4 ms·

Yet that same Silicon Valley rewarded Mailbox with $100MM in an acquisition...

by mbesto 11y ago

untog 11y ago
That's exactly my point. Silicon Valley rewards "go big or go bust", it doesn't reward "small, sustainable business". I don't for a second blame the founders of Mailbox for doing what they did. When the market creates a strong set of incentives like this you can't really expect anyone to do anything other than take the $100m. But this is the side-effect.
- exelius 11y ago
  VC is generally designed for big bets and big payoffs (invest in 10 risky bets in the hope that 1 pays off to cover your losses on the other 9). Less risky ventures with smaller payoffs take longer to grow, and don't satisfy the payoff requirements of the VC model. That doesn't mean they're bad companies, but there's definitely a funding gap for the type of company that will require $3M in investment up front and be worth $10M in 5 years. That's still a great return, but right now it's the domain of private equity.
  - TeMPOraL 11y ago
    VCs themselves aren't the problem. Big bets are fine. The problem is acquihiring. It's: - good for founders - they get a big fat paycheck and a chance for a job in a big company - good for VCs - a payoff, even if small, is better than no payoff at all, so they want their 9 not-so-good startups to be bought - good for the buying company - they can literally just kill the competition by throwing money at them, + they get some proven and experienced employees, which may be worth it given the unreliability of the standard hiring process Care to guess who this deal is not good for? Startups are (and are being heavily marketed as) a get-rich-quick scheme. Most of the people involved are self-selected to follow this process. And all this talk about providing value to the users? That's the part of the scheme where you get used.
    - exelius 11y ago
      VCs are totally the problem here. It's not that VCs are bad people who want to screw over users, but their business model requires them to get payback on their bets, even if it's small. It can be hard to know up front if an idea is viable as a hockey-stick software company or if customer acquisition is much, much harder - often because you don't know who your target customer will be specifically until you've iterated a few times. And many times, there's no other exit option for the VCs. Does it suck for users? Absolutely - which is why companies often have lots of apprehension about being early adopters of a startup's technology. It's why B2B startups are really hard, and why they tend not to hockey-stick because the customer acquisition costs are high and don't shrink with scale. It's up to the founders to convince their VCs to pass on the acquihire because they think the company still has hockey-stick potential. Zuckerberg did this a number of times - it was still really arrogant, but it paid off for Facebook and shows why founders need a bit of arrogance to be successful. It's a lot harder to do this if you're running a startup that doesn't have a lot of market traction.
      - coldtea 11y ago
        >VCs are totally the problem here. It's not that VCs are bad people who want to screw over users, but their business model requires them to get payback on their bets, even if it's small. Doesn't that make them bad though? I mean it's like saying "It's not that the mafia are bad people who want to screw over people, but their business model requires them to blackmail and occasionally kill" (not comparing levels of "badness" of course, merely showing the problem in said reasoning). It's not like following a particular "business model" is not a decision people get to make. And if people take the VC model that favours acquihires, then they very much have decided to do stuff that screws with users.
      - nostrademons 11y ago
        I think most VCs would rather see the company stick it out and go for the hockey-stick & IPO. An acquihire is a blip on their returns; it's basically worthless. They're usually arranged as a courtesy to founders, so that if you work your butt off for 3 years, do everything right, and still don't find success, you don't leave with hard feelings toward the other people you worked with. You get acquihires when the assumptions behind the company's business model have been proven false and there's basically no way to solve it other than rebooting the company. Arguably this is an argument to not take VC until you've got the hockey-stick trajectory, so you can pivot & reboot at will without dissolving an existing organization. But even this sucks for customers, if you have any.
- mbesto 11y ago
  But this totally negates your point about "there isn't enough money in an email app". Clearly Dropbox thought there was at least a $100MM opportunity...either talent to produce $100MM+ in value, customers to convert into $100MM+ value, or staving off competition that would result in $100MM in potential loss.
  - wpietri 11y ago
    This seems like a too-generous take. Dropbox could have thought that and just been wrong. Even in the normal economy, per The Economist about half of all acquisitions destroy value. In our little hothouse, I'd expect a much larger percentage of value-destroying takeovers. But there are plenty of other reasons deals get done than a company-wide coherent calculation of economic value. E.g., I've heard of acquisitions happening because a CEO needs to demonstrate to the board that they're doing something. Or incentive structures set up to reward an M&A team based on how many deals they do. Or executives wanting to bring in their old buddies from another company. Or, "gosh, money is so cheap right now we'd better spend it because our competitors are spending."
  - potatolicious 11y ago
    > "Clearly Dropbox thought there was at least a $100MM opportunity" The opportunity was the team, not the product they were producing. Say you had a room full of math prodigies, but all they were doing was watching TV all day. You hire these math prodigies for $X and put them to work solving math problems - this doesn't mean that watching TV is worth $X, in fact it likely means the opposite, that their value is underutilized by whatever they're doing right now. So there isn't enough money in making email apps, but a team capable of producing a great email app can be put to use doing things that do make a lot of money - but it sure isn't making email apps. And that's unfortunate, because as users we're missing out on a lot of great products. The dark side of the immense growth in software (and immense growth in software salaries) is that entire products and services are no longer economical, even though we'd all love to see them. The VC system that drives these early acquisitions and acquihires is just one more factor among many that limit the field of what can be economically produced.
    - 11y ago
- s73v3r 11y ago
  "That's exactly my point. Silicon Valley rewards "go big or go bust", it doesn't reward "small, sustainable business"." Because if that's your goal, you clearly aren't passionate about what you're doing. You might as well go work for a 9-5 company doing CRUD apps. /s
Sophistifunk 11y ago
That went to founders and investors. Mailbox has clearly received a bullet.

Yet that same Silicon Valley rewarded Mailbox with $100MM in an acquisition...

by mbesto 11y ago

Yet that same Silicon Valley rewarded Mailbox with $100MM in an acquisition...

untog 11y ago

That's exactly my point. Silicon Valley rewards "go big or go bust", it doesn't reward "small, sustainable business". I don't for a second blame the founders of Mailbox for doing what they did. When the market creates a strong set of incentives like this you can't really expect anyone to do anything other than take the $100m. But this is the side-effect.

exelius 11y ago
VC is generally designed for big bets and big payoffs (invest in 10 risky bets in the hope that 1 pays off to cover your losses on the other 9). Less risky ventures with smaller payoffs take longer to grow, and don't satisfy the payoff requirements of the VC model. That doesn't mean they're bad companies, but there's definitely a funding gap for the type of company that will require $3M in investment up front and be worth $10M in 5 years. That's still a great return, but right now it's the domain of private equity.
- TeMPOraL 11y ago
  VCs themselves aren't the problem. Big bets are fine. The problem is acquihiring. It's: - good for founders - they get a big fat paycheck and a chance for a job in a big company - good for VCs - a payoff, even if small, is better than no payoff at all, so they want their 9 not-so-good startups to be bought - good for the buying company - they can literally just kill the competition by throwing money at them, + they get some proven and experienced employees, which may be worth it given the unreliability of the standard hiring process Care to guess who this deal is not good for? Startups are (and are being heavily marketed as) a get-rich-quick scheme. Most of the people involved are self-selected to follow this process. And all this talk about providing value to the users? That's the part of the scheme where you get used.
  - exelius 11y ago
    VCs are totally the problem here. It's not that VCs are bad people who want to screw over users, but their business model requires them to get payback on their bets, even if it's small. It can be hard to know up front if an idea is viable as a hockey-stick software company or if customer acquisition is much, much harder - often because you don't know who your target customer will be specifically until you've iterated a few times. And many times, there's no other exit option for the VCs. Does it suck for users? Absolutely - which is why companies often have lots of apprehension about being early adopters of a startup's technology. It's why B2B startups are really hard, and why they tend not to hockey-stick because the customer acquisition costs are high and don't shrink with scale. It's up to the founders to convince their VCs to pass on the acquihire because they think the company still has hockey-stick potential. Zuckerberg did this a number of times - it was still really arrogant, but it paid off for Facebook and shows why founders need a bit of arrogance to be successful. It's a lot harder to do this if you're running a startup that doesn't have a lot of market traction.
    - coldtea 11y ago
      >VCs are totally the problem here. It's not that VCs are bad people who want to screw over users, but their business model requires them to get payback on their bets, even if it's small. Doesn't that make them bad though? I mean it's like saying "It's not that the mafia are bad people who want to screw over people, but their business model requires them to blackmail and occasionally kill" (not comparing levels of "badness" of course, merely showing the problem in said reasoning). It's not like following a particular "business model" is not a decision people get to make. And if people take the VC model that favours acquihires, then they very much have decided to do stuff that screws with users.
    - nostrademons 11y ago
      I think most VCs would rather see the company stick it out and go for the hockey-stick & IPO. An acquihire is a blip on their returns; it's basically worthless. They're usually arranged as a courtesy to founders, so that if you work your butt off for 3 years, do everything right, and still don't find success, you don't leave with hard feelings toward the other people you worked with. You get acquihires when the assumptions behind the company's business model have been proven false and there's basically no way to solve it other than rebooting the company. Arguably this is an argument to not take VC until you've got the hockey-stick trajectory, so you can pivot & reboot at will without dissolving an existing organization. But even this sucks for customers, if you have any.
mbesto 11y ago
But this totally negates your point about "there isn't enough money in an email app". Clearly Dropbox thought there was at least a $100MM opportunity...either talent to produce $100MM+ in value, customers to convert into $100MM+ value, or staving off competition that would result in $100MM in potential loss.
- wpietri 11y ago
  This seems like a too-generous take. Dropbox could have thought that and just been wrong. Even in the normal economy, per The Economist about half of all acquisitions destroy value. In our little hothouse, I'd expect a much larger percentage of value-destroying takeovers. But there are plenty of other reasons deals get done than a company-wide coherent calculation of economic value. E.g., I've heard of acquisitions happening because a CEO needs to demonstrate to the board that they're doing something. Or incentive structures set up to reward an M&A team based on how many deals they do. Or executives wanting to bring in their old buddies from another company. Or, "gosh, money is so cheap right now we'd better spend it because our competitors are spending."
- potatolicious 11y ago
  > "Clearly Dropbox thought there was at least a $100MM opportunity" The opportunity was the team, not the product they were producing. Say you had a room full of math prodigies, but all they were doing was watching TV all day. You hire these math prodigies for $X and put them to work solving math problems - this doesn't mean that watching TV is worth $X, in fact it likely means the opposite, that their value is underutilized by whatever they're doing right now. So there isn't enough money in making email apps, but a team capable of producing a great email app can be put to use doing things that do make a lot of money - but it sure isn't making email apps. And that's unfortunate, because as users we're missing out on a lot of great products. The dark side of the immense growth in software (and immense growth in software salaries) is that entire products and services are no longer economical, even though we'd all love to see them. The VC system that drives these early acquisitions and acquihires is just one more factor among many that limit the field of what can be economically produced.
  - 11y ago
s73v3r 11y ago
"That's exactly my point. Silicon Valley rewards "go big or go bust", it doesn't reward "small, sustainable business"." Because if that's your goal, you clearly aren't passionate about what you're doing. You might as well go work for a 9-5 company doing CRUD apps. /s

Sophistifunk 11y ago

That went to founders and investors. Mailbox has clearly received a bullet.