[HN Gopher] More startups throw in the towel, unable to raise mo...
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More startups throw in the towel, unable to raise money for their
ideas
Author : gavi
Score : 108 points
Date : 2023-06-09 14:31 UTC (8 hours ago)
(HTM) web link (www.wsj.com)
(TXT) w3m dump (www.wsj.com)
| oofta-boofta wrote:
| Juicero raised $118.5m, the other shoe was bound to drop.
|
| I don't think the current landscape of VC funds actually knows
| how to spot value even if it sat on their face and called them
| daddy. They're throwing darts at a board, basically.
| [deleted]
| JohnFen wrote:
| The cold fact is that _nobody_ is good at this. Predicting the
| future is inherently a fool 's game.
|
| VCs mitigate this by dealing in multiple ventures at the same
| time. Aggregate movements are easier to predict and, as VCs
| themselves often state, it doesn't matter if 90% of their
| investments don't pan out, because the 10% that do more than
| make up for the loss.
| wnc3141 wrote:
| Is it just an early stage index fund?
| JohnFen wrote:
| Not quite the same, but based on the same fundamental risk
| mitigation strategy, yes.
| notacoward wrote:
| Is the problem _really_ that there 's no money, or that what
| money exists is busy chasing only a few product areas (like
| third-tier AI startups)? AFAICT funding for anything that wasn't
| the VCs' obsession _du jour_ has been hard to find for quite a
| while. If it 's also drying up for "target area" startups that
| have both questionable vision and questionable leadership (and
| many are worse in both dimensions) then that almost seems like a
| good thing.
| sirspacey wrote:
| Great points, but yes there really is "no money."
|
| LPs are the real decision-makers on capital allocation and
| almost all of them are pension funds. Pension funds have almost
| zero chance of staying solvent unless they can drive above
| market returns.
|
| Right now that can be done on interest rates alone.
|
| Zero interest rates meant they had to deploy capital, so many
| VCs were able to raise.
|
| But most VCs will never get a chance to raise another fund.
|
| Like you pointed out: don't be fooled by all the info out there
| about how VCs' think. Watch what they do.
|
| Like everyone, when it's not clear how to deliver an expected
| outcome they flock to "what everyone else is doing."
|
| Today that's generative AI. It's a lottery, a few VCs will get
| lucky.
|
| But the volume of future capital available to raise has
| collapsed & there's no indication it will recover.
|
| Worse, incumbents have captured almost all the advantage of
| AI's current capabilities.
|
| So VCs are going to return to funding startups in their social
| network, for the "hot topic" they must have an allocation in to
| stay relevant, and put all their eggs in the safest (perceived)
| basket.
|
| Most will be out of a job as soon when the money runs out.
| 0zemp3c wrote:
| > LPs are the real decision-makers on capital allocation
|
| is this true? afaik they hand over their money and trust the
| partners to allocate
|
| > and almost all of them are pension funds.
|
| pension funds can go to taxpayers for a bailout and CalPERs
| has done so before
|
| this is why it is not a great idea for pension funds to play
| in venture capital...it isn't fair for taxpayers who have to
| pay out the losses to keep the pensions running
| sirspacey wrote:
| It's hard to grasp the scale of this.
|
| The top 100 pension funds have $17T (trillion) in assets:
| https://www.visualcapitalist.com/worlds-100-biggest-
| pension-....
|
| The total money supply is estimated at $48T:
| https://www.gobankingrates.com/money/economy/how-much-
| money-...
|
| While in theory LPs are "hands off," in reality you don't
| get to raise another fund if you aren't giving them annual
| updates that they like. It's similar to the level of
| influence VCs have on startups - much more impactful than
| you'd expect till you are sitting on a board as a founder &
| realizing you are constantly having to lobby for the
| direction you are taking the company in.
|
| There's not a taxpayer-base on earth that can bailout all
| of their pensions. That's some clever financial engineering
| & debt transfer to money printing, but as we are all now
| aware those global limits have been hit.
|
| Everyone answers to someone.
| danielvaughn wrote:
| I'd been working as a founding engineer with a startup for the
| past couple of years. It was my first experience actually trying
| to raise money, and I had no idea how hard it actually was. I
| hear stories about other companies with literally nothing more
| than a mockup get millions of dollars, and we had a full tech
| stack and couldn't get more than $20K. Crazy.
| WeylandYutani wrote:
| Business is still a personality game. Some people just have
| that magnetism and can talk millions out of investors. People
| like Trump or Steve Jobs are special like that.
| JohnFen wrote:
| 100% this.
|
| Early on, I learned that there were broadly two types of
| people. "Inside people" and "outside people". Inside people
| are the ones who are at their best developing the product,
| outside people are at their best marketing the product,
| getting investor interest, etc.
|
| It's _very_ rare that a single person can perform well in
| both roles.
|
| For this reason, I would never start a business by myself. At
| a minimum, I need a partner who can be the outside person.
| Another significant thing founders need to do is to be really
| honest about the limits of their abilities and to find other
| ways of doing the things they're bad at.
| danielvaughn wrote:
| I think you're right. The storyteller is so important.
| Solvency wrote:
| Honest question: why not hire a designer then and get some
| better mock-ups?
| danielvaughn wrote:
| The crux of my comment is that I genuinely don't understand
| why we weren't able to secure funding. I mention the mockups
| only to point out that they didn't have a working product,
| whereas we did/do.
|
| If I had to guess, I'd say they were able to "tell the money
| story" better than we were. That is, being able to say to
| investors "you give us [x] amount of money and we're shooting
| for [y] amount of revenue in [z] number of years". I felt
| like we had a compelling pitch, but for some reason investors
| just never committed.
| [deleted]
| satvikpendem wrote:
| If you _need_ to raise money to stay afloat, you 're not going to
| be successful (except in a very minority of cases like Airbnb and
| Uber but your startup will most likely not be at that level).
| Your startup should be profitable on a unit economic level and
| you should be using VC to scale that model, not to prop up a
| failing business.
|
| Often VC is also for signaling to the market for valuation, as
| the Retool founder says:
|
| > _We actually didn 't need the money (we're cashflow-positive).
| In fact, we haven't touched the money from our Series B (in 2020)
| nor our Series C (in 2021). But raising money is helpful because
| a) it gets prospective customers interested in the product (oh, X
| company raised, let me check out what their product does), b) it
| gets prospective employees interested, c) it allows people
| externally to see that the company is making progress rapidly (I
| wish we could post revenue metrics here, but I... think that's a
| bad idea?), and d) we sold very little in this round (1.4%, so
| there is minimal dilution to employees), for those advantages._
|
| > _TBH, fundraising is kind of like charades: it 's a way to
| signal you are doing well, without telling people your private
| company metrics. I wish we never needed to fundraise, and could
| just focus on building great products and working with customers
| instead. :)_
|
| https://news.ycombinator.com/item?id=32264454#32264969
| Solvency wrote:
| I don't get how raising all of this money doesn't cause
| significant dilution. And doesn't it also subject your company
| to increasing terms and conditions that might be antithetical
| or orthogonal to your interests/mission? It just seems like
| this is CEO speak and the reality is probably more dicey..
| satvikpendem wrote:
| > _we sold very little in this round (1.4%, so there is
| minimal dilution to employees)_
|
| If they sell very little, then they're not as subject to
| dilution as well as control (since the shares they'd sell are
| also voting shares). It's the same way Facebook was able to
| grow while keeping Zuckerberg as the sole majority voting
| power on the board, he sold very little of the actual company
| while pumping the valuation.
| com wrote:
| I worked at a place where they took VC backed rounds even
| though they didn't need a cent to get access to the VC
| networks' businesses for fat client business and keen supplier
| discounts. They seem to run like a kind of clan structure, and
| give you access if they get done if the upside in equity it
| seems...
| sitkack wrote:
| I see VCs as going to a famous realtor that can put your
| property infront of the right people and is motivated by the
| big check they will receive.
| JohnFen wrote:
| > it allows people externally to see that the company is making
| progress rapidly
|
| Interesting. I tend to think that every round of financing that
| happens indicates the opposite of that.
| sirspacey wrote:
| It's myopic to reduce the startup extinction event to a loss of
| VC.
|
| The point of VC is that some businesses (like LinkedIn, Google,
| Apple, etc.) require multiple rounds of capital to get to a
| sustainable business model.
|
| But just stating that isn't instructive.
|
| What's more important, esp. for founders, is why that is the
| case:
|
| It's because providing a better way isn't a sustainable business
| practice.
|
| Markets lock in the familiar vs. the effective.
|
| So you quite literally have to create new markets to deliver new
| & better ways of creating value.
|
| There are many ways to fail at that with honest effort, including
| due to factors outside your control.
|
| Beloved products, that deliver real value & better social impact,
| die all the time.
|
| I know it can seem from the outside that whipping up hype &
| raising money is a founder's job.
|
| But very few founders have or ever will win on such a narrow
| approach.
|
| It's smart to raise on the latest trend because it maximizes
| capital. But it won't save you from the fact that buyer's are not
| rational - B2B or otherwise - and markets reward incubants.
| [deleted]
| nradov wrote:
| The notion that a pizza robot company was once valued at $2B is
| absolutely hilarious.
| [deleted]
| satvikpendem wrote:
| Something similar was parodied hilariously in Silicon Valley:
| https://www.youtube.com/watch?v=LYu-d6y5HRo
| yborg wrote:
| Standard VC play, right? Especially if you are trying to pump
| some grift, blow it up to the paper $1B valuation so WSJ will
| write a breathless article on the new unicorn and fake it until
| they exit it.
| derefr wrote:
| I mean, the value probably wasn't in its potential to make
| pizza. Any more than Boston Dynamics' value is in its potential
| to make robot dogs play fetch. Pre-IPO valuation is almost
| always about what else you could hypothetically pivot into
| doing, given the tech (and competencies) you've built up.
|
| One step further: startups know this, and VCs know that
| startups know this. So when you see a startup "making a pizza
| robot", they're probably not _actually_ "making a pizza robot."
| That "business model" is really just an early proof-of-concept
| milestone to aim for while building up tech (and competencies)
| that can address much more interesting markets. And if you're a
| VC, they'll tell you as much in their pitch deck. Though they
| won't ever mention that in any of their marketing. Since, what
| if the pizza-robot thing _does_ take off? May as well keep it
| around as a vertical for their tech, in that case.
| ProjectArcturis wrote:
| The weird thing is, that already pretty much exists? You can
| see a semi-automated pizza maker at the food stand at Costco.
| It's pretty fun to watch.
| [deleted]
| fullshark wrote:
| Much more efficient too than what Zume did, at least the
| saucing part:
|
| Zume: https://youtu.be/TkhWonFm-Lw
|
| Costco: https://www.youtube.com/watch?v=c-E2Cz59_5A
| activiation wrote:
| I would not say much more efficient... It seems much more
| natural though
| nradov wrote:
| Oh wow, that's rich. The Zume co-founder talking about
| their robot making terrible pizzas "with love" is truly
| peak Silicon Valley hype. Chef's kiss. But she seems to
| have failed upward with VC funding for a new food startup
| so it's all good I guess.
| Trouble_007 wrote:
| A Spontaneous Disassembly Event? ... Has the Bubble...
| lgleason wrote:
| The market was frothy and some bad ideas that should have failed
| earlier didn't because of cheap money that has dried up. Startups
| that can make it right now are more likely to succeed long term.
| This is the natural cycle that weeds out the weak companies.
| JohnFen wrote:
| It's been my experience that starting a company is best done
| when the market looks unfavorable to starting a company. It's
| counterintuitive, but works for me.
| mrandish wrote:
| As a long-time serial entrepreneur who has done startups in four
| different decades, some of which were quite successful: my
| opinion is that the large quantities of relatively easy money of
| the previous cycle wasn't generally a good thing.
| [deleted]
| Animats wrote:
| "Most of the companies we are handling now frankly deserved to
| have gone out of business a year or two ago." - liquidator.
|
| - Making pizzas with an off the shelf industrial robot. (It's
| been done.)
|
| - Auto loans. ("But our auto loans are different!")
| krm01 wrote:
| There's a noteworthy pattern I've observed over the last 24
| months.
|
| I founded a design subscription service for startups [1]. Many
| founders are increasingly tapping into subscription based
| services, whether that's for design, development, sales etc. to
| help them reach a certain level of scalability.
|
| Historically we'd have a harder time getting clients, but for
| many startups having these plug & play teams makes the startup
| much more lean. You don't have to provide a gazillion employee
| benefits or other cash draining things.
|
| its nuts how so many startups just burn through their VC money
| buying things that do not directly impact their product and
| business.
|
| A startup should do nothing except build something people love.
| To do so find more economic and effecient ways to get to product
| market fit asap. You can do all of the fun stuff later.
|
| [1] http://fairpixels.pro
| encodedrose wrote:
| Similar story for cloud services, we've seen startups burn
| through 100K in AWS credits before they even launch a product.
| sitkack wrote:
| It is fine to use the cloud for your initial landing zone
| project. But once you are n-weeks in, you really should have
| 1/2 or full rack at a colo with enough bandwidth and storage
| to backup your on two servers.
|
| I'd start with DO or Hetzner, https://www.hetzner.com/cloud
|
| And then move to own hardware in a colo.
|
| https://www.supermicro.com/en/products/aplus
|
| At the same time, I'd probably keep each project as I went.
| From day-0 you should have some form of cloud presence in all
| the providers, at least a root of trust landing zone you can
| work from to build out infra should you need to.
| jasmer wrote:
| Not really, once you are up and running even then the
| economics of cloud are usually better than self host.
| Instance time is 10x more costly on AWS than self host,
| but, it's still very cheap.
|
| Things like 'egress data' can be a problem, but for the
| most part, even if AWS is more expensive than self hoste -
| the 'total cost of ownership' is much cheaper in the cloud
| - usually.
| vikramkr wrote:
| Frankly a many companies wouldn't need something like that
| for a while, if ever. If you're really doing compute
| intensive stuff sure, otherwise for your average webapp
| what would be the advantage of rolling your own infra?
| sitkack wrote:
| A webapp isn't a company. If you have a company, you
| should have at least half a rack of hardware in a colo.
| Being 100% on the cloud is a grave mistake.
| vikramkr wrote:
| I'm trying to come up with a charitable read of this that
| isn't no true Scotsmaning the concept of a corporation
| but frankly am coming up short. I might be missing some
| part of your argument here - why do you believe that
| dedicating resources (cost and time/expertise) to having
| your own hardware is always the right decision for a
| company with a software/internet based product?
| satvikpendem wrote:
| I guess Netflix isn't a company then, since they use AWS
| after all. You might think AWS isn't a good deal but it's
| hyperbolic to call companies that _are_ on cloud services
| as not being real companies.
| azemetre wrote:
| I don't think Netflix is a startup, could be wrong tho. I
| hear they want to start a streaming division and venture
| away from mailing DVDs.
| satvikpendem wrote:
| > _A webapp isn 't a company. If you have a company, you
| should have at least half a rack of hardware in a colo._
|
| is the quote I was replying to. The parent doesn't
| mention startups, they say the word company so of course
| I'd have taken it as all companies as a whole. There is
| no hard and fast rule that every company _must_ have
| "half a rack of hardware in a colo" or otherwise they're
| not a "real company." This is basically the No True
| Scotsman fallacy in action.
| vikramkr wrote:
| I mean basically a company just has to make money, and
| today, dealing with a colo and all is probably just going
| to get in the way of that for the vast majority of
| companies in the early stages. Making the claim that
| relying on cloud is a big mistake is a pretty bold claim
| as well
| satvikpendem wrote:
| Indeed, which is why I find their reasoning quite
| suspect.
| jasmer wrote:
| Where your rack is is basically not relevant. For most
| startups, AWS is great, even if it's more cost of colo,
| it's the opportunity cost and dynamism it offers. Use AWS
| until the savings of not doing so will not affect your
| ability to grow, or costs are not dreadful. Moving away
| from AWS is a cost optimization, it depends on the kind
| of business you have.
|
| But more broadly, the value is IP, essentially know-how
| and lock-in with customers, relationships etc..
| Dudester230602 wrote:
| The "Kubernetes is actually not overcomplicated" crowd, I
| presume?
| HWR_14 wrote:
| > A startup should do nothing except build something people
| love.
|
| Even if you build something people love, that doesn't
| necessarily mean you can monetize it.
| adhesive_wombat wrote:
| No, but if you burn through cash on, say, Jira and a ton of
| plugins and a guy to admin it, developing your own UI
| toolkit, going full Web Scale DevOps Kubernetes madness from
| day one or building a designer microconcrete-with-gold-inlay
| ballpit-slash-lunch bar, you can monetise something and still
| run out of cash.
| JohnFen wrote:
| > its nuts how so many startups just burn through their VC
| money buying things that do not directly impact their product
| and business.
|
| An old mentor of mine taught me this, and my personal
| observations over the years have backed him up on it.
|
| Having too much money is a greater danger to your venture than
| having too little money. If you have too much, you're just
| going to spend it on things that not only don't matter, but are
| likely to incur greater costs down the road.
|
| I'm a believer that startups should be cash hungry (but not
| starved). It helps keep the focus.
| CharlieDigital wrote:
| > If you have too much, you're just going to spend it on
| things that not only don't matter
|
| Co-founder and I recently went through a round of VC
| interviews with at least 5-6 VCs.
|
| Question I posed to him is "If we got $2.5 million tomorrow,
| what would you do differently than what you're doing today?"
| My point to him is that there's really nothing that we could
| do with $2.5m that we couldn't do today at a smaller
| scale/longer timeline.
|
| It would be nice for other reasons like having a higher
| profile, accelerate some of our roadmap, etc.
|
| Both of us walked away from the experience a little jaded,
| TBH. He's close to a circle of folks in YC and was perplexed
| by some of the folks that made the last batch.
| WastingMyTime89 wrote:
| One of my coworker used to work in hydrocarbons exploration.
| He swears that they multiplied their finding rate by twenty
| after dividing their budget by ten. It seems what you say
| stays true at any size.
| mihaic wrote:
| Besides the reasons people have already stated on why recent
| start-ups failed, it seems to me that the world recently has at
| the same time become more complex AND also simpler: the
| complexity that each individual company/employee needs to handle
| has increased, while everyone seems to be engaging in the same
| types of complexity (every company uses a Slack, GSuite, driving
| online ads somehow, etc).
|
| The economy is tight, requirements from customers are high and
| there are fewer niches. Any worthwhile product in these
| conditions (at least in tech) needs a lot of baking time, which
| actually only a company with pre-existing cash-flow can afford.
|
| Unless VC actually develop some patience on returns, I can't see
| much innovation happening in the next few years.
| epicureanideal wrote:
| > the complexity that each individual company/employee needs to
| handle has increased
|
| Also regulation has massively increased. There are tons of laws
| you might accidentally break as an early startup without even
| knowing it, and there are tons of laws that restrict entry into
| the marketplace through a high legal compliance burden.
|
| Imagine trying to create Facebook today. With 3 employees and a
| few hundred users, what's your anti-CSAM strategy? What are the
| laws about who is responsible if some ends up on your platform,
| and how you need to handle it? Ask your $500 per hour lawyer.
| I'll wait.
|
| Imagine trying to create Paypal today. Oh, wait, you need
| something like a million or more dollars to even operate.
|
| https://www.amazon.com/Captured-Economy-Powerful-Themselves-...
| [deleted]
| choxi wrote:
| The cycle of ripe innovation to ossified industry is complete
| ivan_gammel wrote:
| >Imagine trying to create Facebook today. With 3 employees
| and a few hundred users, what's your anti-CSAM strategy?
|
| Two options: launch on unregulated market first or just
| ignore* compliance until risks for customers are high enough.
|
| *do not mention it in written form, just have some paperwork
| that work is in progress.
| epicureanideal wrote:
| > ignore* compliance
|
| And what are the consequences if something goes wrong? Does
| the executive team go to prison? Usually doesn't happen to
| the well-connected, but what if you're not well-connected?
|
| Personally, I wish the laws were rational, and scaled
| according to the size of a business, rather than relying on
| the whims of prosecutorial discretion.
|
| Random theory: if the law creates many risks even for
| people who are trying to be moral, risk-averse people will
| be less likely to start businesses. More businesses will
| then be started by people who disregard risk, and also
| selects for a disproportionate number of people with
| serious psychological issues (although still a small
| percentage, but higher than the general population). What
| kind of filter do you have, when people starting certain
| businesses need to be comfortable rolling the dice on a 1%
| or 5% chance of going to prison for no intentional reason,
| and a chance at a pile of cash if that doesn't happen? It
| sounds like it selects for the same psychology as
| criminals.
|
| > launch on unregulated market first
|
| There are fewer and fewer of those all the time, and the
| ones that remain are in smaller and smaller, less
| profitable niches. So that technically opportunities exist,
| but as a practical matter fewer and fewer people are able
| to ascend the success ladder.
| ivan_gammel wrote:
| > And what are the consequences if something goes wrong?
|
| If some rule is broken it is not a big deal if there is
| no harm to anyone. Nobody is 100% compliant with all
| regulations, but the companies which approach this matter
| pragmatically, following the spirit rather than the
| letter of the law, usually do not have problems. E.g. if
| you are health-tech startup, you must avoid any health-
| related risks and prevent data leaks, but you may not
| serve GDPR requests perfectly. At worst regulator will
| warn you and then you will invest your resources in
| fixing the issue. And preventing data leaks is also
| easier for an obscure early stage startup: you simply get
| less attention from malicious actors and will likely
| encounter automated attacks rather than being
| specifically targeted.
| sitkack wrote:
| I believe we are already in that state. This is why we
| see such a high occurrence of psychopath and sociopath in
| CEOs.
| eastbound wrote:
| > I wish the laws were rational, and scaled according to
| the size of a business
|
| A five-person startup shouldn't leak my data just because
| they share passwords and it were not mandatory to have a
| GDPR person at that size.
| 908B64B197 wrote:
| Facebook ignored compliance at the time, but the way they
| mitigated the risks was by targeting a smaller, exclusive
| market (smaller colleges in the US) that's less risky
| compliance-wise (no minors for instance, domestic market).
| gareth_untether wrote:
| I suspect there's going to be a lot of low hanging fruit with
| AR apps over the next couple of years thanks to Apple.
| jcadam wrote:
| What's the AR equivalent of a 'fart app'?
| amelius wrote:
| Using AI to make everybody around you lose their clothes?
| thot_experiment wrote:
| zero percent chance tim apple/zark will allow this, 100%
| chance the first mass market headset that you actually
| own will have this
| [deleted]
| masfuerte wrote:
| X-ray specs.
| polio wrote:
| A spatial game where you can drop virtual turds on
| sidewalks and spread your virtual feces on walls. These are
| persistent and shared, so you can see the art that other
| people have wrought.
| matt_s wrote:
| I think you're onto it... its an AR fart app, lets you put
| on a $3500 Apple iHead or whatever its called, open the app
| and point to someone and hear fart noises and see gas
| clouds appear around them. You get more points if you can
| hold your laughter in with the cameras watching your face.
| Eye roll to post your score on social media with clips of
| all the victims. Multi-player: you and a friend walk around
| in public wearing your iHead playing together trying to get
| each other to laugh.
| lesuorac wrote:
| Adds a visual fart cloud when the microphone detects a
| toot.
| Trouble_007 wrote:
| https://archive.is/ZRFkh
| samsquire wrote:
| I have a lot of thoughts on this, so please bear with me.
|
| I think it's interesting that the model we use to evaluate ideas
| and fund companies is so terrible.
|
| Starting a company is always dangerous and risky and that's
| extremely sad. Why is starting a business so hard in 2023?
|
| I think we need an "explicit demand signal" and I think it can be
| technological one and a semantic one. Kickstarter is the nearest
| to this I can think of but kickstarter is only a primitive
| marketplace - for example, I don't see services listed. But I
| want to see vector semantic models used to capture the meaning of
| business processes and identify weaknesses and match problems to
| imaginary products and synthesise products. Think automatic
| market understanding and differentiation. It would be indexed per
| organisation and across society.
|
| There's a carrying capacity for every market. An average city can
| only support a certain number of coffee shops or X of kind of
| venue. So we have competition. A lot of people grinding their
| gears competing needlessly. It's such a waste.
|
| One of my ideas was "attention camping", which is waiting for
| something to match your idea of something you find interesting or
| want to pay attention to. If I had a commitment to buy from a
| large number of people, then my business would be a lot safer,
| except I'm an unknown quantity.
| nradov wrote:
| It is not possible to systemize the founding and funding of
| startups based on disruptive innovations. This can only work
| from human insight and there will never be explicit demand
| signals for innovations that don't exist yet. And there's
| nothing sad about it. It's totally fine for some companies to
| fail and investors to lose money.
| FloorEgg wrote:
| [flagged]
| FloorEgg wrote:
| [flagged]
| gunapologist99 wrote:
| People want to remove the 'venture' from 'venture capital'.
| FloorEgg wrote:
| Maybe if building a startup wasn't such a risky endeavor we
| wouldn't need venture capital and a lot more people could
| do work they feel is meaningful and are passionate about.
| satvikpendem wrote:
| Lots of people bootstrap just fine to some tens of
| thousands of dollars with no VC, ie those on
| https://IndieHackers.com. It's not really risky if you
| don't quit your job until you're making enough money to
| quit. Then if you want to grow faster, you can take VC,
| which you're much more likely to be offered and receive
| due to having derisked the business both for yourself and
| also the VC, since you're making money. This isn't
| strictly necessary either since you can grow more slowly
| and still become big, like Mailchimp did for over 20
| years before selling for $12 billion.
| wnc3141 wrote:
| One interesting implication of AI is the potential
| decapitalizing of business. I.e, businesses will become
| more modular and not require things like as much
| dedicated admin to scale. This will not increase the
| likelihood of product market fit, (as many point out,
| that is impossible to model given supply constraints and
| inability to understand demand side revealed preference
| without some MVP). - however this may decreased the
| amount of capital needing to be placed at risk, allow
| fast failing etc.
| FloorEgg wrote:
| I am working on this problem exactly. The way I describe it is
| that I am making unmet market needs transparent.
|
| It involves modelling jobs to be done, importance and
| satisfaction at scale and then measuring areas that represent
| bumps in the market.
|
| I think to appreciate this being possible one must understand
| that people are capable of describing their own wants, even if
| they can't imagine a novel solution that could satisfy them.
|
| samsquire, I see you come up with a lot of ideas. How do you
| decide which ones to work on? Do you also enjoy
| building/executing? How important is this problem/idea to you?
| samsquire wrote:
| Thank you for your comment.
|
| I was involved in a Business Process Modelling research and I
| am sure the SAP world models business processes pretty
| intricately.
|
| I like your idea of modelling the "work" that needs to be
| done.
|
| I think it's partly an allocation problem, farming has
| automated food production that we have a lot of people that
| need to cover their costs. Recruitment is expensive and
| tedious and there's a lot of unsolved problems there.
|
| Internet advertisements guarantees attention to something for
| a cost, I am sure businesses would like to guarantee capital
| and runway.
|
| I think your use of the word "wants" is the key word here. If
| pushed to it, people could probably try work out what they
| want and someone else could try fulfill what they truly want.
| Software requirements are not always great, but there is a
| want behind every product or marketplace.
|
| Allocating resources to ideas seems to be something that
| could transform the world. Identifying the good, profitable
| ideas is the hard part.
|
| One of my ideas is a "Want app" which is that I can insert a
| demand for a doctor in my local area, or want for a fast food
| restaurant in this area, or I want a job that uses X, Y, Z
| technologies.
|
| One of my ideas is "wantsfiles" [1] which is a machine
| readable file you put at the root of your domain and and then
| people automatically match orders with you based on what you
| want, as a form of automated business. For example, you could
| put an order on your wantsfile that you will buy "milk" at
| this price or you want someone to host "mirror.tgz" for you
| and you'll give them $X a month for it. There is also the
| idea of a generic purpose "wants app" where you specify what
| you want. [2] I wrote about that idea here [3]. It's a
| machine automatable order matching system.
|
| This problem is very important to me. I spend my time on
| programming language implementation technical projects but I
| am also thinking of an idea that shall make the world better
| for everyone and sharing it openly. If you want to talk about
| ideas, I'll listen.
|
| [1]: https://www.halfbakery.com/idea/Wantsfiles#1598878006
|
| [2]: https://www.halfbakery.com/idea/Wants_20app#1578226067
|
| [3]: https://github.com/samsquire/ideas2#5-open-demand-
| mapping-an...
| FloorEgg wrote:
| I have two complimentary prototype products with multiple
| customers paying for them.
|
| I'm just scouting out people who are passionate about this
| problem and who could be a good fit for when it scales.
| nradov wrote:
| We already have a shortage of physicians. Stating that
| there is market demand for another doctor in a particular
| area will accomplish nothing. This is not a free market
| where supply and prices can adjust to meet demand. If you
| actually want to do something productive in that field then
| find a way to fund more residency slots at teaching
| hospitals.
|
| Restauranteurs and franchisors are already quite
| sophisticated when it comes to location decisions and real
| estate operations. The notion that they are somehow unaware
| of latent demand for fast food in a particular area is
| quite naive.
|
| Milk buyers can already trade commodities futures to signal
| their willingness to buy at a particular price.
| samsquire wrote:
| Data is valuable. There is a market for the data of
| revealed demand Google searches, Google keywords,
| instagram tags, TikTok and web histories.
|
| If it could be used to actually give people what they
| want, wouldn't that guarantee revenue? (That's the goal
| of all my ideas)
|
| My idea regarding the milk was automatic fulfilment and
| automatability of it, not via a public commodities
| exchange for 100000 litres but through an app, that a
| regular person could use to automate their groceries.
|
| Uber, Uber Eats, Just Eat, Door Dash, Amazon are all
| separate incompatible applications.
|
| The idea is for people to register their wants and get
| what they want (through others deciding differently). Who
| doesn't want what they want?
| lotsofpulp wrote:
| > Who doesn't want what they want?
|
| A more pertinent statement is:
|
| How can people afford to have what they want?
|
| Either people need to have more money, or costs need to
| come down. Generally, this comes from figuring out ways
| to do something that is already being done, but in a more
| efficient, cheaper way.
| JohnFen wrote:
| > Why is starting a business so hard in 2023?
|
| Honestly, I don't think it's any harder now than it has been
| before (in my adult life, anyway). It's always been very hard.
| Same with running a business post-startup.
| SkipperCat wrote:
| How would you stop people from gaming the system? At some
| point, don't you need an actual human trained in
| business/markets to make a decision. I wouldn't want capital
| allocated by something like the YouTube algo or the Facebook
| feed algo.
| sitkack wrote:
| The YT algorithm already controls thousands of peoples
| livelihoods. The shooting at the YT campus was motivated by
| the shooters loss of income.
| paddw wrote:
| I mean specialized venture funds exist, which is somewhat close
| to what you are describing.
|
| I think the way you understand startup formation is wrong
| though. Most startups are not formed as ways to directly
| address existing desires or pain points. Most startups are,
| fundamentally, iterations on existing business models trying to
| unseat their predecessors through more subtle innovations,
| riding technology trends, or simply a large war-chest of
| capital and talent.
|
| This isn't a completely accurate view either. You could cite
| things like biotech which have their own weird dynamics when it
| comes to startups. Fundamentally, however, I don't think the
| "market for ideas to solve problems" model works when thinking
| about startups. Many people have made some variant of this
| point, and probably argued for other things being the critical
| factor (e.g "investing in a founder is the most import
| important thing"). Ultimately, I don't believe there is one
| single way to think about how to fund companies that will be
| successful startups. Mostly, I think investors rely on
| intuition, which is often wrong, but perhaps better than
| anything else.
| orzig wrote:
| I'm definitely open to more models for funding, but it didn't
| seem like Kickstarter really worked even for what should have
| been its sweet spot. Definitely tell me if I'm wrong, but the
| fact that they had to put out this blog post suggested that the
| dynamics of its usage never really fit:
|
| https://www.kickstarter.com/blog/kickstarter-is-not-a-store
| JohnFen wrote:
| Crowdfunding is a terrible way of financing a startup. It can
| be a reasonable way of financing a product, if done carefully
| and thoughtfully.
| lagniappe wrote:
| Personally, I believe that for -most- software idea cases if I
| won't bootstrap it, then I don't believe in it enough, and/or
| can't get others to believe in it enough. I've been on the VC
| side and the boot side, spending your own money just hits
| different.
| JohnFen wrote:
| I'm exactly like this. I would never take VC (or similar) money
| for a couple of reasons, but this is the primary one.
|
| If the idea is great enough for me to devote my life to, it's
| great enough to be able to do it without involving VCs.
|
| That said, there are certain types of ventures (that I don't
| happen to be interested in) that require enormous sums of
| initial investment. That's where VCs can be genuinely useful.
|
| But it isn't how most companies that take VC money are.
| that_guy_iain wrote:
| I think the issue is, for a lot of these people they don't have
| enough capital to bootstrap it.
|
| Let's look at a large number of YC launches we see on here.
| Often they're 1-2 years after they joined YC. They took 1-2
| years to get to launch with a team of employees. Sure, they had
| customers before the launch but really at that point it was
| still lets see what works and experiement and change ideas and
| whatnot.
|
| I'm currently trying to bootstrap a source-available SaaS
| Subscription and Billing software. I've taken 3-months to work
| on the MVP by myself and still not got a MVP ready. (Almost
| there, working on final stuff like documentation and whatnot)
| Not many people can commit to that long before seeing if the
| idea is going anywhere. There are quite a few people who can't
| afford to work full time on their bootstrap idea for 3-6 months
| without an income.
| JohnFen wrote:
| > There are quite a few people who can't afford to work full
| time on their bootstrap idea for 3-6 months without an
| income.
|
| 3-6 months?
|
| In my ventures, the quickest I've seen meaningful personal
| income from them has been 2 years!
|
| Typically, I have either saved up a "warchest" to get me
| through that time, or I've had a second job, or (most
| typically) both.
| that_guy_iain wrote:
| > 3-6 months? > In my ventures, the quickest I've seen
| meaningful personal income from them has been 2 years!
|
| To be fair, seeing some income feels way better than seeing
| none. And if you're seeing growth it's another thing too.
| JohnFen wrote:
| Yes, to both points.
|
| When I'm starting a business, I view it as an exercise in
| delayed gratification. I'm not expecting to make any
| money in the early stages. Instead, I'm expecting to make
| up for it in what I make in the later stages. It's an
| investment in that sense.
|
| Seeing growth, and seeing the company (not necessarily me
| personally) developing an income are important things
| through the whole deal, from the beginning through
| maturity.
| maccard wrote:
| > software idea cases if I won't bootstrap it, then I don't
| believe in it enough, and/or can't get others to believe in it
| enough.
|
| On the flip side, if you can't convince someone whose job it is
| to give out money to give you money, do you feel confident you
| can convince someone else to pay for your product? For me,
| getting VC buy in is proof that someone else thinks that there
| is money in the idea.
| fidotron wrote:
| VC buy in proves the VC thinks they might be able to get
| someone else to buy in. It doesn't mean they think there's
| money in the actual idea.
| satvikpendem wrote:
| You should be able to bootstrap to at least several thousand
| dollars in MRR, which derisks the business enough for VCs to
| fund you. If you're pitching purely on an idea, it's no
| surprise VCs won't fund that, they're taking more risk.
| maccard wrote:
| If you have X000 MRR, you're not bootstrapping, you're
| growing.
| satvikpendem wrote:
| Bootstrapping refers to not taking outside capital; you
| can bootstrap and grow simultaneously and indeed, that's
| what you should be trying to do anyway.
| JohnFen wrote:
| > if you can't convince someone whose job it is to give out
| money to give you money, do you feel confident you can
| convince someone else to pay for your product?
|
| Why not? Those two things seem unrelated to me.
| dsaavy wrote:
| Absolutely - when me and my team spend $50k to experiment
| (which is chump change for a funded company) and it fails, that
| hurts. It's coming out of my pockets. And because of that, I
| remember it and my team remembers it.
|
| But it's also allowed us to focus solely on the problems our
| customers actually have and will spend money for. It forces
| service/product-market fit before attempts to scale.
|
| We are a services business so it is different than SaaS, but
| same principles apply.
|
| There are benefits to bootstrap and benefits to funded. I feel
| as if bootstrapping first is a great way to learn the lessons
| needed to be successful when you do something funded later on.
| lagniappe wrote:
| I agree. I also want to add that this isn't me saying VC
| doesn't have a role, it's more that I view VC as more useful
| when it comes to a proven product that must now scale
| workforce/infra.
| 0xdeadbeefbabe wrote:
| > $50k to experiment (which is chump change for a funded
| company)
|
| Because funded companies have more chumps per dollar.
| arthurofbabylon wrote:
| Call me cynical, but I didn't find this recent wave of startups
| to be innovative. It was defined by a systemic deployment of
| playbook tactics, copying what worked elsewhere. Nothing new,
| just trying to capture industries/value. Perhaps with the
| deterioration of venture capital infrastructure we will see more
| innovation - that is wholly new solutions and paradigms.
|
| I also think it is worth pointing out that historically (not
| recently) a lot of startups began not in order to make money but
| to provide real value to humans/society. I like to remind people
| that it is easier to make money when you first build something
| that people value than to build something that people value once
| you've made money.
| warent wrote:
| Nothing new, just trying to capture industries/value.
|
| None of what you said sounds cynical imo, just un-businesslike
| I suppose.
|
| Who cares about shifting paradigms / something brand new? Not
| every business has to change the world. Most shouldn't.
|
| The whole point of a business is to capture value full stop.
| Not to play around with lofty surreal visions of grandeur.
| JohnFen wrote:
| > The whole point of a business is to capture value full
| stop.
|
| That is certainly one school of thought. But businesses that
| are about something more than just "capturing value "are more
| likely to actually become valuable. Creating value is almost
| always better than just capturing value.
| warent wrote:
| Ah it was a miscommunication then, my bad!
|
| I interpreted "capturing value" as meaning "capturing
| _potential_ value " i.e. some untapped resource, or in
| other words generating value.
|
| So it sounds like we're talking about the same thing then
| just in different ways.
| JohnFen wrote:
| Ahh, ok.
|
| Yes, when I've heard businesspeople say "capturing
| value", they've meant it in a manner analogous to
| extracting a natural resource. The value is already
| there, and they want to capitalize on it. That's not
| necessarily a bad thing.
|
| But I think it's better to create value where none
| existed before.
| USB5 wrote:
| [dead]
| scarface_74 wrote:
| What wave of startups has had a good consistently _profitable_
| idea since Facebook went public? AirBnB and who else?
| com wrote:
| Adyen was a B2B fintech startup that made profits as it hit
| scaleup, and hasn't looked back. Wise is a B2C play, listed
| too and seems sustainably profitable. I think the people
| behind both of these are connected, so my bet is that there
| are clusters of well-run, second-time-around (or more)
| founders building very solid businesses in all sorts of
| sectors.
| scarface_74 wrote:
| Fair point. I only keep up with US public companies.
| paxys wrote:
| Are you trying to say there have been no profitable companies
| created since Facebook?
| scarface_74 wrote:
| Tech companies that have gone public since Facebook. Name a
| few besides AirBnb that are consistently GAAP profitable
| not by their own made up metrics like Uber
| RestlessMind wrote:
| Square - profitable in 2019,2020, 2021 (annual basis).
| ownagefool wrote:
| Somewhat complicated.
|
| If you're profitable at a unit economics level, and your
| CaC stays relativly stable as you scale marketing
| efforts, it's fairly logical to sink your would be
| profits into that CaC and associated costs ( i.e. you
| might have engineering costs to scale a platform ).
|
| Now obviously if you're bootstrapped, you're managing
| cashflow, and you might keep a bit for a rainy day, but
| if you have several years runway of someone elses money,
| you want to grow the entity. You don't give away equity
| to end up with less money. You need to grow the pie.
|
| Of course, there's still a lot of faulty logic and bs.
| CEOs be like, I'll just get rid of dev and be profitable.
| Alright mate.
| scarface_74 wrote:
| And startups and money losing recently public companies
| make the same usually false argument. They are false for
| three reasons.
|
| 1. The lifetime value is calculated out to far.
|
| 2. Earlier cohorts are usually less costly to acquire and
| have a higher lifetime value as the true fans. They are
| going to be your most loyal customers. Look at what
| happen to all of the prepackaged food delivery companies
| and whatever the company that was delivering trunks of
| clothes.
|
| 3. They never expected interest rates to rise and easy
| money to disappear.
|
| An example would be that if Apple thought it would be
| just as easy to acquire the second million customers of
| its headset as it would be to acquire the first million
| at $3800.
| dilyevsky wrote:
| Box, Dropbox, Square. Now if you want to count Chinese
| ones trading on Nasdaq there's more
|
| Stripe would have been there if they actually didn't blow
| their IPO window.
|
| This is not a good argument because a lot more would be
| profitable if interest rate was higher, they just didn't
| need to
| bbor wrote:
| Startups are a special kind of company I'd say. I'm kinda
| curious myself... I guess openai, tho technically I doubt
| they're profitable. I'm probably just forgetting a ton of
| obvious ones!
| scarface_74 wrote:
| OpenAI is only surviving because of free/reduced priced
| hosting on Azure.
| bbor wrote:
| Very true but I think it should be considered successful
| nonetheless, in a way that the rest of the ""pre-profit""
| startups aren't. I mean, being the final spark for an
| event the size of the Industrial Revolution is pretty
| good! But I'm probably just biased.
| scarface_74 wrote:
| The metric for success for a for profit company is
| _profit_ anyone can sell dollar bills for 95 cents.
| OpenAI is particularly a bad example since they have
| negative marginal costs. Which means the bigger they get,
| the more money they lose.
| SkipperCat wrote:
| I think a lot of startups were just trying to be 'rent-
| seekers'. Placing themselves between customer and
| product/service suppliers and trying to make money by providing
| a small service. Or sometimes just trying to grab all the
| inventory and auction it off at higher prices.
|
| This may work when interest rates are close to zero, but when
| they creep up, it becomes easier to make money holding t-bills.
|
| And thus, those startups go kaput.
| Animats wrote:
| > I think a lot of startups were just trying to be 'rent-
| seekers'. Placing themselves between customer and
| product/service suppliers and trying to make money by
| providing a small service. Or sometimes just trying to grab
| all the inventory and auction it off at higher prices.
|
| That's the whole "drop-shipping" industry.
| voisin wrote:
| "It's only when the tide goes out that you find out who was
| swimming naked" (Buffett)
|
| It's only when there's an opportunity cost of capital that
| you find out who actually had a business plan.
| namaria wrote:
| I agree with the first half. Having a plan is not really
| what matters, you can have a bad plan (and arguably, if the
| competition is for funding, there will be a lot of
| polished, bad plans). We're finding out who actually has a
| good idea/insight.
| voisin wrote:
| How about "...find out who had a [sustainable] business
| plan"
| pydry wrote:
| I think that was a function of the VC model of "throw 15
| baseballs, hope one gets hit out of the park".
|
| Hit it out of the park is usually meant somehow jamming
| yourself into a pre-existing economic relationship (taxis,
| food delivery, apartment rentals) and extracting rents.
|
| Hopefully high interest rates will cause those "startups" to
| die a grisly death.
| lotsofpulp wrote:
| "Somehow jamming yourself" by doing research and
| development to create hardware and software that enabled
| the pre existing relationship.
|
| Bringing GPS/mobile broadband/mapping apps/smartphones
| together to create a better experience is obviously worthy
| of something.
| kristopolous wrote:
| It's the wrong way of managing risk.
|
| Startups are about increasing risk and that means good startups
| are about managing that risk.
|
| There's different strategies for doing it. The current one en
| vogue attacks the ambition of the ideas
| seydor wrote:
| It's not always easier. There are too many gatekeepers and rent
| seekers now who will prevent useful services from becoming
| profitable
| darth_avocado wrote:
| Being around the VC funding ecosystem, I can confidently say
| you're not cynical. Some of the most frivolous startups got
| their funding in the zero interest rate era because no one was
| doing their due diligence. Sky high unicorn valuations allowed
| VCs to basically just fund everything. You didn't have to have
| much beyond a pitch with made up projections and execution plan
| to get money, especially if you knew someone in the VC circles.
|
| But now that most of those bubbles have burst, VCs are back
| doing what they were always supposed to do: due diligence.
| You'd be hard pressed to find funding unless you have a name or
| have a business that's already doing great. And on the flip
| side, startups themselves are noticing this. My buddy's startup
| has been approached by a bunch of different VCs encouraging him
| to pitch for funding and he's refused. He's realized that he's
| already making money and has a solid business execution. He's
| not willing to give up the gains for some extra cash. He's
| taking the slow growth route.
| jarym wrote:
| I think we saw this in some Hollywood studios - they find a
| movie that worked and treat it as a 'playbook' to just rinse-
| and-repeat it in all variations.
|
| Eventually, audiences just become fatigued and the 'business
| creatives' lose to some other genuinely creative theme that
| takes hold. Then they return to exploit it :-(
| civilitty wrote:
| You think Hollywood is bad, you should see the porn industry!
|
| Nothing but bipedals and pizza guys. They can't start an orgy
| with a delivery of healthy foods for once? Geez.
| dehrmann wrote:
| It's like "Speed," but in an Uber!
| brtkdotse wrote:
| > Call me cynical, but I didn't find this recent wave of
| startups to be innovative
|
| I'll stick my neck out and say that the vast majority of
| startups never were innovative, it's just that money was
| essentially free for a decade.
| ryanmercer wrote:
| "Hello moneybags, I have this idea for an app, it's super niche
| and wastes almost as much time as doing the task without the
| app except we get to charge them for it! Our costs are really
| cheap because we mostly pay in equity and we're exploiting the
| generosity of other startups to keep our 3rd party service
| costs down!" <- feels like 70%~ of ideas.
| dpflan wrote:
| Is the SPAC exit still a relevant strategy these days?
| exp-prohibited wrote:
| [dead]
| sys_64738 wrote:
| Because most of these startup ideas are rubbish and won't be
| viable in the marketplace. That's the real reason they can't
| raise money. Really, if the people with the startup put their own
| money into the product or took out loans in their own name then
| it would show it's serious. But most startups should just die.
| pphysch wrote:
| I would argue it's primarily psychological, rather than financial
| (interest rates) or economic (value creation).
|
| IPOs, like shitcoins, have become simple pyramid schemes.
| Eventually, the mass bagholders get wise to as what's going on,
| and demand for such schemes falter. In a decade or so, amnesia
| will allow for the cycle to repeat.
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