[HN Gopher] VC Fund gives money back, says the market for mature...
___________________________________________________________________
VC Fund gives money back, says the market for mature startups is
too weak
Author : nytesky
Score : 141 points
Date : 2024-10-02 15:04 UTC (7 hours ago)
(HTM) web link (www.nytimes.com)
(TXT) w3m dump (www.nytimes.com)
| nytesky wrote:
| Is this a bellwether or an outlier?
| slimginz wrote:
| Is there even a way to know at this point?
| ackbar03 wrote:
| I'm a bit surprised, since it seems the fed is about to start a
| easing cycle
| Mistletoe wrote:
| They like it when it is like shooting fish in a barrel when
| interest rates were zero for much of the previous decade.
|
| https://fred.stlouisfed.org/series/FEDFUNDS
| stackskipton wrote:
| They are unlikely to drop it to Zero like they did 10 years
| ago.
| rtkwe wrote:
| Only really answerable in the future. It really does feel like
| valuations are completely insane now for anything founders can
| brand as a tech company with money chasing hype instead of
| actually following the realistic valuations of companies. A pop
| feels inevitable though.
| quelsolaar wrote:
| Its not weak, its just not as crazy strong as people thought it
| was a few years back.
| rmbyrro wrote:
| https://archive.is/Eku28
| ajsharp wrote:
| Important distinction: this is for a growth fund ("mature
| companies" in the article). Growth funds are typically fund
| dedicated to either later stage financings or follow ons from
| earlier stage rounds that the firm invested in. Growth funds are
| heavily reliant on an active M&A market, or companies that are
| likely to IPO. M&A is effectively dead right now, and many late
| stage companies have valuations that are too high to IPO without
| taking a big valuation haircut.
| CharlieDigital wrote:
| > M&A is effectively dead right now
|
| Curious if there is a reason why M&A is slow; any reading?
| bpodgursky wrote:
| Anti-trust
| bbor wrote:
| Brings a tear to the eye... there are good things in the
| world! Nature is healing!
| jordanb wrote:
| Higher interest rates are also hurting LBOs which shouldn't
| affect startup acquisitions but does affect PE.
| JumpCrisscross wrote:
| > _interest rates are also hurting LBOs which shouldn 't
| affect startup acquisitions but does affect PE_
|
| Reasonable hypothesis, but not quite. LBOs' share of
| American buyouts has been falling monotonically since at
| least 2015 [1]. Buyouts have increasingly been smaller
| add-on acquisitions, with tech dominating activity.
|
| [1] https://thesource.lseg.com/TheSource/getfile/download
| /bf99ca...
| jppope wrote:
| Anti-trust, yes. But also VCs funding a bunch of weak
| companies early stage for the last several years
| JumpCrisscross wrote:
| > _Anti-trust, yes_
|
| The reason anti-trust action has chilled M&A is because
| there were only four strategic buyers. Due to decades of
| failed anti-trust.
|
| The other reason isn't so much weakness as much as
| pandemic-era valuation madness. Reasonably priced, a lot of
| start-ups would sell for less than their last valuation.
| That would seriously cut into the founders' pay-outs, which
| are usually based on common stock.
| twoodfin wrote:
| Tabular, for example, seemed to do OK finding a non-
| strategic buyer.
| alephnerd wrote:
| Databricks' acqusition of Tabular was absolutely
| strategic.
|
| Both Databricks and Snowflake are in the process of
| integrating Iceberg capabilities into their own
| lakehouses, because the industry is consolidating towards
| Iceberg, especially after Clickhouse and Dremio
| integrated Iceberg support in 2022.
|
| This is why Snowflake preemptively announced the Polaris
| Catalog right before the acqusition by Databricks was
| announced.
|
| Databricks, Snowflake, Dremio, and Clickhouse are all
| competing for the same piece of the pie, and much like
| Cybersecurity in the late 2010s to early 2020s, there is
| a drive to "everything" platforms, and RFPs can
| absolutely get sank due to lack of capabilties in
| comparison to a vendor.
| twoodfin wrote:
| Right, my point is there are a few more strategic buyers
| outside the trillionaires club.
| alephnerd wrote:
| Ah ok! Crossed wires!
| alephnerd wrote:
| I can only really speak to Cybersecurity and other
| adjacent parts of Enterprise SaaS, and M&A activity is
| fairly strong in both.
|
| The big issue is a number of startups in that space
| raised at very favorable terms with Growth Funds in
| 2019-23, which made them extremely expensive to acquire
| versus to either build in-house or conduct a tuck-in
| acquisition.
|
| What's I've noticed is that if it costs greater than
| $100-150M to acquire, it's difficult to make a case for
| acqusition versus build in-house unless you are extremely
| behind and need an internal culture change (eg. Cisco and
| Robust Intelligence being similar in magnitude to Cisco's
| previous foray into SDN w/ Meraki)
|
| Series C and below remains fairly robust ime, as we can
| see with Dig Security, Talon Security, Robust
| Intelligence, NeoSec, etc.
| happyopossum wrote:
| With the exception of Robust, all of those are 2023
| acquisitions. 2024 is not shaping up nearly so well...
| alephnerd wrote:
| There have been a decent number of tuck-in acquisitions
| in 2024. Flow Security (CRWD) and Eureka Security (TNBL)
| were fairly notable.
|
| The main open question right now is about AI Security and
| Safety - specifically, whether to build or buy.
|
| Most other segments (DSPM, OT Security, Vulnerability
| Management, CNAPP, etc) have largely been acquired and
| consolidated.
|
| The thing is, there aren't that many startups in the
| space left that garner mutual interest in acquisition.
|
| It's basically bimodal now, whereby
|
| - a number of Series B/C startups have enough cash in
| hand to potentially do a tuck-in for a Seed or Series A
| AI Safety/Security startup and as such don't want to get
| acquired by a larger company because they have a
| strategic path forward to differentiating themselves from
| larger players [Acquirers interested, Startups
| uninterested]
|
| - a number of Series E/F companies that have raised
| capital at multi-billion valuations but do not have a
| path forward to generate revenue at those valuations (eg.
| Lacework valued at $9B but ARR shy of $100M) [Startups
| interested, Acquirers uninterested]
|
| Most notably, the earlier stage startups are now founded
| by startup founders who already have a $1M-50M net worth
| now due to successful cybersecurity exits in the 2019-23
| period (IPO or acquisition). You can see this first hand
| in the Israeli and Bay Area cybersecurity startup scene.
| candiddevmike wrote:
| I'm not sure if it's really anti-trust. I think companies are
| being stingy with M&A because most companies are no longer
| worth the acquisition cost. They're looking for more
| "strategic" buys as money isn't cheap anymore. You're still
| seeing M&A, it's just occurring with more complimentary
| companies that actually add value (or hires) to their
| existing portfolios.
| stackskipton wrote:
| Yea, my company has done a few acquisitions. Ones from 4
| year ago were head scratchers, what do they add? Last one
| has been clear value add.
| schmidtleonard wrote:
| Interest rates.
| mschuster91 wrote:
| Biggest one IMHO is interest rates. The days of virtually-
| free credit lines are gone for the near to mid future - at
| least until the situations in Israel/Palestine and
| Ukraine/Russia are sorted out, but even then, China may want
| to take over Taiwan leading to the next global crisis.
|
| Another reason is the AI craze. Everyone and their dog is
| focusing on being a/the dominant power in that area, so
| interest in "old tech" is waning.
|
| And the last/smallest factor is that many of those
| individuals who exited in the last few years are hesitant
| where to put their money, and there is not much space for
| multi-billion dollar established companies to make
| acquisitions when they're all forced to let people go as a
| result of the post-/mid covid hiring spree and anti-trust
| authorities worldwide being _very_ critical of more
| agglomerations at the moment - some because of strategic
| reasons (Europe in particular isn 't looking too friendly to
| more of their companies being bought out by foreigners), some
| because they do not want to risk even more companies growing
| too-big-to-fail.
| snarf21 wrote:
| You are exactly right, money isn't (essentially) free right
| now. There are better returns elsewhere.
| JamesBarney wrote:
| A combination of interest rates and cap tables being all
| messed up from 2021.
|
| If you have a company that raised a 100m of preferred at a
| 500m valuation, are you going to take an offer for 150m? Most
| founders are just going to keep grinding hope things get
| better.
| ajsharp wrote:
| Will echo what many have said here already, but with a slight
| twist:
|
| 1. Anti-trust activity takes a HUGE portion of the liquidity
| that does M&A out of the market. That has a dynamic effect --
| other players who are not under direct anti-trust scrutiny
| think twice about their potential M&A activity. This, in
| theory, should reduce M&A prices (reduction in supply
| supply), but this is probably largely offset by point 2. 2.
| Inflated valuations from 2021 era. Lots of companies raised
| ridiculous late stage rounds around this period. Then
| interest rates rose. Now your company that raised on 100x ARR
| is worth a lot less than it was. But the company still has to
| grow into and beat it's last valuation. Combined with the M&A
| dynamics, it's much harder to justify a post-money above what
| your last raise was if that raise was a post-covid valuation,
| unless the business is just truly on ripping (e.g. Wiz).
| cellis wrote:
| Right, better to give the money back and preserve IRR/
| reputation than try to simply earn carry.
| JumpCrisscross wrote:
| > _preserve IRR / reputation than try to simply earn carry_
|
| Management fees. Carry is performance based.
| patrickhogan1 wrote:
| They aren't giving it back they are converting it into a new
| fund for early stage companies. The article is click bate.
| ajsharp wrote:
| Oh i missed that part -- that makes way more sense.
| ned_at_codomain wrote:
| FWIW, the IRR clock doesn't start until they call capital
| from the LPs.
| JumpCrisscross wrote:
| > _the IRR clock doesn 't start until they call capital
| from the LPs_
|
| Capital calls must be honoured on short notice. That means
| committed capital must be kept low-risk and liquid. That
| has an opportunity cost. While you are correct in
| conventional IRR, particularly that touted by funds, only
| starting the clock when capital is called, LPs measure
| their own IRRs that consider the opportunity cost of
| committed uncalled capital.
| ned_at_codomain wrote:
| Yeah, that's a good point :)
|
| Do you have any inside info on how some of these big LPs
| are modeling opportunity cost against their growth equity
| commitments? My understanding gleaned from friends has
| been that they're generally just cutting exposure to
| growth-stage software and planning to park the capital in
| pretty vanilla/liquid public equities and fixed income
| anyway.
|
| Seems like no one really wants to be interested in
| increasing their exposure to PE or growth equity anymore.
| JumpCrisscross wrote:
| > _how some of these big LPs are modeling opportunity
| cost against their growth equity commitments?_
|
| This isn't unique to growth equity but commiting to a
| capital-calling fund in general.
|
| > _no one really wants to be interested in increasing
| their exposure to PE or growth equity anymore_
|
| PE and VC suffered relative to private credit [1][2].
| (Basically, folks want to lend to private companies more
| than they want to buy stakes in them.)
|
| It's unclear whether growth is being uniquely impacted
| versus private equity in general, early-stage VC
| inclusive.
|
| [1] https://www.institutionalinvestor.com/article/2dk6rma
| tv89c9u...
|
| [2] https://www.bloomberg.com/news/articles/2024-10-01/jp
| morgan-...
| blackeyeblitzar wrote:
| Thanks for sharing your perspectives in this thread. You
| seem to have a lot of deeper knowledge about how all this
| works. Any guidance on what to follow or where to learn
| to understand these complex dynamics of the investment
| world? I feel like much of what I've seen is more like
| the basics.
| londons_explore wrote:
| > late stage companies have valuations that are too high to IPO
| without taking a big valuation haircut.
|
| AKA, we've made a loss, but don't want to admit it yet.
|
| If I were tax policymaker, I would force all assets to have a
| valuation every year, and published in a register, and allow
| anyone else to buy any of those assets for the declared value.
|
| If you over declare, you pay more tax. (you'd pay perhaps 1% of
| the asset value every year, and that would replace income tax,
| capital gains tax, etc)
|
| If you under declare, someone else will come take your asset
| off you for whatever value you said.
|
| Suddenly this whole idea of "unrealised gains/losses" goes
| away, as does fake valuations for tax avoidance.
| ttymck wrote:
| "allow anyone else to buy any of those assets for the
| declared value"
|
| How would this work?
| whatshisface wrote:
| If you show up at the tax assessor's office with a check
| for more than the self-reported value of my home,
| realistically plus the premium the government pays in
| eminent domain cases, you get the title. That idea is
| pretty much "eminent domain for all."
| BobaFloutist wrote:
| That seems really annoying to deal with. It's possible it
| would lead to a better society _eventually_ , but in the
| short term I'd rather speculators not buy my shitbox car
| out from under me because they spotted the chip shortage
| before I did.
| whatshisface wrote:
| It might not be so bad if you were allowed to accept an
| increase in your tax assessment rather than selling at
| the new price.
| JumpCrisscross wrote:
| > _might not be so bad if you were allowed to accept an
| increase in your tax assessment rather than selling at
| the new price_
|
| Sounds like a bonanza for developers.
| whatshisface wrote:
| I think that's the point, to free up all the economic
| activity that's being held up by patents, copyright and
| land underuse, and to get fair tax assessment on assets
| previously exempt from property taxes as a bonus.
| JumpCrisscross wrote:
| I don't see how this has anything to do with patents or
| copyright. Presumably, those would be subject to this
| seizure mechanism and thus flow to those most willing to
| enforce their claims.
|
| Like, 99% of the activity under such a mechanism would be
| transfers of financial assets.
| lotsofpulp wrote:
| A power law land value tax would take care of most of the
| problem at almost no cost (since land is assessed
| regularly anyway).
|
| This should completely replace income tax. Copyright
| terms should also be 10 years, maybe 15 max. Patents
| could probably stay as is, but I don't see any problem
| reducing them too.
| JumpCrisscross wrote:
| > _power law land value tax would take care of most of
| the problem at almost no cost (since land is assessed
| regularly anyway)_
|
| Sure. This is a totally different proposal.
|
| Would note that you could go a long way to making this
| proposal electorally appealing by exempting primary
| residences. (In my experience, the assessed value of a
| home is at best loosely related to its market value.)
| lotsofpulp wrote:
| It would be electorally appealing, but would fail at one
| of the main benefits.
|
| The number one waste of space in the US is people's
| excessively large footprint, causing enormous consumption
| of energy and infrastructure costs that are borne by
| future generations.
|
| All these detached single family homes on 0.1+ acre lots
| are massively expensive and the people living in them
| hardly pay taxes proportionate to the benefit they
| receive from the government. Instead, our society takes
| from the working class via income tax.
|
| If you want to live in a detached home on a large lot, be
| ready to pay the appropriate land value taxes.
|
| If you want to conserve and use less of society's
| resources, live in an apartment building.
|
| Since the tax formula would be a power law function, it
| would inherently not be punitive to the vast majority of
| Americans who don't live on outsize plots of land.
| JumpCrisscross wrote:
| > _number one waste of space in the US is people's
| excessively large footprint_
|
| Massively needing a source.
|
| > _it would inherently not be punitive to the vast
| majority of Americans who don't live on outsize plots of
| land_
|
| DOA. Partly due to the electoral college. Partly due to
| American optimism and aspiration. Perfect is the enemy of
| the good.
| lotsofpulp wrote:
| > Massively needing a source.
|
| Physics.
|
| Energy = acceleration * mass * distance.
|
| The more stuff you move further distances, the more
| energy you need.
|
| Obviously, more people living in a square mile will use
| less energy per person than fewer people living in a
| square mile.
|
| Think about all the energy needed to move
| water/sewer/trash/gas/police/ambulances/etc in and around
| a neighborhood where 100 people live in a Barcelona style
| communal living versus 100 detached homes on 0.1 acres
| each.
|
| The huge knock on effects of the latter is that it then
| necessitates personal vehicle transport, which then
| compounds into more space being needed for huge arterial
| roads and highways, which then makes neighborhoods
| unwalkable, further necessitating personal vehicle
| transport, and so on and so forth.
|
| > DOA. Partly due to the electoral college. Partly due to
| American optimism and aspiration. Perfect is the enemy of
| the good.
|
| I'm under no illusion, but I also don't see a need to
| inconvenience myself with half measures if my countrymen
| are not willing to do what is necessary.
| whatshisface wrote:
| Most of the blue collar workers I know live in single
| family suburban homes. Factories are rarely located in
| urban centers, and corporate dormitories are no longer
| much of a thing in this country.
| lotsofpulp wrote:
| I don't see why what color collar someone is labeled as
| is relevant. My assertion is simply that occupying
| surface area consumes an incredible amount of resources
| that are not proportionately represented in today's
| methods of taxation.
| throwway120385 wrote:
| The unstated assumption here is that _efficiency_ is the
| most important thing, rather than any of a number of
| other things we could value like stability, security,
| safety, reliability, and so on. The problem with
| efficiency-driven ideas is that they almost always will
| result in a bunch of people with money descending on a
| bunch of people without money and exploiting the
| difference to...make money.
| jermaustin1 wrote:
| This is terrible. I don't want to loose a priceless
| family heirloom (grandma's Sheraton-style rocking chair
| from 1890s) just because someone wants it and can write a
| check for $1 more than the assessed value. That discounts
| sentimental value. And if I now have to declare
| sentimental value and pay taxes on it, I'd rather burn it
| to the ground (grandma would approve).
| whatshisface wrote:
| A lot of people hate eminent domain too, for that exact
| reason. I think libertarians want to get rid of it
| entirely because it's an involuntary transaction.
| lotsofpulp wrote:
| Not being born to a grandma who could afford a life
| stable enough to preserve and pass down such a chair is
| also an involuntary transaction, but libertarians don't
| seem to talk about that.
| JamesBarney wrote:
| Yeah eminently domain isn't great. But also it's better
| than the alternative which is having a country without
| roads.
| londons_explore wrote:
| Bob declared his car to be worth $18k in 2023. Fred fills
| in an official form, pays $18k to bob, and takes bobs car.
| Perhaps a 1 month handover period is given, and perhaps a
| 10% 'hostile sale' fee is given to the government to
| prevent abuse of the system to take houses from grannies.
|
| Lets say any item worth over $10k (including cars, land,
| houses, companies, etc) would be part of the system.
|
| Another way of looking at it is "all items in the nation
| are always for sale, and if you don't want to sell you
| better choose a high price".
|
| Obviously if you don't want your stuff taken, declare a
| high value. But you'll pay a bit more tax for the
| privilege.
| ttymck wrote:
| Surely you can't be serious. Say, in this fantasy world,
| my car appreciates $3k. Can Fred still pay $18k before I
| have a chance to re-assess?
| londons_explore wrote:
| If some asset changes in value, you could reassess at any
| time.
|
| Just like a car dealer changes the sticker prices on his
| cars every few days,
| sroussey wrote:
| This will be fun with crypto. You assessed yesterday and
| it shot up in value and I take it off your hands at 3am.
| happyopossum wrote:
| So now you have a full time job managing the declared
| value of all of your assets? Or perhaps you'd suggest
| families now have to hire an asset management firm?
|
| this is ridiculous
| pertymcpert wrote:
| Have you really thought this idea through before you
| write about it in public?
| JumpCrisscross wrote:
| > _perhaps a 10% 'hostile sale' fee is given to the
| government to prevent abuse of the system to take houses
| from grannies_
|
| So Bob is not only out a car, but down $1,800k to boot?
| s1artibartfast wrote:
| Perhaps we could institute a similar law for people and
| tax their self reported value of their time/labor. If you
| under-report you can be press-ganged into slavery for a
| specified duration, say 1 year.
|
| This would ensure that people's labor and their bodies
| would be put to the most efficient economical use as well
| as increase tax revenue.
|
| It would also solve the problem of undercompensating of
| workers. If your employer values your experience and
| knowledge, they would have to pay a premium for it,
| otherwise a competitor would buy you out from under them.
| JumpCrisscross wrote:
| > _How would this work?_
|
| Private ownership would become impractical for the _hoi
| polloi_.
|
| The wealthy would need to pay a new class of bureaucrats to
| keep asset values up to date, to continuously incorporate
| new information into their marks. Everyone else would be
| better off renting--owning a car would be risky as it could
| be snatched from you at a moment's notice due to an
| overnight shift in the metal markets.
|
| Remarkably similar to a feudal system, actually.
|
| EDIT: What am I thinking, you'd just move all your
| financial assets overseas and maintain as little real
| property as possible domestically. The same thing folks do
| in the Gulf countries where the monarch gets stealsy from
| time to time.
| Detrytus wrote:
| There's a similar concept with real estate taxes in some
| countries: you pay your tax based on self-reported
| valuation, but if you sell for a price that's higher than
| this valuation then you have to pay adjusted tax for like 5
| years back.
| JumpCrisscross wrote:
| > _I would force all assets to have a valuation every year,
| and published in a register, and allow anyone else to buy any
| of those assets for the declared value_
|
| This would make investment bankers and lawyers happy and
| nobody else.
|
| Note that any company with a '40 Act investor already has
| public valuations per those investors' opinions published--
| it's how you get "Fidelity marks down value of Twitter stake
| again" headlines [1].
|
| > _this whole idea of "unrealised gains/losses" goes away_
|
| As does the entire American private capital market, including
| small business, since illiquid investments now become
| punitively expensive to hold.
|
| The more I think about it, the more impressive this proposal
| becomes in terms of solving almost zero problems while
| actively making the problem worse in different ways.
|
| [1] https://www.reuters.com/technology/fidelity-marks-down-
| value...
| axus wrote:
| Couldn't the annual valuations be gamed by insiders? Who's
| going to impartially decide the declared value?
|
| Best alternative I can think of is a soft fascism where the
| government receives a small stake in the company each year
| instead of cash. Then holds or auctions it as some bureaucrat
| sees fit.
| JumpCrisscross wrote:
| > _Couldn 't the annual valuations be gamed by insiders?_
|
| Yes. It's not even difficult to imagine. Management
| undervalues group assets to buy them on the cheap for
| themselves.
| fuzzfactor wrote:
| >Management undervalues group assets to buy them on the
| cheap for themselves.
|
| It's not my imagination, I've seen how they sell the same
| assets back for a profit after enjoying some tax
| depreciation for a while too.
| krisoft wrote:
| > If I were tax policymaker, I would force all assets to have
| a valuation every year, and published in a register, and
| allow anyone else to buy any of those assets for the declared
| value.
|
| That feels problematic. How much is your wedding band? Or the
| urn with your grandma's ashes? Or the favourite teddy bear of
| your child? Or all coppies and rights to your wedding photos?
|
| I hope you declare them high enough or people might just take
| them for the lolz.
| s1artibartfast wrote:
| you are thinking too small. Buy up all the futures in food,
| 100x your stated valuation, and sell it back to the
| starving masses.
| FactKnower69 wrote:
| feigning an inability to distinguish between private
| property and personal property to manufacture resistance to
| reform of political economy, what a concept
| s1artibartfast wrote:
| You just eliminated the right to hold assets and conduct most
| long term planning. Sounds terrible.
| singron wrote:
| This is has actually been used before.
|
| Ports would tax ships on the value of their cargo. It wasn't
| viable for the port to create valuations themselves, so they
| left it up to the ship, but the port had the right to buy the
| cargo at that price.
|
| The scheme kind of works well if it's liquid commodities
| (e.g. grain, oil, lumber) and the purchasing right is held by
| a non-capricious authority (i.e. one that only exercises that
| right to call a bluff).
|
| Taking a down-round on an IPO can be very damaging to a
| company. Since employee equity is based on options, that puts
| those options underwater and means employees will make
| nothing in the IPO. Internally, the company is doing 409a
| valuations and admits in writing that the valuation is down.
| lokar wrote:
| Do many companies pay in options anymore? I've only seen
| RSU for years now.
| Gigachad wrote:
| I wonder how this works for items that have far more value
| to the owner than the market value. Say shipping my
| personal belongings to another country. The value of my
| stuff is probably quite low, but it would be incredibly
| inconvenient and disruptive if it was purchased at it's
| market value and flipped on ebay.
| JamesBarney wrote:
| > If I were tax policymaker, I would force all assets to have
| a valuation every year, and published in a register, and
| allow anyone else to buy any of those assets for the declared
| value.
|
| You and your dad run a plumbing business. Every year you have
| to pay someone 10k to get a valuation. Then strangers can buy
| a piece. Do you have an operating agreement? If not he can
| force a sale if the company.
|
| I don't think this is a great policy.
| happyopossum wrote:
| > and allow anyone else to buy any of those assets for the
| declared value.
|
| Pretty problematic to force the sale of assets from private
| individuals in anything remotely resembling a free country.
|
| That aside, wouldn't this just result in megacorps owning
| literally everything in a matter of a few years?
| londons_explore wrote:
| You mean those megacorps that don't like to pay many taxes?
| Means individuals can simply buy stuff off the megacorps.
| fluoridation wrote:
| Won't individuals also have to do those valuations? What
| prevents someone from taking the stuff right off your
| hands, and so on ad infinitum?
| SoftTalker wrote:
| > many late stage companies have valuations that are too high
| to IPO without taking a big valuation haircut.
|
| Isn't the market what determines the value of a company? If
| they can't get the IPO price they want, then they aren't worth
| what they think they are.
| AYBABTME wrote:
| If they have enough cash/free cash flow, they don't have to
| take money at a lower valuation.
| JumpCrisscross wrote:
| > _If they have enough cash /free cash flow, they don't
| have to take money at a lower valuation_
|
| Sort of? You're describing either a healthy business, at
| which point their market value shouldn't be an issue, or
| management holding the business hostage because they prefer
| their salary to shareholders having a return.
| gtCameron wrote:
| There isn't a return for shareholders if the valuations
| are lower. The problem is not management holding the
| business hostage today, the problem was investing at
| unsustainable multiples a few years ago.
|
| Now the only options are to either cash out at a lower
| valuation and not make any money, or wait and hope the
| business grows to the point where you can get a higher
| total valuation despite the lower multiple and see a
| return on your capital.
| candiddevmike wrote:
| > management holding the business hostage because they
| prefer their salary to shareholders having a return.
|
| But Ive been fed that the principal agent solution of
| equity and executive privilege prevents this! Next you'll
| tell me capitalism doesn't allocate resources
| efficiently.
| JumpCrisscross wrote:
| > _the principal agent solution of equity and executive
| privilege_
|
| This phrase is distilled nonsense. Executive privilege
| [1] has precisely nothing to do with the principal-agent
| problem [2].
|
| [1] https://en.wikipedia.org/wiki/Executive_privilege
|
| [2] https://en.wikipedia.org/wiki/Principal%E2%80%93agent
| _proble...
| s1artibartfast wrote:
| Value isnt singular. Every single transaction in the economy
| is the result of a difference in opinion about value.
|
| My House has a public valuation, but the value it me is much
| higher, so It is not for sale.
|
| Im sure there are several things that you dont buy for their
| market price because they have less value to you. You dont go
| into the store and buy every Item you see, or put every item
| you own for sale.
| SoftTalker wrote:
| Agreed, but if I decide to sell my car, what I originally
| paid for it, what I think it's worth, or how much I've
| invested in repairs, or how much I still owe on it, all has
| nothing to do with the price I can get.
| s1artibartfast wrote:
| There are an infinite number of ways you might choose to
| price your car. If you want it sold in the next 30
| minutes, you'll have to settle for what anyone has in
| their pocket. If you're willing to wait 20 years, you
| might get a much higher price. Anyone who has bought or
| sold a used car will know that market price is an
| average, in reality prices are diverse.
|
| With all that said, my point was to highlight the role of
| _choice_ in deciding to sell or not. I wouldn 't
| recommend selling your car if you owe more than the
| market price, and don't have money for a replacement.
| ajsharp wrote:
| 100%. A lot of companies effectively waited too long to exit,
| and in retrospect probably should've gone public in 2021.
| aantix wrote:
| The Reddit IPO appears to be holding strong.
|
| 11.129B market cap.
|
| There's an appetite for companies with low profitability,
| but promising future growth.
| CalRobert wrote:
| Reddit might be in an unusually good position since they
| hold a huge amount of natural human language they can
| sell.
| skrtskrt wrote:
| bit of a stretch to call that natural human language -
| forget the type of actual people that post there, it's
| been a massive astroturfing target for political and
| marketing bots for over a decade.
| Apocryphon wrote:
| r/HailCorporate
| nostrademons wrote:
| That's the point. The value of a company is determined by the
| price that people are willing to buy & sell its shares at,
| but _you don 't have to be that person_.
|
| The VC fund in the article is basically saying "We believe
| that anyone buying late-stage startups at these valuations is
| a fool and is unlikely to get a better price when it goes to
| the public markets, and we are not going to be the greater
| fool with your money."
| surgical_fire wrote:
| I wonder if that means that the grift is over.
|
| The whole VC/startup grift needs the greater fool to be
| either a big company with money to burn to do an
| acquisition, or the retail investor to be the greater fool
| via IPO.
|
| This is bad.
| nostrademons wrote:
| The previous grift is over, the new one (AI) is getting
| started. VC fund actually wants to exit the old market,
| where they are the greater fool at the bottom of the
| pyramid scheme, and enter the new one, where they can
| find new fools to unload on.
| tombert wrote:
| Yeah, it really bothers me that as a society we've
| decided that ponzi schemes are actually fine as long as
| it has some loose "tech" branding associated with it. It
| seems like the startup strategy in Silicon Valley is
| "grow at all costs, worry about profit later, IPO, now
| it's the public's problem".
|
| Of course someone could say "well they're not forcing you
| to buy the IPO'd stock!", and that's sort of true, but
| only in the strictest sense. My 401k, like I think nearly
| everyone's, is a mutual fund, and it invests in a little
| of everything. I also buy ETFs that do the same thing,
| because it's really the only way to preserve wealth, for
| better or worse. Even if I, for example, thought that
| WeWork's business model was unsustainable, I don't really
| have a way of "opting out" of buying their stock without
| effectively starting my own index fund, or having my cash
| lose value in an FDIC savings account.
| mandelbrotwurst wrote:
| Most (all?) retirement plans offer you some amount of
| choice in funds to invest in, and most companies of the
| sort you're describing are not included in many of the
| more popular indices. For example, WeWork was never in
| the S&P 500. Similarly, target date funds are one of the
| more popular investments options available as by default
| and/or recommendation in retirement plans. The first one
| I checked (Fidelity's Freedom Index) applies its U.S.
| allocation to large caps, which again means it does not
| include many of the companies you have in mind.
| tombert wrote:
| Fair enough, I guess if the company never makes it to the
| S&P500 or NASDAQ-100 you're mostly shielded from this
| stuff if you do the default funds. There are some
| questionable tech companies on the S&P, like Uber for
| example, but not as many and nothing as dumb as WeWork.
|
| I have a lot of VTI stock right now, which if I
| understand correctly invests in basically everything in
| the America stock exchanges, though I guess an argument
| could be made that I should have known that dumb
| companies being included in there was always a risk.
|
| Still, I don't have to like it, and I do think that a lot
| of these companies IPOing when they don't really have any
| way of actually making money is an issue waiting to
| happen.
| no_wizard wrote:
| VTI is a minimum ten year horizon type investment though,
| which is why it's often praised by the Boglehead crowd.
|
| Hold it for 10-30 years and it'll be up and to the right.
| On average 10% gains in a year, though like anything it
| always fluctuates
| tombert wrote:
| I have absolutely no plans on selling my stock for the
| next ten years, but it still means that I'm investing in
| WeWork whether I like it or not.
|
| I agree it's a good investment for long-term stuff, it's
| the fund that I recommend to everyone.
| mandelbrotwurst wrote:
| Yeah, I mean, I hear you. It definitely feels like
| there's been a shift toward investing based on sentiment
| rather than fundamentals, and there's certainly an
| argument to be made that's not a good outcome for
| society.
|
| Personally I feel like it's a bigger issue for individual
| investors that in recent years companies now IPO only in
| later stages or not at all and that much of the more
| profitable bits of the growth curve are now accessible
| only to the private markets.
| lumost wrote:
| I believe Warren Buffet was opposed to robo-trading
| strategies for this exact purpose. If the bulk of the
| money is going to fund anything with a market cap greater
| than $X, then it is useful for VCs to pump a stock up to
| $(X + Y) market cap to acquire funding via rebalancing.
|
| From a VC perspective, you can exit as other funds
| rebalance into the stock at the inflated valuation.
| wbl wrote:
| The beauty of market cap weighting is only entrance or
| exit forces a rebalance.
| throwup238 wrote:
| _> I wonder if that means that the grift is over._
|
| It's just general market conditions. Once interest rates
| fall, tech VC will go right back to the grift.
|
| Biotech has also seen a major slowdown this year too,
| despite the huge $43b, $14b, $10.8b, $10b, $8.7b, $7b and
| $7b [1] acquisitions last year and all the usual IPOs.
| It's just interest rates catching up to everyone's funds.
|
| [1] Seagen, Karuna Therapeutics, Prometheus Biosciences,
| Immunogen, Cerevel Therapeutics, Reata Pharmaceuticals,
| Mirati Therapeutics
| surgical_fire wrote:
| I truly hope you are right, otherwise market conditions
| will only deteriorate further for whoever work in tech.
| Yeul wrote:
| An analyst on the radio talked about Saudi Arabia.
| Apparently their sheikh is tightening the budget and
| Arabs always were the biggest fool. It's having a huge
| impact on grifters world wide.
| klranM wrote:
| I think we just have near stagflation in Europe and a bad
| economy + inflation in the U.S. If certain wars are
| stopped, energy prices go to normal and the excess COVID
| money supply is gone, things will be as before.
|
| But the U.S. population has to want it rather than voting
| emotionally again.
| tivert wrote:
| > ...things will be as before.
|
| > But the U.S. population has to want it rather than
| voting emotionally again.
|
| Why would the US population want:
|
| >> The whole VC/startup grift needs the greater fool to
| be either a big company with money to burn to do an
| acquisition, or the retail investor to be the greater
| fool via IPO.
|
| ? IMHO those greater fool-based moneymaking schemes can
| go die in a fire.
| surgical_fire wrote:
| > Why would the US population want:
|
| >>> The whole VC/startup grift needs the greater fool to
| be either a big company with money to burn to do an
| acquisition, or the retail investor to be the greater
| fool via IPO.
|
| I was the one that originally wrote that. Bear with me
| for a second.
|
| I avoid working for startups, but the VC/startup grift
| indirectly benefits me, as they soak a bunch of software
| developers from the market at large, increasing demand
| and salaries across the board. I call it a grift out of
| sincerity, but I was never hypocritical to pretend I
| didn't benefit from it.
|
| As for the general population is hard to say. The layoffs
| that affected tech reached way beyond cushy software
| engineer jobs.
|
| We may recognize that building castles on sand is a bad
| idea. Perhaps our economies, and the rules that create
| incentives (perverse or otherwise) should be different
| than they are.
|
| Fact is, we have a lot of fucking castles built on sand
| right now. If they crumble, a lot of people will be left
| to wander among the rubble.
|
| I do hold a deep despise for the billionaire class that
| was the ultimate beneficiary of this whole "building
| castles on sand" activity. It's not them who will lose
| the most when everything crumbles though.
| tivert wrote:
| > I avoid working for startups, but the VC/startup grift
| indirectly benefits me, as they soak a bunch of software
| developers from the market at large, increasing demand
| and salaries across the board. I call it a grift out of
| sincerity, but I was never hypocritical to pretend I
| didn't benefit from it.
|
| I get that, we as software engineers have indirectly
| benefited from the scam.
|
| > As for the general population is hard to say. The
| layoffs that affected tech reached way beyond cushy
| software engineer jobs.
|
| I don't think it's hard to say. If the general population
| was made understood the full situation, they'd tell us
| software engineers to get lost along with the billionaire
| VCs, because the general population are the ultimate
| greater fools that pay for it all (either directly
| through the stock market, or indirectly through the
| businesses who make so much through monopoly off of them
| that they can easily afford to be greater fools).
|
| We software engineers have had a pretty privileged time
| while a lot of people have been struggling (viz. the
| whole "learn to code" bandwagon from a few years ago).
| surgical_fire wrote:
| To be frank, the whole "learn to code" fiasco was pushed
| not by software developers. My impression was that it was
| pushed by parties interested in flooding the field with
| newcomers to push wages down.
|
| Nonetheless, I don't think you are wrong. I'll just point
| out that the monopolies you refer to, and the
| billionaires that ultimately benefit from it exist due to
| policies and laws that directly benefit them so they
| achieve that very position.
|
| I don't deny that we lived though a privileged time - I
| was perhaps lucky that I had aptitude and interest in
| coding _right at the time_ when the profession was on the
| rise.
|
| While some may be deeply concerned about AI taking jobs
| (which I think is complete bullshit), my main concern is
| a shift in economic conditions that will severely reduce
| demand for developers due to less money moving around the
| sector.
|
| I believe the the ones that will suffer the most are the
| newcomers. Either recent graduates that are coming to the
| market at the worst possible time, or those that switched
| professions very recently only to find the promised land
| had withered before they arrived.
|
| Oh well. Time will tell.
| wbl wrote:
| What bad economy? Labor market is a bit soft but still
| strong, GDP has been gangbusters for quarter after
| quarter.
| Wytwwww wrote:
| > stagflation in Europe
|
| Where? I wouldn't be surprised if deflation becomes a
| real concern in the near future. Eurozone is already at
| 1.8% YoY
| s1artibartfast wrote:
| Emphasis on the "and" in "buy and sell". It is not one or
| the other, you need agreement to have a price.
| TrackerFF wrote:
| Your house isn't always worth what you want it to be.
|
| FOMO and free cash can work like magic for all kinds of
| assets.
| no_wizard wrote:
| A startup I used to work for within a year of interest
| rates rising and lower spend by businesses and consumers
| ended up cutting staff by ~84% and they nearly 100%
| outsourced development (it may in fact be 100% now but idk
| for sure).
|
| They did this to avoid any changes to their sky high
| valuation, as if they went and fundraiser it would have
| tanked it.
|
| At this point I think they're hoping to meander along until
| they're forced into fire sale or they get acquired for
| their customer base
| shivasaxena wrote:
| Not really, the DCF value of a company is sum of its
| discounted Future cash flows. But the value to a acquirer
| usually exceeds it because they can can extract a "hidden
| value" specific to them. It's called "acquisition premium"
|
| If interested, look up "Valuation: Measuring and Managing the
| Value of Companies"
| akira2501 wrote:
| > Isn't the market what determines the value of a company?
|
| There are several markets involved here.
|
| > then they aren't worth what they think they are.
|
| Which is an indication that your market is corrupt or lacks
| the information discovery necessary for accurate pricing
| information to be generally available.
| everforward wrote:
| Yes, but the driving motivation is probably more financial
| than emotional. Trying to IPO at a price lower than the last
| valuation is announcing to the world that the last investors
| lost money, while simultaneously trying to convince the world
| to be the next investors.
|
| In theory, the market will bounce back so IPOing now is
| effectively selling low.
| miki123211 wrote:
| There's also the fact that antitrust regulators seem hell-bend
| on killing the M&A market entirely.
|
| Historically, there were two main paths for startups, IPO and
| being acquired by a larger competitor. The latter path is now a
| lot more difficult, due to the DoJ, the EU and whatever the
| UK's thing was called suing everybody who tries to do an
| acquisition.
|
| In the long run, this means fewer startups will get acquired,
| fewer startups will have an opportunity to exit, the potential
| upside for VC firms is going to diminish drastically, fewer
| companies will get funded, which will ultimately lead to the
| incumbents having all the power and startups having none. This
| is a very bad thing.
| woooooo wrote:
| Any links handy to justify that claim? My impression from
| headlines was that some massive enterprise M&A was blocked
| recently but not so much "startup exits". Maybe I missed it
| though!
| dartos wrote:
| Sounds like a slippery slope fallacy.
|
| What's to say startups don't start being creative or truly
| innovative and focus on making and selling products while
| making a profit?
|
| I'm sure another viable exit strategy will be discovered
| _DeadFred_ wrote:
| Man the 'it's really bad government is enforcing antitrust
| laws' crowd sure is pushing this hard on HN this week. You
| understand all of the original thought on capitalism
| explained how it was essential the government keep this type
| of control on markets in order for capitalism to work, right?
|
| If your only business model is to get bought out by a larger
| company capitalism SHOULD world to reduce the number of
| startups.
|
| Also, the incumbents just buying everyone up also =
| incumbents having all the power, and is also a very bad
| thing. Hence the creation of antitrust laws, and the concept
| of it being baked into foundational capitalist thought.
| Vegenoid wrote:
| I don't know very much about business - but having the goal
| of most new companies being to be bought by a larger company
| doesn't really sound healthy to me.
| Ekaros wrote:
| Shouldn't goal for most companies to be self-sufficient and
| to generate reasonable dividends for their owners? Then
| depending on goals of owners they might or might not be
| private.
|
| For me that sounds much more desirable than having a
| handful of extremely highly valued giga corporations. It
| cannot be long term good to have so much valuation
| concentrated to what less than 10 or so companies...
| happyopossum wrote:
| > Shouldn't goal for most companies to be self-sufficient
| and to generate reasonable dividends for their owners?
|
| No, the company founders should be allowed to set their
| own goals and not have them dictated by regulators.
| Oras wrote:
| Isn't that an opportunity to get better deals if the market is
| weak?
| cubecul wrote:
| If the bar for a successful IPO is high, it gets harder to
| underwrite these pre-IPO investments, etc etc trickle down to
| early stage as well
| vecter wrote:
| Weak probably means too much VC competition relative to the
| number of good investment opportunities, leading to higher
| valuations, fewer investments in top companies, and lower
| expected returns.
| Sam_Odio wrote:
| Wonder if CRV is reacting to the same underlying trends causing
| Warren Buffet to sell stock (e.g., Cape / Shiller PE ratio is
| close to an all-time high)...
| whatshisface wrote:
| P/E ratios are not going to drop until some kind of socialist
| revolution reverses the movement of money from the budgets of
| people who spend it to the bank accounts of people who invest
| it. When control over dollars shifts from people who want goods
| and services to people who want capital assets, the price of a
| capital asset (P) must go up as demand rises even while the
| price of what it manufactures (E) goes down.
|
| Ever hear "there are no alternatives to stocks?" The
| alternative to stocks in the past was consumption; not so when
| concentrations of wealth cannot be spent in a thousand
| lifetimes. It's the perfect storm for crazy P/E. If you believe
| Piketty's work, that kind of reverse shift never happens
| gradually, and these P/E ratios represent the "maturity" of a
| period of relative peace and stability.
|
| It's worth mentioning, as an aside, that as long as inflation
| is positive, investors do not actually need to see earnings.
| giansegato wrote:
| Important detail is that they're both divesting from later stage
| deals, and doubling down on early stage ones
| JumpCrisscross wrote:
| > _they 're both divesting from later stage deals, and doubling
| down on early stage ones_
|
| Source for doubling down or divesting? It looks like they're
| holding course on early stage and pausing on late.
| fidotron wrote:
| I am going to say it: blocking the Figma acquisition was the
| wrong call. The result is that the ability for startups to exit
| via acquisition has been severely curtailed.
|
| This would have been an OK move if there was more anti monopoly
| enforcement on FAANG (plus MS and Adobe) but there isn't. The
| result is established players get to dump sub standard products
| on the market and remove the oxygen from the room for competition
| to emerge.
| pclmulqdq wrote:
| Lina Khan has done more to kill the startup market than anyone
| else in the world. But it's okay because she's making sure
| there's enough competition in the market for mid-range luxury
| handbags.
| BoiledCabbage wrote:
| > kill the startup market than anyone
|
| No, what killed the startup market is that people now have to
| pay for money. There is a whole lot of junk people are
| willing to do when money is effectively free.
|
| When people have to actually pay for money, all of that crap
| goes out the window.
| nine_zeros wrote:
| > I am going to say it: blocking the Figma acquisition was the
| wrong call. The result is that the ability for startups to exit
| via acquisition has been severely curtailed.
|
| On the flip side, it has also helped customers who are now
| benefiting from the competition between Figma and Adobe. The
| quality of Figma has only improved since, and I am happy for
| them to earn my dollars.
| stackskipton wrote:
| People are expecting too much with anti monopoly enforcement.
| Google is on round two with anti trust. Read here if you want
| to know more https://www.bigtechontrial.com/ (Sponsor is very
| into anti monopoly)
|
| However, this is 50 year of court inertia she is trying change.
| It doesn't go fast.
| outlore wrote:
| It was still the right call for the consumer though. Otherwise
| we'd see it become another enshittified creative cloud product.
| kfarr wrote:
| "To provide the best experience during our transition to
| Adobe, Figma users will now be required to download and
| install Adobe Update Manager native application running 24/7
| with file access in order to use this web-based application."
| solardev wrote:
| Wrong call for who? Adobe has a track record of absorbing and
| abandoning or stagnating excellent products. I loved Figma and
| hate Adobe, and many of its users felt similarly. It would've
| made investors rich, yes, but it would've taken one of the gems
| of the internet away from its community. I, for one, and _very_
| glad that deal got blocked.
| fidotron wrote:
| For the economy as a whole, and the quality of products in
| it.
|
| I would refer people to JumpCrisscross' remarks which are
| clearer than my own, such as: "The reason anti-trust action
| has chilled M&A is because there were only four strategic
| buyers. Due to decades of failed anti-trust."
|
| People are way too emotional about Figma and Adobe and do not
| see the forest for the trees.
| t_mann wrote:
| So you start by saying anti-trust action is negative for
| the economy, then quote someone who says we should have
| more anti-trust action?
| fidotron wrote:
| I clearly stated at the top that they had failed to
| perform anti monopoly measures against FAANG and co. and
| this was the actual root of the problem.
|
| Until Google, Apple, Amazon and Microsoft are broken up,
| or seriously splintered, other anti trust action is not
| merely irrelevant but counter productive as it just
| entrenches the positions of the established players.
| BoiledCabbage wrote:
| Ensuring Adobe can't squash competition helps FAANG? No.
|
| Ensuring market competition helps consumers.
|
| An investment industry whose endgame is destroying the
| product they created by selling it to their competitor is
| not an industry we need. IPO is a positive societal exit.
| Selling to another investor is a positive societal exit.
| Selling to a competitor so the can smother it should've
| never been a primary exit and that's being fixed. That's
| a good thing.
| fidotron wrote:
| > Ensuring Adobe can't squash competition helps FAANG?
|
| Absolutely. The whole subject of this article is the
| difficulty of startups securing late stage funding. This
| means a lot less competition for FAANG. Look at how Meta
| has not needed to buy anyone in ages and is essentially
| fine, yet historically was spending vast amounts. Only
| tiktok, with clear state support, has come close to
| disrupting anything slightly.
|
| Were it not for the AI wave the tech world would be a
| trainwreck right now.
| BoiledCabbage wrote:
| > The whole subject of this article is the difficulty of
| startups securing late stage funding. This means a lot
| less competition for FAANG.
|
| It was never true or long term competition if FAANG just
| buys them up. That isn't actual market competition if it
| only exists for a blink of time.
|
| You've misdiagnosed the problem. The problem was letting
| Meta buy up all of it's competition until almost nobody
| wants to compete in it's market. The problem was exactly
| letting market leaders buy up their competition. The bad
| thing you said is what's being prevented here and somehow
| you're against it. That line of reasoning doesn't follow.
|
| You're arguing your conclusion as your premise.
|
| This is a question of is it good for market leaders to be
| able to buy up their competition? And the answer is "no".
| fidotron wrote:
| > The problem was letting Meta buy up all of it's
| competition until almost nobody wants to compete in it's
| market
|
| It is almost like I said this right at the start and you
| are all ignoring it.
|
| Punishing a relatively small player (Adobe) has had this
| knock on effect on the entire ecosystem that
| coincidentally benefits the larger players by making
| their already big positions unassailable. Follow the
| second order effects here.
|
| Edit to add: > The bad thing you said is what's being
| prevented here and somehow you're against it. That line
| of reasoning doesn't follow.
|
| The point is that in a world that tolerates the ongoing
| existence of FAANG (+Adobe +Microsoft +Oracle etc.) as
| the monopolies they already are you must allow large
| acquisitions in order to enable the emergence of new
| competitors, either directly or as a result of the
| founders making a second shot. Otherwise their defensive
| moat is just hilarious.
|
| The absolute best option is to break up the monopolies,
| then be stricter about their emergence in future i.e.
| through blocking acquisitions. But you cannot do this by
| starting at the end like this, as it makes it worse.
| t_mann wrote:
| So anti-trust action is good against FAANG and bad
| against Adobe? What's the general principle here?
| fidotron wrote:
| You lot are so blinded by Adobe hate you cannot even read
| what I actually wrote.
| Apocryphon wrote:
| Or you are so blinded by big four hate that you cannot
| apply the same principles to all wannabe big fours.
| fidotron wrote:
| "FAANG and co. "
|
| Means Adobe are included, as it says at the very top.
|
| Stopping them buying Figma achieves nothing good. Their
| monopoly is on print and publishing tools, and no one has
| been close to them since the actual crime of the
| acquisition of Macromedia and subsequent killing of
| Freehand.
|
| Had Figma been bought at the valuation Adobe were
| offering the founders would, given a few years, be free
| to leverage their expertise and now vast resources on
| whatever is more valuable at the time, and now that is
| lost.
| Apocryphon wrote:
| As other responses to your original post have pointed
| out, it's quite likely Adobe would have turned Figma into
| yet another saas offering, dubiously supported and with
| onerous bloatware, and consumers would be left high and
| dry when it is inevitably sunsetted.
| fidotron wrote:
| They will enshittify regardless of if Adobe buy them or
| not.
|
| Now though you will certainly suffer because when Figma
| inevitably goes to hell the only remaining option will be
| the janky self hosted clone as no one will be able to
| fund proper competition for it or any replacement.
| Apocryphon wrote:
| People can just switch to the actual Adobe version, or
| use Zeplin.
| fidotron wrote:
| So when Figma dies because Adobe bundle their worse
| product with Creative Cloud and it destroys the market
| for Figma you will be A-OK with it?
|
| (I mean die or get picked off for peanuts by someone like
| Atlassian or ServiceNow.)
|
| This isn't abstract, it is exactly what MS Teams has done
| to that whole segment.
| Apocryphon wrote:
| Figma will likely have a lead over Adobe's worse product.
| But if Adobe's worse product becomes better, then that's
| good for the consumer as well.
| jrflowers wrote:
| > the founders would, given a few years, be free to
| leverage their expertise and now vast resources
|
| I couldn't make heads or tails of your posts here until I
| read this. "Anti-monopoly action is good, even regarding
| Adobe, except for the Figma acquisition in particular,
| which should have happened" doesn't really make sense
| unless your starting point is "the desired outcome is
| that specifically the Figma folks get overnight super
| rich" and then you work backward to construct an economic
| reason for that.
| fidotron wrote:
| It is the wrong anti compete action to enforce against
| them. The correct thing would be to dismantle their
| publishing monopoly.
|
| The point is unless you dismantle the core print
| publishing monopoly Adobe will simply produce a crap
| Figma, bundle it in Creative Cloud, and Figma will die a
| slow death. At least if Figma is acquired it gets the
| chance to do the opposite.
|
| My priority is the widespread availability of high
| quality products and services, which requires rewarding
| those that make them, and a competitive marketplace
| without people engaged in product dumping.
| jemmyw wrote:
| Adobe already tried to make a crap figma. That failed and
| they've shut it down. I don't think they'll try again
| just yet.
| jrflowers wrote:
| >At least if Figma is acquired it gets the chance to do
| the opposite.
|
| This makes sense. If Adobe makes a crap Figma copy and
| Figma dies, that is bad. If Adobe buys Figma, makes it
| terrible, and then it dies, that is good. In both
| scenarios Figma is dead, but in the Good one the Figma
| founders cashed out.
|
| You literally posted that the ideal outcome is that the
| Figma _founders_ could leverage their newfound wealth to
| do... something(?) with all their new cash, which has
| zero to do with Figma as a product or the users that get
| screwed.
| fidotron wrote:
| > You literally posted that the ideal outcome is that the
| Figma founders could leverage their newfound wealth to
| do... something(?)
|
| You know Signal was funded by a WhatsApp founder? That
| sort of thing.
| Apocryphon wrote:
| That's some forest you're having us see
| t_mann wrote:
| > Adobe will simply produce a crap Figma, bundle it in
| Creative Cloud, and Figma will die a slow death
|
| > My priority is the widespread availability of high
| quality products and services
|
| Seriously?
| t_mann wrote:
| I don't care about Figma or Adobe, but you simply haven't
| made a good case why antitrust enforcement is good in
| general but bad in this case. Your only argument is that
| it makes it harder for other companies to grow to that
| size, which is not an unintended consequence of antitrust
| enforcement. You can't have your cake and eat it.
| spamizbad wrote:
| Nah, they just lost the game of musical chairs.
|
| We need to move away from the mindset of companies getting
| built to be acquired and then all their product innovation gets
| snuffed out and their users suffer: it's wasted economic
| output.
| tsycho wrote:
| I am less sure about the Figma acquisition[1] in particular,
| but overall, I strongly agree with the general point that
| blanket blocking nearly-all acquisitions by Big Tech (except
| Microsoft for some reason) is wrong and short-term populism.
|
| More startups and more innovation gets created when founders
| have higher hopes of a positive exit, and in turn, this is good
| for the world at large.
|
| When a startup becomes FCF positive quickly, and can sustain
| their growth, they generally don't want to get acquired (eg:
| Facebook, Snap...) and generally aim for an eventual public
| IPO. But this is a high bar, which only a small number of
| companies reach.
|
| The ones that do choose to get acquired, often do so because
| they are not as optimistic about their own sustainable growth
| as outsiders might think. If they can't make a reasonable exit
| via an acquisition, then their equity becomes zero and their
| years are wasted.
|
| From a founder point of view, acquisitions act as a significant
| floor of value for the time and effort that the founders and
| employees are risking. This negative Expected Value risk taking
| drives innovation and growth for all, significantly curtailing
| acquisitions makes it severely more negative EV. Worse, the
| impact of this will not be felt immediately so the new FTC will
| be able to claim political and populist wins; it will show up
| in reduced startup creation in the years to come.
|
| [1] Figma feels like it has a reasonable chance of surviving on
| its own, and become genuinely disruptive to Adobe in the
| future. But if it dies and goes to zero, then I will feel sad
| and unhappy that the acquisition was blocked.
| dvrp wrote:
| plausible, but dylan and early employees seem rich
| dmvdoug wrote:
| Yes, won't someone think of the poor founders and their
| desire to exit?
| bigstrat2003 wrote:
| > More startups and more innovation gets created when
| founders have higher hopes of a positive exit, and in turn,
| this is good for the world at large.
|
| No, I disagree. It is a negative for the world at large if
| people are incentivized to build businesses solely so that
| they can be acquired by some big tech company.
| edanm wrote:
| Why?
| kibwen wrote:
| Large players leverage their market position in anti-
| competitive ways to crush challengers, and this problem
| becomes more acute the larger the player gets.
|
| Even if one hopes (unrealistically, IMO) that
| sufficiently-large hypercorps will save us from this fate
| by collapsing under their own weight, why not just cut
| out the middleman and break up the huge players now,
| rather than suffering under their market tyranny while
| hoping for it to happen on their own?
| layer8 wrote:
| Large companies growing even larger by acquisitions, and this
| being the standard exit for startups, is not good for the
| world at large. It only leads to concentrating more and more
| power in large corporations, and reducing meaningful
| competition in the market.
|
| A startup being attractive for an acquisition is also quite
| different from being attractive to clients and users, and
| therefore that's an incentive structure that is worse for
| clients and users.
| nickff wrote:
| Perhaps the government should make it a bit easier to go
| public, rather than restricting every other option. The SEC
| and FTC seem to be all-stick, no carrot.
| adabyron wrote:
| Large companies have great distribution channels that
| smaller companies can benefit from.
|
| Large companies often get bloated & collapse as well. This
| has always kept me from being to concerned with them over
| the long term.
| adabyron wrote:
| > except Microsoft for some reason
|
| I would watch a documentary on what Microsoft had to do to
| get Activision. It seemed they spent a lot on the best legal
| team money could buy & on political capital as well. There
| were a ton of different angles too such as mobile gaming
| where Microsoft can't compete easily, studios where Microsoft
| has a lot, the Activision harassment fallout, the foreign
| competitors (Sony & Nintendo), cloud gaming competition.
|
| Figma & Adobe had a lot less competition pre-AI wave so I
| understand the push back on that one. Especially due to
| Adobe's past on buying competition, killing it off & little
| innovation. Ironically now with all the AI startups I think
| Adobe has a lot of competition.
|
| The Spirit/JetBlue airlines M&A being stopped is still my
| biggest head scratcher.
|
| I personally think Figma & Adobe should have been allowed to
| merge though as companies like Affinity offer a very
| competitive product. I also was in favor of all the above
| M&As though.
| nsedlet wrote:
| Maybe this is a dumb question but I thought valuations had fallen
| a bunch since mid 2022 and now lots of VC firms are struggling
| with companies (especially mid-to-late stage) who raised at much
| higher valuations than they can now get in the market. But this
| firm is saying that current valuations are too high to make new
| investments. Would it not be a good time to invest in later stage
| startups? Or is the issue that the forward growth potential of
| these companies is lower now for some reason.
| ritzaco wrote:
| private valuations are weird. There's some abstract idea that
| 'valuations have fallen' for sure - people are saying things
| like "I don't think COMPANY_BLAH that raised $100M at a $1B
| valuation is actually worth $1B"
|
| But it was never officially 'worth' that much in the same way
| as a market cap of a public company anyway. If they do a
| downround, where they raise money at a lower valuation than the
| previous one, that's generally bad for everyone, so there's a
| strong tendency to try to 'wait it out' and just pretend
| they're still worth $1B and hope the market recovers and no one
| has to write down their investments.
| mandevil wrote:
| Valuations have "fallen" but not actually fallen: there are
| very bad consequences to raising what's known as a "down-
| round"(1) so no one is actually doing that unless they are
| absolutely forced to. So no company is interested in actually
| allowing an investment at that lower valuation. They only do
| that if they are absolutely forced to, because they desperately
| need the money.
|
| So while yes, when the valuations go down seems like a perfect
| time to buy (buy low, sell high!), in these closed markets it
| is difficult to find someone to accept your money when it is
| down. This is a big difference from the publicly traded market,
| where you can essentially always buy stock. But in these
| private markets, everyone agrees that the value of a share of
| company X is lower than before, but no one is willing to sell
| you a share today at that price, so you can't actually invest
| your money.
|
| 1: Where the top-line valuation is below the previous
| valuation. This is extremely bad for a company because
| investors almost always have protections for a down-round, so
| the loss generally is felt entirely by the workers and the
| founder.
| makestuff wrote:
| To get around this will companies just extend their runway
| with a line of credit or some other form of debt?
| ckdarby wrote:
| That is possible, or hit break even. You'd be surprised how
| quickly a company can go from -50% margins to positive
| margins when their job is on the line.
| paxys wrote:
| The current batch of tech "decacorns" (Stripe, Databricks, Canva,
| Chime, Miro, Discord, Ripple, Brex, Airtable etc) all raised
| money at unrealistic valuations in 2020-2021, and with the
| subsequent tech cool off the market today can simply not sustain
| the same numbers. With no IPOs or acquisitions on the horizon,
| and no appetitive for down rounds, there's essentially a funding
| stalemate for companies at that stage (unless you have "AI" in
| your name of course).
| nytesky wrote:
| Most of these have been around for nearly a half decade, can't
| they just remain private companies operating off their profits?
| What is the mechanism for VC investors exiting when it just
| goes private, what payoff will they accept?
| churchill wrote:
| It's not possible: for most of these companies, their
| business model is built on burning VC, getting increasingly
| higher valuations, and then dumping on retail traders.
|
| For instance, Stripe is valued at >$70b. They processed $1
| trillion in payments in 2023, brought in $12 billion in
| revenue, which is 1.2% of payment volume. $100 million in
| profits.
|
| Running as a modest private business just doesn't make sense
| when you've raised venture capital at 700x your annual
| profits. So, IPO it is.
| nytesky wrote:
| What do you mean dumping? Google IPO was a huge windfall
| for retail investors and VC, right. If Stripe can't exit
| successfully, why not pay VC back at % rate they can
| afford, and then run the business off of the $100M profit?
| churchill wrote:
| Google, Facebook, and Apple are extreme outliers. This
| list covers tech stocks that IPO'd in the last bull run.
| Check what the declines look like.
|
| https://www.trueup.io/tech-stock-declines
|
| Out of 17 YC companies that have gone public, 3-4 have
| been delisted, 7 have lost >80% of their value, another 7
| has lost 10% to 50% of their value. Only Reddit and
| Instacart have gained 47% and 31% respectively. Sounds a
| lot like bagholding to me.
|
| Here: https://www.marketsentiment.co/p/the-yc-report
|
| Regarding Stripe, if investors own just 50% of the
| company (highly probable, given how much they've raised),
| it'd take 350 years to pay them off. Payments is a high-
| volume, low-margins business.
|
| In fact, even if Stripe 10x'd their revenues, it'd still
| be 35 years before they bought out all their investors.
| if you think I'm being unfair, look at the numbers Paypal
| and Adyen are doing and assess their valuation and you'll
| realize Stripe is extremely overvalued.
|
| Adyen is trading at 60x profits; PayPal is trading at
| 2.7x revenues and 19x profits.
| KingMachiavelli wrote:
| Comparing a companies current valuation to it's all-time
| or 52-week high isn't really useful. NVDIA is down ~14%
| from it's ATH but 25x it's initial market cap; it's
| certainly returned value to it's investors.
|
| What matters more is change relative to it's market cap
| at IPO. And yes this is significantly worse for newer
| companies. There is a clear trend showing the 2010-2022
| tech IPO market pushed valuations pre-IPO to insane
| levels such that post-IPO growth was limited or even
| negative meaning retail investors never had an
| opportunity to hold equity.
| churchill wrote:
| Okay, ignore the section about ATHs. How about YC alumni
| company performance post-IPO?
| fluoridation wrote:
| They have a 0.8% efficiency? How are they running such a
| tight margin?
| churchill wrote:
| Adyen hires mainly in Europe where peak salaries can
| easily be 40% of American rates. They also have like
| 3,500 staff compared to Stripe's 8k (not sure whether
| it's before or after their recent layoffs).
|
| Personally, I assume they'll do some layoffs & cut
| spending to increase their margins, by, say, 4-5x, before
| they IPO.
| Gigachad wrote:
| A lot of them have built up user bases which are difficult to
| monetize at all. Discord users are having a collective
| meltdown right now at the change to require a subscription
| for large file hosting.
|
| How are you meant to profit when you have a product that
| costs a lot to run, that has an expected price of $0.
| CSMastermind wrote:
| > unless you have "AI" in your name of course
|
| Being an AI startup that was founded before about 1 year ago is
| actually a liability.
|
| The way we thank about AI has radically changed in the last
| year, maybe last two years if you were really forward thinking.
|
| Any AI company before then will have a mountain of business
| logic and technical architecture that they need to throw away
| and redo.
| t-writescode wrote:
| Why? Were the statistics, etc, not useful?
|
| I would assume that if the underlying models were already
| good, about the only thing an LLM might be good for would be
| filtering new info and/or presenting information in a useful
| way, both of which can be added to an existing flow?
| danielmarkbruce wrote:
| 100%. This is misunderstood by investors.
| cactusplant7374 wrote:
| Does Ripple actually have any revenue?
| jordanb wrote:
| I assume this is committed funds right? So they're not giving
| anything back they're just releasing the commitments?
| tempsy wrote:
| I don't think it's just a "market" thing at this point. Reality
| is if you're not a Tier 1 VC, which CRV really isn't, then you
| cannot get into good deals that would make any sense.
| tgtweak wrote:
| I think if you look at a lot of funds right now, you'll notice
| that they're all struggling to place. It's a question of
| inventory and while multiples are low (naturally as parking
| your capital in a savings account is yielding 5%) companies are
| not selling for less. I have seen multiples in ecommerce/saas
| startups go from 40-50x (early stage companies <5m ARR) to
| 15-20x. The appetite to sell your company for less than a 10
| year DCF is really not there for founders. Cashflowing
| companies when capital costs are high are something you
| typically hold on to.
|
| It's musical chairs and the music is currently stopped until
| interest rates break or until buyers (and their investors)
| start getting hungrier for acquisitions. This "sorry we can't
| place your $275M" scenario is a step in the latter's direction.
| T1 funds are also slowing down a lot since their main handoff
| is IPO and that is also dry.
| churchill wrote:
| I'm seeing a lot of commenters blame this on M&A and nothing
| could be further from the truth. The ZIRP era pumped so much
| money into startups that a good majority will struggle to grow
| into their valuation or raise again at anything other than a down
| round.
|
| I can still vividly remember December 2021, when Airbyte raised
| $150m at a $1b valuation - with less than $1M in annual revenues.
| Or has anyone forgotten Fast.co burning $120M/year while bringing
| in $600k in annual revenues and flying their CEO around the world
| to live like a celebrity, skydive, and show off company merch?
| LMAO. And these are just a few of the more obvious examples. At
| some point, founders stopped selling to customers and starting
| raising and spending VC as their main business.
|
| This past couple of months Bolt (one-click checkout) is about to
| raise at a $14b valuation with less than $28M in annual revenues,
| or a whopping 500x valuation. Hell, NVIDIA is currently trading
| at 50X revenues, despite being so important to the AI revolution.
|
| No one has learnt anything and the rate hikes have not flushed
| out all the malinvestment.
| Vegenoid wrote:
| I'm hopeful that this will lead to a shift in the tech culture
| to slower-growing, long-term, sustainable businesses.
| churchill wrote:
| LMAO. Wait until rates go down a bit. The party will continue
| like it never stopped. All it takes is for Masayoshi Son to
| make a $1b bet on a "Uber for Pets" startup and the game is
| on :)
| plaidfuji wrote:
| "We think there's a stronger market for overvalued early-stage AI
| startups than there is for overvalued later-stage
| SaaS/blockchain/biotech startups"
| candiddevmike wrote:
| They're a few years too late.
| tschellenbach wrote:
| Part of this is also just the bubble from the last few years.
| Everything that startups spend money on has become more
| expensive. Right now there is less funding available, but prices
| haven't adjusted.
| dzonga wrote:
| sounds like the same story as the YC continuity fund.
|
| difficult to help startups grow, if they never reach the growth
| stage. that's why a robust pre-seed / seed stage ecosystem is
| necessary.
| sub7 wrote:
| Holy shit the line of LPs for these guys' next fund will be able
| to cross the Pacific
| max_ wrote:
| The role of a VC is supposed to be such that they invest in
| "infantile" businesses so they can become "mature".
|
| But alot of people seem to be playing valuation Ponzi's instead
| of facilitating the growth of young businesses.
|
| It's really easy to do well in VC. But the strong herd effect
| made me realise that alot of VCs are just "me too" investors.
|
| I am not surprised by this.
|
| Majority don't "build the future" like the marketing material
| suggests. It's all a veneer.
|
| Very few VCs actually do "Venture Capital". It's not exploratory
| it's just "Herd Capital"
| sib wrote:
| "It's really easy to do well in VC"
|
| It's relatively easy as a General Partner in VC to collect fees
| leading to a decent salary for a while.
|
| It's quite hard (rare) to do well enough to outperform the
| public markets consistently on a risk- and liquidity-adjusted
| basis. If you look at the metrics on fund performance, most of
| them are really pretty bad.
| max_ wrote:
| They are bad because 99% are herd animals.
|
| The for instance look at public markets. Passive S&P
| allocations outperform most hedge funds.
|
| You can outperform 99% of hedge funds just by buying the S&P.
|
| The same goes for VCs. Just by spraying small checks over a
| wide spectrum you can do very well (outperform the S&P and
| most VCs).
|
| But 99% prefer "me too" investments.
|
| Paul Graham talked about this:
|
| "Whoever the next Google is, they're probably being told
| right now by VCs to come back when they have more "traction."
|
| Why are VCs so conservative? It's probably a combination of
| factors. The large size of their investments makes them
| conservative. Plus they're investing other people's money,
| which makes them worry they'll get in trouble if they do
| something risky and it fails. Plus most of them are money
| guys rather than technical guys, so they don't understand
| what the startups they're investing in do."
|
| ...
|
| "I've tried to explain this to VC firms. Instead of making
| one $2 million investment, make five $400k investments. Would
| that mean sitting on too many boards? Don't sit on their
| boards. Would that mean too much due diligence? Do less. If
| you're investing at a tenth the valuation, you only have to
| be a tenth as sure.
|
| It seems obvious. But I've proposed to several VC firms that
| they set aside some money and designate one partner to make
| more, smaller bets, and they react as if I'd proposed the
| partners all get nose rings. It's remarkable how wedded they
| are to their standard m.o."
|
| -- link https://www.paulgraham.com/googles.html
| jiveturkey wrote:
| Seems to me one can draw a direct line to the continuing tech job
| market outlook.
| hackable_sand wrote:
| bro telling startup founders to stay in their lanes
|
| heard
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