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There are legit tech companies and there are shitty VC-backed hype machines. The former are unconquerable forces of nature and latter should be culled before pu

by staunch 11y ago

There are legit tech companies and there are shitty VC-backed hype machines. The former are unconquerable forces of nature and latter should be culled before public investors are harmed.

insidethewebb 11y ago
Were the VC hype machines this big around the 2000 bubble? I was only 10 years old back then, don't know much about the industry before the crash.
- _delirium 11y ago
  The late '90s version was much more disorganized and not quite as embedded in institutions (pension funds, governments, etc.) as the current version is. But it was a more "public" bubble in a way, more successful in pulling in money from regular people. There were VCs out there hyping companies, but there wasn't the huge infrastructure of media-savvy venture funds, incubators, startup schools, consultants charging startups money to help get them into an incubator, etc. And they weren't as successful in getting governments and universities on board the startup hype train with all the Innovation Initiatives you see now. But what they did have going for them was a gold-rush feeling that everything was novel: "X but on the internet" was itself almost enough to sell. And the emergence of online brokers (e.g. E-Trade) as part of the same bubble brought an influx of new retail investor money, as your uncle who just heard about the internet started lining up to buy into tech IPOs.
- pkaye 11y ago
  Back then the bubble was more wide spread in the tech industry. Also startups were eager to go public quickly. High valued stocks would go up 25% on the slightest rumor (ie JSDU was a good example.)
  - ghaff 11y ago
    >Back then the bubble was more wide spread in the tech industry. In part because each of those overvalued and overfunded startup were buying Sun servers, Cisco switches, EMC storage, etc. Now they're renting some EC2 instances or whatever. As a result, when the bubble deflates at least a bit, the impact is hopefully largely limited to some VC portfolios, premium developer salaries in some geos, and maybe the income flow for some northern California landlords (or those who paid $2M for a fixer-upper in that area). Not especially pleasant for those involved to be sure, but hopefully not a huge deal for everyone else.
    - scurvy 11y ago
      There are still a few Solyndras out there. I know a salesperson who sold to them and said they bought stupid amounts of gear for what they were doing. You're right though, "the cloud" is siphoning up a lot of money that would be going to others.
      - Silhouette 11y ago
        You're right though, "the cloud" is siphoning up a lot of money that would be going to others. I do wonder how much damage a cloud-everything approach does in start-ups when it goes wrong. For one thing, I've seen a few early stage stories where businesses seemed to be spending more per month on the fees for the 20+ online services they use than they were spending on hiring good people. They get locked in and dependent, and then their costs are ongoing and scale up with things like head count. A few years ago you might have bought a handful of servers and hired an IT guy to do the same kind of things, and maybe you'd also build-or-buy a small number of software tools for admin purposes. The usual arguments against that old school approach seem to be that going to the cloud outsources most of the admin work leading to better security/reliability and that it allows better scalability, but I don't really buy either of those as a blanket statement. In terms of admin, you still have to both identify the cloud services you want to use, in possibly the most hype-driven market I have ever seen, and spend the time to set them up. Those are not small overheads. In terms of reliability, as we've seen with things like Amazon outages, even relatively well-established businesses who you'd think would know better still don't actually get their resources set up to be properly resilient under pressure, so the idea that you no longer need smart in-house people to run IT just doesn't hold water. And in terms of scalability, while you certainly can scale almost in real time with some of these services, how many start-ups really need to scale faster than they could rack up some new servers and networking gear of their own with a standard image installed? The downside of paying much higher long-term costs for basic computing and storage resources seems to kick in relatively low with a lot of cloud pricing today. Obviously there have been some very successful online startups in recent years, both in B2C and B2B spaces, but I do wonder sometimes whether a lot of these XaaS cloud providers are really providing the clear advantages that so many people keep talking about.
- bane 11y ago
  We had commercials during the Superbowl for companies that had literally no product to sell.
  - vecter 11y ago
    Wow. Do any come to mind?
    - HillRat 11y ago
      A surprisingly large number of the 2000 Super Bowl ads were for companies that didn't have products, or whose products were never really explicable to the public. Some kind of spammish email marketing company, a website for announcing your wedding, and of course Pets.com, which had a working site but not a working business model. I remember watching the game and thinking, 'God, I'm glad I got out of the dot-com world.' Instead, I went into the telecom sector. With a specialty in Sun Microsystems work. Evidently I am awful at being prescient.
- nostrademons 11y ago
  Relative to the intrinsic value of the organization, they were much bigger. The majority of companies funded back then were e-commerce plays focused around selling the same items you buy offline for less money and making up the difference with VC money. As a consumer, it was pretty awesome. I remember signing up for AllAdvantage.com in high school (that was a startup that would pay you to view ads, and pay you for referring friends to view ads), installing the toolbar, pocketing about $50, and then uninstalling the toolbar once they crashed & burned and were no longer paying out money. My sister (newly arrived at college) fell in love with Kozmo.com, which would deliver groceries to your door at about 20% under supermarket prices. The whole thing was a pyramid scheme designed to prop up valuations by incentivizing early adopters with discount prices, subsidized by VC dollars, who would unload the shares on the gullible public markets for higher valuations. The early adopters got some nifty conveniences at bargain basement prices; a few lucky founders & VCs got massively wealthy; most of the unlucky founders & employees wasted about 5 years of their life; and the gullible public lost their life savings. There's some of that now, but it's much more muted. My wife and I ate very well this summer off delivery startups that were offering FaceBook deals with VC money for prices under supermarkets. However, most of the giant companies this time around actually have solid business models that operate more efficiently than existing incumbents. AirBnB takes advantage of surplus housing capacity. Uber breaks local laws that enforce inefficiency. WhatsApp ran a really lean organization so they could offer text-messaging services at a fraction of the cost of a telecom giant. Instacart charges more than the supermarket, and people pay it. Slack has made office messaging fun. SnapChat at least realizes that its lack of revenue is a major problem, and they're heads-down trying to fix it. The public markets are not as gullible now as they were then, and so the "unload on the unsuspecting public" strategy doesn't work as well. Companies that are based on nothing but hype & investors dollars often flame out around the C round now; we saw some of that with Secret and Homejoy.
  - boomzilla 11y ago
    Eh, many of the startups now are selling services for less than you'd pay for, with the difference subsidized by VCs. Granted, some services have close to zero costs, but one can also argues that many of them have close to zero values too. There will always be a few winners and a lot of losers in any periods. The last bubble brought us Amazon, Google, ebay, etc. I am sure some of the current unicorns will become big household names, but many others will fade away.
- paulpauper 11y ago
  Valuations were indiscriminate, meaning that companies with really bad fundamental were valued very richly, although the worst of these companies like Pets.com and The Globe tended to fizzle quickly. Better ones like Infospace and AOL held up longer, but too, eventually succumbed when the hype died.
- danbmil99 11y ago
  Oh yes
antiviral 11y ago
True, but sometimes it takes time to see through the hype. I remember how only 3 years ago people were quoting the (former) Evernote CEO (Phil Libin) for how startups should be run- not so much anymore.
- venomsnake 11y ago
  Survivor bias in action. Anyway - never listen to a man that has stroke it big first time. Listen to a man that has failed a couple of times and then succeeded.

by staunch 11y ago

There are legit tech companies and there are shitty VC-backed hype machines. The former are unconquerable forces of nature and latter should be culled before public investors are harmed.

insidethewebb 11y ago

Were the VC hype machines this big around the 2000 bubble? I was only 10 years old back then, don't know much about the industry before the crash.

_delirium 11y ago
The late '90s version was much more disorganized and not quite as embedded in institutions (pension funds, governments, etc.) as the current version is. But it was a more "public" bubble in a way, more successful in pulling in money from regular people. There were VCs out there hyping companies, but there wasn't the huge infrastructure of media-savvy venture funds, incubators, startup schools, consultants charging startups money to help get them into an incubator, etc. And they weren't as successful in getting governments and universities on board the startup hype train with all the Innovation Initiatives you see now. But what they did have going for them was a gold-rush feeling that everything was novel: "X but on the internet" was itself almost enough to sell. And the emergence of online brokers (e.g. E-Trade) as part of the same bubble brought an influx of new retail investor money, as your uncle who just heard about the internet started lining up to buy into tech IPOs.
pkaye 11y ago
Back then the bubble was more wide spread in the tech industry. Also startups were eager to go public quickly. High valued stocks would go up 25% on the slightest rumor (ie JSDU was a good example.)
- ghaff 11y ago
  >Back then the bubble was more wide spread in the tech industry. In part because each of those overvalued and overfunded startup were buying Sun servers, Cisco switches, EMC storage, etc. Now they're renting some EC2 instances or whatever. As a result, when the bubble deflates at least a bit, the impact is hopefully largely limited to some VC portfolios, premium developer salaries in some geos, and maybe the income flow for some northern California landlords (or those who paid $2M for a fixer-upper in that area). Not especially pleasant for those involved to be sure, but hopefully not a huge deal for everyone else.
  - scurvy 11y ago
    There are still a few Solyndras out there. I know a salesperson who sold to them and said they bought stupid amounts of gear for what they were doing. You're right though, "the cloud" is siphoning up a lot of money that would be going to others.
    - Silhouette 11y ago
      You're right though, "the cloud" is siphoning up a lot of money that would be going to others. I do wonder how much damage a cloud-everything approach does in start-ups when it goes wrong. For one thing, I've seen a few early stage stories where businesses seemed to be spending more per month on the fees for the 20+ online services they use than they were spending on hiring good people. They get locked in and dependent, and then their costs are ongoing and scale up with things like head count. A few years ago you might have bought a handful of servers and hired an IT guy to do the same kind of things, and maybe you'd also build-or-buy a small number of software tools for admin purposes. The usual arguments against that old school approach seem to be that going to the cloud outsources most of the admin work leading to better security/reliability and that it allows better scalability, but I don't really buy either of those as a blanket statement. In terms of admin, you still have to both identify the cloud services you want to use, in possibly the most hype-driven market I have ever seen, and spend the time to set them up. Those are not small overheads. In terms of reliability, as we've seen with things like Amazon outages, even relatively well-established businesses who you'd think would know better still don't actually get their resources set up to be properly resilient under pressure, so the idea that you no longer need smart in-house people to run IT just doesn't hold water. And in terms of scalability, while you certainly can scale almost in real time with some of these services, how many start-ups really need to scale faster than they could rack up some new servers and networking gear of their own with a standard image installed? The downside of paying much higher long-term costs for basic computing and storage resources seems to kick in relatively low with a lot of cloud pricing today. Obviously there have been some very successful online startups in recent years, both in B2C and B2B spaces, but I do wonder sometimes whether a lot of these XaaS cloud providers are really providing the clear advantages that so many people keep talking about.
bane 11y ago
We had commercials during the Superbowl for companies that had literally no product to sell.
- vecter 11y ago
  Wow. Do any come to mind?
  - HillRat 11y ago
    A surprisingly large number of the 2000 Super Bowl ads were for companies that didn't have products, or whose products were never really explicable to the public. Some kind of spammish email marketing company, a website for announcing your wedding, and of course Pets.com, which had a working site but not a working business model. I remember watching the game and thinking, 'God, I'm glad I got out of the dot-com world.' Instead, I went into the telecom sector. With a specialty in Sun Microsystems work. Evidently I am awful at being prescient.
nostrademons 11y ago
Relative to the intrinsic value of the organization, they were much bigger. The majority of companies funded back then were e-commerce plays focused around selling the same items you buy offline for less money and making up the difference with VC money. As a consumer, it was pretty awesome. I remember signing up for AllAdvantage.com in high school (that was a startup that would pay you to view ads, and pay you for referring friends to view ads), installing the toolbar, pocketing about $50, and then uninstalling the toolbar once they crashed & burned and were no longer paying out money. My sister (newly arrived at college) fell in love with Kozmo.com, which would deliver groceries to your door at about 20% under supermarket prices. The whole thing was a pyramid scheme designed to prop up valuations by incentivizing early adopters with discount prices, subsidized by VC dollars, who would unload the shares on the gullible public markets for higher valuations. The early adopters got some nifty conveniences at bargain basement prices; a few lucky founders & VCs got massively wealthy; most of the unlucky founders & employees wasted about 5 years of their life; and the gullible public lost their life savings. There's some of that now, but it's much more muted. My wife and I ate very well this summer off delivery startups that were offering FaceBook deals with VC money for prices under supermarkets. However, most of the giant companies this time around actually have solid business models that operate more efficiently than existing incumbents. AirBnB takes advantage of surplus housing capacity. Uber breaks local laws that enforce inefficiency. WhatsApp ran a really lean organization so they could offer text-messaging services at a fraction of the cost of a telecom giant. Instacart charges more than the supermarket, and people pay it. Slack has made office messaging fun. SnapChat at least realizes that its lack of revenue is a major problem, and they're heads-down trying to fix it. The public markets are not as gullible now as they were then, and so the "unload on the unsuspecting public" strategy doesn't work as well. Companies that are based on nothing but hype & investors dollars often flame out around the C round now; we saw some of that with Secret and Homejoy.
- boomzilla 11y ago
  Eh, many of the startups now are selling services for less than you'd pay for, with the difference subsidized by VCs. Granted, some services have close to zero costs, but one can also argues that many of them have close to zero values too. There will always be a few winners and a lot of losers in any periods. The last bubble brought us Amazon, Google, ebay, etc. I am sure some of the current unicorns will become big household names, but many others will fade away.
paulpauper 11y ago
Valuations were indiscriminate, meaning that companies with really bad fundamental were valued very richly, although the worst of these companies like Pets.com and The Globe tended to fizzle quickly. Better ones like Infospace and AOL held up longer, but too, eventually succumbed when the hype died.
danbmil99 11y ago
Oh yes

antiviral 11y ago

True, but sometimes it takes time to see through the hype. I remember how only 3 years ago people were quoting the (former) Evernote CEO (Phil Libin) for how startups should be run- not so much anymore.

venomsnake 11y ago
Survivor bias in action. Anyway - never listen to a man that has stroke it big first time. Listen to a man that has failed a couple of times and then succeeded.