Tuesday, there ...
> Agreed. Facebook could do everything.
no they can't. They can't turn to hot-dog seller. Sure they can try, but every time they try to do something other than social networking, they will be losing users.
> Ads: I don’t know about any platform that will be able to show ads to (soon) +1B people.
It doesn't matter to how many people they can show ads. What matters is that how much value out of ads the advertisers can get (conversion?). More and more of my friend try to advertise with FB once, and then stop. The bottom line: FB ads don't work! And its not Facebook fault! Its that they are in business of connecting people, not advertising products. By now, 99% of Facebook users' brains are automatically coded to ignore ads on the website, regardless how intrusive those ads get. At some point, one of my friend, totally non-tech-savvy actually searched for ad blocker, found it and successfully installed, because she was so annoyed with ads. The biggest FB Ads weapon, so called "likes" do not work either. I "like" Ferrari, but what does it means? I like fast cars? I like racing cars? I like Ferrari as a brand, or do I actually own Ferrari? Or am I planning to buy one. Because for advertisers, there is a huge difference. Google solves this problem via their core product: search. Wanna buy Ferrari? search "buy used Ferrari" or "Ferrari prices". Need parts for Ferrari? You search for parts. Facebook has no way of knowing any of these from simple "Ferrari like", which makes "likes" irrelevant to Advertisers. Even recently GM withdraw $10MM of Ads founds. You know, they have entire Ad department, so they know what they doing.
Bottom line: show me 10 successful advertisers on Facebook, but other than Zynga or "lose 20 pounds quickly" scams.
> Platform/Apps: They have built one of the biggest platforms with 9MM apps. Third-party apps integration and the entire FB platform is just one the most powerful things on the internet.
Well, I don't know about powerfullness, but the main reason behind FB connect is people's laziness to create another username/password. Other than that, there is not much value in connecting any Platform/App with your Facebook account. I have some friends that lost connections because they let SocialCam or other garbage to spam their wall without their direct knowledge of how this connection with FB will work. So more and more users trust less in connecting their FB with Platform Apps.
Further, Apps on Facebook do not make money. What was the last time you or anyone you know bought an Facebook app for 99cents, versus Apple App Store App? There will always be a higher quality of Apps on apple because guess what: surprise surprise! - developers like to be paid for their hard work. I won't even comment on your "facebook ecosystem may be more powerful than Apple". I know you were joking!
> Specific APIs: There is some sort of overlap between APIs and FB platform. As of today all FB APIs are free. But I don’t believe in giving for free additional value will last forever.
Well, there is not much money one can make on specific API. Sure, if an average developer makes $1,000 bucks on connecting with FB Api, then they will start charging. But as of now, there is no monetary value to use their API. That's why its free. They won't convert it to paid unless people will start benefiting off of it (make money); otherwise they would chop off the tree they sitting on.
> Coupons/Deals: They failed here, but they will not give up.
How do you know they will not give up? do you have any insights? Also, don't forget if Ads on mobile will get too intrusive with deals popping up every time I am around Verizon and simply want to check friends feed, people will start to disabling their location. Because - once again: Facebook main core product is social network, not apis, not deals and coupons, not credits! network of connected friends!
> Facebook Credits/Payments: I believe this is going to be a treme...
LinkedIn for one, despite way more short-sellers than FB and despite the past month or so, still seems to be doing okay despite "all the naysayers that are betting against the company". Facebook is complicated, but undoubtedly is well-positioned for a lot of potential upside.
(Disclosure, I don't have positions in any of the companies mentioned here nor do I intend to initiate any in the next 72 hours.)
That will make it harder for the B-Grade VC companies to raise money, which will reduce the valuations anyone else has to pay to invest.
That has the potential to drive hundreds of millions of dollars into the angel space overnight, sending valuations through the roof or at least keeping them propped up for a while.
Not really. The crazy valuations were typically occurring when VC's got involved at the A round or later - not when early stage investors are working. A lot of early stage investing is done using convertible notes anyway.
Poor market sentiment also affects M&A. I remember from my banking days in 2008, where one of my clients with $2 billion in cash wouldn't even fork over $100 million to acquire a company at 9x revenue with 80% revenue growth.
So over all exit options are appearing less attractive for VCs, thus they're likely to fund less companies at lower valuations.
Also check out Fred Wilsons response (http://www.avc.com/a_vc/2012/06/some-perspective.html). He makes some good points about the returns still being pretty damn good.
When VCs are worried that they won't ever get a multi-billion dollar IPO to cash in and thus generate returns they will be forced to get the same junk of any given start-up for less money in order to create the the same return factor.
Anyone correct me if I'm wrong.
How do you evaluate that? Facebooks Market value is 70 Billion. Its P/E ratio is 86. If that isnt an appraisal of a strong position, what is? Where do you draw the line?
That's certainly a defensible position: the company is stable and profitable as is, but the current valuation has a lot of growth priced in, which could only be realized by growing revenue per user substantially, and they haven't yet demonstrated how they're going to do that.
But Goldman Sachs and DST had to get their money back somehow...
On the technical side, the bulk of algo and technicals trading above a 1-2 day timescale would presumably not have been trading at the IPO. I'd venture a guess that these algo and technical traders provide the bulk of day-to-day price stabilization so their opinions matter, rightly or wrongly.
Ratio-driven fundamentals investors often look for, e.g. quarter-to-quarter metrics (changes in margin and so on), so they too lack the information to participate in their preferred manner until the next earnings report. I'd guess that the bulk of big pension and mutual funds operate in this fashion.
In short, the people transacting 7 days ago were not particularly representative of the market in general.
If your startup has no business model, you better think of one fast. If your startup has no revenue or a lack of it, you better start generating a lot more really soon. If your startup has a solid business model and is cash-flow positive, it's time to start leap-frogging the competition and adjusting the course. This is the time when good companies become great ones.
Dropping to 26, not so much.
http://en.wikipedia.org/wiki/Canary_trap
Wrt email however, I don't think Paul really minded that it was leaked or just realized it was futile to stop it, perhaps that's why he un-killed it.
Re: "Semantic Scramble", this was/is used quite successfully in a university course I tutored. Students are supplied with Java code featuring a unique comment style (/ * */). So many students blindly copied code out of another student's assignment and submitted it as their own that we could effectively generate a map of the plagiarism without even looking at the code -_-
For images steganography would work easily enough and for "semantic scramble" see "Practical Linguistic Steganography using Lexical Substitution"[1] from EMNLP 2010 =]
[1]: http://www.cl.cam.ac.uk/~sc609/pubs/emnlp10frannie.pdf
Clearly labeling every instance of the information with how sensitive it is also helps (per page or per paragraph).
It's unrealistic to build a separate semi-airgapped network for most business purposes, but email is broken for sensitive information -- some kind of document room/DLP/etc. system is probably a good idea.
I'm missing something here. What makes "down rounds" so dilutive? I'm assuming we're talking about a larger effect than the obvious "lower valuation = handing over more stock to raise the same amount of cash" effect.
These investor privileges often drastically change a founder's control of the company, and their payoff vs valuation curve, even for a nominal valuation that is "at par" for the founder's nominal equity value.
http://www.businessweek.com/smallbiz/content/jan2009/sb20090...
I am not sure about this but I can imagine the down round VCs also want the same exit valuation guarantee, i.e. if first round got 1x liquidation preference at $8M valuation the down round VCs in a $6M round might ask for 1.33x liquidation preference.
But, one area that I am still waiting to see play out is the intersection of secondary markets and IPOs. People have raised the examples of Groupon, Yelp, and FB (Zynga is another that comes to mind). All social, yet all different. Groupon has had some interesting accounting practices along the way, FB was richly priced by the secondary markets.
I have yet to see any big name, non-social, companies really test the markets, and I mean when they are in a position to do so -- strong product, strong revenues, and strong path moving forward.
Given what is happening in Europe and the world markets in general, there will be an impact on investment.
There have been basically 3 downturns (as I believe cdixon mentioned) in the last 12 years, is this the 4th? Or is this a by product of new avenues like the secondary market?
I have no idea, but it will be interesting to see how it plays out.
"The startups that really get hosed are going to be the ones... that pay little attention to profitability."