17 ms·

Warned of a Crash, Startups in Silicon Valley Narrow Their Focus

230 points by my_first_acct 10y ago

throwanem 10y ago
When the New York Times can see it coming...
- pcunite 10y ago
  it is too late ...
  - designium 10y ago
    too too late.
- adventurer 10y ago
  They are wildly guessing based on the past in my view. MarketWatch.com has an author that's been predicting the market crash for the past 3-4 years. Eventually he will be right.
  - throwanem 10y ago
    NYT hasn't been.
- epa 10y ago
  NYT/WSJ are understandably biased towards east coast markets and typically pessimistic of silicon valley as a whole.
- spaceflunky 10y ago
  A broken clock is right two times a day.
- jseliger 10y ago
  As with most markets, my guess is that the market will go up, go down, or stay the same in the coming year. WRT startups specifically, I do like the sama post: http://blog.samaltman.com/were-in-a-bubble http://blog.samaltman.com/were-in-a-bubble. If Katie Banner really thinks we're heading towards a crash in a defined time frame, I recommend that she start shorting, as that'll pay off way more handsomely than writing for the NYT.
- marcosdumay 10y ago
  ... it's either happening for 6 months already, or won't come at all. I, personally, have no idea which is it.
cylinder 10y ago
Crash is going to happen. Most of these startups are not run by people with business sense who know how to make a company profitable. They are raised by people who know how to tell stories to raise easy money. The money is not there anymore, soon enough they'll run out and won't get a lifeline.
- throwaway2016a 10y ago
  The good ones know how to tell a story... a lot of them can't even do that. They just have wealthy friends/family or made some money from another deal where they got lucky and think they can do a startup. I work at a consulting company and it's amazing. Some of the customers come in and have five employees, no product, no story, but a rich dad. I have literally seen a millionaire dad sit across their kid in a meeting trying to explain what minimum viable product is and ended up giving in and paying to have their over-blown product made anyway. It's worth noting that we also explain and strongly encourage the client to stick to MVP, we never recommend overly broad feature sets. Not saying those are common but they do exist.
  - duaneb 10y ago
    It's so odd. Most of the attraction I see in starting a business is the problem of bootstrapping it—there are many business ideas that are attractive, and the game is in separating the viable ones from the busts. I'm not sure why you would start one if you really just want to be a PM and not think about the cash flow.
- swalsh 10y ago
  I thought that too, but that last YC batch was filled with some solid (read boring) start-ups. They all had potential... not sure they all had the potential to be billion-dollar companies, but I doubt YC is going to lose any money on that batch. It was a lot more down to earth than the typical silicon valley type nonsense I've personally become used to.
  - freyr 10y ago
    That's great to hear, but a crash would be due to typical Silicon Valkey, and the latest HN batch can't prevent it.
cloudjacker 10y ago
How to keep the money machine going: If one of your investors or potential acquirers is a big company and you already have contacts with them, get that company to do a Euro corporate bond issuance, and use the proceeds to buy your company A) this is already happening B) it isn't the strangest thing that has happened Silicon Valley downturn talk is ignoring broader macroeconomic fundamentals, at this point in time. Economically unsound? SURE! Are you in a privileged enough position to make a lot of money? DEFINITELY!
- api 10y ago
  This is why I don't think a 2001-style crash is coming. A slowdown maybe, but not too hard a landing. Since 2008 global central banks have made it abundantly clear that deflation in any major asset class will not be permitted. If it begins to occur, governments and central banks will intervene with infinite QE and other actions that will restore "confidence" in the market and prop up the asset. In some cases that amounts to actually entering stock, bond, and RE markets and buying stuff with printed money, or giving printed money directly to banks with incentives to do the same. Major players in this unwritten pact include the USA, China, and the EU. It's so large you might almost think of it as WWIII, but being fought with monetary policy (mostly) instead of guns. It's not really a classical bubble but (IMHO) more properly thought of as an economic war. The loser of this global conflict will be the first nation or economic union unable to pump any further. At this point the loser will experience hyper-deflationary collapse and will be bought by the winners. Either that or the war will go hot with the loser being forced to substitute military action for economic might. Startup stock is obviously not on the list of TBTF assets, but it certainly rides on others like stocks, bonds, and real estate. To the extent that startup markets are international, dips will be seen by foreign actors as buying opportunities. Chinese money is already flooding into SV and tech in general. EU money is there as well, albeit more quietly, since right now real yields in the EU are in some cases actually negative and people are looking for ways to diversify more globally. Ploughing some money into high-risk assets like startup stock can be part of a larger diversification push, and the startup world is so tiny compared to the truly massive markets of bonds, stocks, and real estate, that all it takes is a little bit of this behavior to keep the music playing. Edit: add in the fact that startup crowdfunding is going live and you now have a second firehose opening up. I do think things have gotten frothy but I don't think it's over.
chatmasta 10y ago
It seems like a lot of the "easy money" in early rounds comes from institutional seed investors like SV Angel, who are happy to hand you a $100k note with a good story and a bit of traction. The problem I see with this is that their willingness to do that is tied to the performance of their early investments that have turned into unicorns. So for SV Angel for example, that would be Snapchat. As long as the unicorns are riding high at valuations that are obscene multiples of the initial VC investment, the VC can afford to make more small, early stage investments. If the goal is a 10x average return on the fund, then the higher the valuation of its unicorns, the more it can invest small sums in the "long tail" of early investments. The problem is that as soon as a unicorn sees a devaluation, the calculation of average return decreases, and therefore there is less money available for that long tail. This is how I see it, anyway, with a fairly unsophisticated understanding of the mechanisms. I'm curious to hear other input on this perspective.
- rm_-rf_slash 10y ago
  This very much ties into my answer elsewhere on this thread but I hadn't quite thought of it in your way. It's like what the Citibank CEO said about the subprime mortgage boom: as long as the music is playing, you've got to get up and dance. VCs are pressured by unicorn successes to 100x their investors' money, and the scarcity of decent (acceptablely small return without absurd risk or absurdly small return with acceptable risk) investments around the world are very hard to come by these days, so Silicon Valley is pretty much the only option left for people with money who want to see more of it.
- seanieb 10y ago
  Evernote is a bad datapoint for the Times to use as a starting point for some tech bubble tea leaf reading. The company was mismanaged for nearly 4 years. The founder and CEO walked or was pushed out over a year ago. And rightly so. It was like it was run by someone with A.D.D. For example they opened an online store that sold a bunch of branded Evernote junk, pens etc. including Evernote socks... They kept adding new features when core features were broken for several versions of the app. In some cases resulting in data lost, eroding customer confidence in the product. The tech winter came and took out VC funds, valuations, board seats and executives. It also slowed down the rate of new startups and IPO's. It didn't crush companies like reporters speculated or wished. This time companies that received large amounts of funding unlike the crazy web 1.0 companies of 1999. These companies have finical planners, oversight and accountants. This gave them some buffer.
izolate 10y ago
Evernote is not a startup any longer. I understand the grey area, but as an industry we need to reach some kind of consensus on this word.
- icehawk219 10y ago
  I've basically stopped using the word startup because at this point it seems to apply primarily to companies that only care about vanity metrics and nothing else. The word has been hijacked by investors and founders who want companies to appear profitable so they can cash out.
- bps4484 10y ago
  I love the Steve Blank definition that "A startup is a business in search of a scalable business model" because it really cuts out all of the companies have their business model and metrics in place. It would certainly eliminate a company like evernote, and most if not all unicorns for that matter.
rm_-rf_slash 10y ago
My main concern is that there are few investment avenues these days that provide a decent return without being extraordinarily risky. Stocks are stagnating. Bond yields are so dismal you have to invest in places like Turkey to see any sort of return - if it even happens. That pretty much makes Silicon Valley the default place to get any bang for your buck. Investors in VC funds want to see returns. VCs want to keep investing in winners, getting more investment in their funds, and making good money along the way. People want to turn their sweat into gold so there is no shortage of aspirational entrepreneurs. So it seems to me that if there is anything that could turn a cautious slowdown into a full-blown crash, it's a scarcity of decent investment options.
- harryh 10y ago
  Stocks are stagnating. * S&P500 YTD: Up 6.7% * S&P500 1 Year: Up 9.7% * S&P500 5 Year: Up 85.4%
  - vidarh 10y ago
    (EDIT: Didn't notice that the emphasis in parent is a quote from grandparent. So consider the numbers below to further support parent rather than contradict it) Your numbers doesn't show that at all. 9.7% up in a year is roughly 0.775% average per month compounded. Assuming even growth through the year, which is obviously a simplification, to reach 9.7% at the end of the year you'd want to have appreciated 6.3% by now, so 6.7% doesn't sound all that bad. 85.4% over 5 years is roughly 13%/year compounded. Since 1950, the annualised average return of the S&P500 have fluctuated between -3.6% and 19.3% [1], so both the 1Y and 5Y are well within the norm. If 9.7% were to hold through a full decade, it'd still be far above the median per-decade averages. [1] http://www.simplestockinvesting.com/SP500-historical-real-total-returns.htm http://www.simplestockinvesting.com/SP500-historical-real-to...
    - deleted 10y ago
      [deleted]
    - vecinu 10y ago
rdtsc 10y ago
At least based on HN coverage there seems to be a recently a wave of stories about scammers and wanterpreneurs, some questions about "signs of failed startups", warnings about red flags and so on. Is increasing scammer activity a sign of the tail-end of a market hype?
- Benjammer 10y ago
  Is there evidence these things are happening more often? Or are they just getting more exposure recently?
- erichocean 10y ago
  > Is increasing scammer activity a sign of the tail-end of a market hype? Absolutely, it's a leading indicator. Fraud rates skyrocketed prior to the stock market crash in 1929 and then again prior to the 2008 crash.
  - deleted 10y ago
    [deleted]
patatino 10y ago
What would be the best way to make money betting on a crash?
- Swizec 10y ago
  Get a high paying job in an overfunded startup. Save aggressively. Build alternative income streams. If crash comes: ride it out on savings and alternative income streams. If crash doesn't come: congratz, you're rich.
  - chubot 10y ago
    That doesn't sound right to me. As far as I can tell, for most positions, if you just care about money and are not counting on the IPO lottery, you're better off working at Google or Facebook (assuming you can get the job). In other words, overfunded startups aren't paying THAT much. And even then, most people would not call you "rich" by Silicon Valley standards. I would say "rich" at a minimum requires you to be able to buy a house in Silicon Valley or SF.
    - geggam 10y ago
      ... buy a modest house in SF or a castle... or an island with a house only rich people have houses in SF ... for now
    - Swizec 10y ago
      This is true, my strategy hedges bets. Get enough cash to cover expenses and save a lot -> no downside. Still participate in the potential upside. Low risk, high reward is the name of the game. A job at Google or Facebook, if you can get it, is just as stable these days as a job at a startup is.
      - tracker1 10y ago
        Depending on where you are, any job at $BIG_CORP is generally more stable than any startup I've worked for... at least outside SV. I've spent most of my life in the Phoenix area, and the job market for developers (outside late 2001 through mid 2002) has been very good, especially compared to cost of living. It's all been line of business work for the most part, and none of it too exciting. But it pays consistently. And does leave enough time to work on secondary projects. I've never really seen the draw into the startup lottery, it just seems like a bad bet as an employee most of the time.
icehawk219 10y ago
For the past 10 months or so I've been part of a 3 person team that is bootstrapping. I can't count how many times I've been looked at like I have two heads when I tell someone that no we don't have funding, and we aren't looking for it, and we aren't planning on looking for it, and we're not entirely sure we even want it. And when I tell someone that we're more worried about building a sustainable business that can stand on its own I might as well be speaking a foreign language.
- Swizec 10y ago
  It smells like this is becoming more and more common. Small startups with outsized redults for founders and employees, instead of big startups with small results for founders and miniscule results for employees. It seems like the trend has been growing for the past 5 to 6 years. Or I've been wrapped in the microconf crowd bubble and have a bonkers read on reality.
- coffeemug 10y ago
  You seem to be attaching a moral axis to the decision on whether to raise capital. Consider that people look at you like you have two heads because you're making an irrational decision. Capital usually comes with two strings -- giving up a part of your company, and giving up control (both of which are correlated, but not the same thing). In the current climate, if you could raise a seed round while giving away a minimal amount of your company and not giving away control, why wouldn't you? Put a different way, how good would the terms have to get for you to take the money? In the limit case, if someone wrote you a million dollar check, no strings attached, what would you do? How far are the current market conditions from this scenario?
  - gist 10y ago
    The OP hasn't actually said that he turned down funding just that he wasn't looking for it and not sure he (?) wanted it. This is really similar to someone saying they aren't looking for a job. It's implied I guess that if someone offered them a million dollar job (where they had been making $100k) with complete freedom and great working conditions they'd at least consider it. Your point is taken though and very possibly might also mean "I take the high road and would turn it down no matter what". (Which doesn't mean they would of course just that they say they would).
jorblumesea 10y ago
This is just silicon valley growing up and joining the actual business world. It used to be a blank check, now people are asking questions about finances, valuation. VCs, startups were some super risky exotic venture. Now that it's become more commonplace, more common business controls are being put into place. Startup == small agile business. This is a good sign, in my opinion. It means the word startup is no longer some rocket to the stars but means a small business with bootstrapped capital that may or may not make it. Like every other small business tbh. VC has become a legitimate vehicle for investment and returns and not some exotic moonshot project. Therefore, financials are now questioned.
- astazangasta 10y ago
  I thought we "grew up and joined the actual business world" right after the last crash happened? It seems we regressed at some point in the interim...
- mattmanser 10y ago
  That's an odd thing to say, this exact same scenario happened before in the 90s in the exact same place for the exact same reasons. It's called the dot-com bubble if you're too young to know about it: https://en.m.wikipedia.org/wiki/Dot-com_bubble https://en.m.wikipedia.org/wiki/Dot-com_bubble There's lots of good books and stories about it if you're into tech and VC stuff.
yalogin 10y ago
What defines a startup? Everything that did not IPO yet is referred to as a startup. Sure everything starts at some point, but should Dropbox, Uber and Airbnb still be called start ups? Aren't these large companies?
- sjg007 10y ago
  Startups are companies designed to grow fast. This is not hire fast, but capture the market. The money is the rocket fuel to achieve escape velocity.
- gist 10y ago
  Better yet, is any new business a startup? Having been around business for a long long time I tend to see it as fitting a particular mold in terms of tech type product offering, young staff, desire to get venture funding, talking the talk and walking the walk. I think I know it when I see it but I can't even think of all of the qualifiers.
  - fbonetti 10y ago
    Yep, the word "startup" has the same definition to me. It's more of a description of the culture than how new or scrappy the business is. I worked at a "startup" that had been around for 10 years, had no plans of exiting, and was sustainable, but had a very young staff, a keg in the kitchen, and pressured it's young developers to work late for shitty pizza. I think some small businesses are jumping on the startup train so that they can attract kids right of college.
Animats 10y ago
From the article: (failed startup) "providing valet parking with the touch of a smartphone button". What's ending, one can hope, is the idea that attaching some low-end labor-intensive service to a smartphone app is a "tech business".
- gist 10y ago
  The best ones actually are similar to what you are highlighting, but started by someone with a Phd in physics [1] and/or an MD that they walked away from to get in on the lottery. [1] Note that I do not know what the job market is for people with Phd's in Physics so pick another advanced degree as an example. I do know the market for MD's though.
  - ry_ry 10y ago
    Not pure physics, but I know 2 astrophysics PhDs well, one works in publishing, the other is a programmer. Neither does anything particularly astrological, both have mentioned that it sounds way cooler than it is practical outside of academia.
- danieltillett 10y ago
  No business where the majority of labour is low-cost is a tech business nor one you want to start unless you are megalomaniacal empire builder.
  - h4nkoslo 10y ago
    Counterpoint: warehouse operations.
    - exelius 10y ago
      All businesses will eventually become tech businesses once automation starts taking over. This has already happened in warehouse operations.
      - 10y ago
n72 10y ago
Pretty off topic, but is Chris O'Neill huge? Or did they choose very small people to flank him in the photo for the article?
- ryandamm 10y ago
  I wondered the same thing, even tried Googling his height. I think it's partly exaggerated by a somewhat-wide lens, and the two flankers leaning back in their chairs while he leans forward (nearer objects being represented as larger). Also, he's probably huge.
vonnik 10y ago
Katie Benner has written some good stories, but I'm suspicious of articles like this, because they insist almost irrationally on finding a trend that they can make a pronouncement about. The truth is, startups are all over the place. Some are wasting cash, and some are trying to build sustainable businesses, and some are trying to get acquihired. And all of those things are going on all the time. VCs have raised record levels of investment from LPs this year. And that money will get pushed into the system whether Bill Gurley wants the competition or not. The people who harp on an impending crash -- and they have been harping for quite some time now -- seem desperate for something to say about tech. In secular terms, tech's star is on the rise and everyone knows it, so the real news would be a crash. But the crash, like Godot, refuses to arrive. Actually, many parts of tech are pretty damn healthy, and moving fast, AI and robotics being just two.
- dmix 10y ago
  And there is a correlation between those who don't have time (or exposure) to talk to the press for fluffy articles about SV... because they are too busy building a real business that makes money. Meeting clients, investors, hiring, etc. PR is only on some startups lists and they are usually consumer plays which are always riskier (such as valet parking apps).
deleted 10y ago
[deleted]
alanh 10y ago
A welcome change: > Other entrepreneurs have a newfound air of practicality, no longer shooting for their companies to be the next tech behemoth like Facebook. I haven't been hearing much about raising lately — Is it still the case that you are expected to lay out a path to $1Bn in your pitch deck, no matter what your company does?
artursapek 10y ago
Is it really not a caricature that people in SV wear jeans and their startup's stock t-shirt with a blazer over it? People really dress like this?
- staticautomatic 10y ago
  Oh yeah. I could walk down the street and take pictures of people dressed like that right now.
- mistersquid 10y ago
  I work in the SF Financial District and one rarely sees T-shirt paired with a blazer. Lots of T-shirts (company-branded or otherwise) and jeans, occasional blazers with open collar dress shirt, more frequent outdoor jackets (e.g. North Face) with dress or T-shirt, or no jacket at all. Dress slacks are rare among anyone not in the SVP Or C-suite. (All this is me going from memory so undoubtedly if unintentionally inaccurate to some degree.)
danieltillett 10y ago
There won't be a crash until the rivers of money being pumped out by the central banks of the world stops. The entire VC industry is just a tiny cork floating on a gale-whipped sea. I do think that it is getting really hard to break through the noise with a new concept. There are just so many companies chasing the same eyeballs that it is really hard to get the traction needed to build a unicorn no matter how much money you raise. At this point it might be better to go hyper-niche and bootstrap.
- adrenalinelol 10y ago
  Well, from the point of view of the Central Banks, creating any kind of economic activity is a plus, regardless if it'll be viable longterm for it's employees or if its "true innovation" (not noise). So the money faucets are working as intended. Given how anemic our economy is compared to other post-recession economies, I suspect it'll stay that way.
zizzles 10y ago
Silicon Valley is in NEED of a crash. It is touted as a hub of "innovation" but I do not see it. There are exceptions that exist, scientific and medical companies perhaps, but the majority of tech-startups are not that at all, they are a fucking FUGAZI. They are speculative companies that are all about hype and getting an "exit" someday. Steve Jobs (as an example) is regarded as a "deity", a god of Silicon Valley. Because of wealth? Because the iPhone / iPod / iWhatever had a simple design? Step outside, the iPhone is used as a vessel for narcissism. Facebook and Instagram, two billion dollar companies in the valley, those two are the TEXTBOOK narcissism vessels of HUMAN HISTORY. These tech-startups are an absolute pathetic coping mechanism for humanity, they are not innovative or special.
- tlogan 10y ago
  I agree that Silicon Valley is in NEED of a crash. But NOT because there is no innovation. But because there is a lot of innovation and that real innovation is getting squished by get rich schemes (I have no other descriptions for some startups). This is like with all bubbles: fundamentals will start it but then speculators will take over causing the bubble.
  - zizzles 10y ago
    You and I have different ideas of innovation. You are likely thinking in a capitalistic sense of a view (disclaimer before I get thrashed on: I am not thinking capitalistically) perhaps you can name me a few particular up and coming companies YOU think are doing imperative, highly-important and highly-beneficial things for us humans? Companies that, 10 years from now, will be so imperative to our survival and well-being that they will fit directly into the Maslow Heirarchy of Needs? https://upload.wikimedia.org/wikipedia/commons/thumb/6/60/Maslow's_Hierarchy_of_Needs.svg/2000px-Maslow's_Hierarchy_of_Needs.svg.png https://upload.wikimedia.org/wikipedia/commons/thumb/6/60/Ma... I scroll through Tech Crunch regularly. My honest observation: 95% of tech-startups are, as I said earlier, F-U-G-A-Z-I-S. Companies that fuel narcissism. Companies that are spin-offs of companies that fuel narcissism. Companies that perform services for other FUGAZI companies. Ad companies. Companies that provide streaming, so millions of Americans can watch Kim Kardashian on their Mac. I don't want to be a philosophical hippy, I am not one of those, but nobody here can deny that all of this is a pathetic coping mechanism. Why are we coping? We are coping because we are a too primitive and unevolved monkey species to take anything to the next parallel. Even something such as space exploration is science-fiction, meeting a different species of life? Science fiction. Some sort of child pipe-dream we've learned from Hollywood (another FUGAZI) How about something to help us find a slight meaning to existence. Isn't this the root-goal, at it's core? I look out with clear focus on the surroundings, but I do not understand. Then I go back to FUGAZI-land. It's imperative I figure out myself, but society is an obstacle (despite it's perks) To sum it up: 95% of Silicon Valley is a primitive coping mechanism.
swingbridge 10y ago
Lean and profitable is the new black.
matchagaucho 10y ago
Several VC funds were launched over the past few years. Assuming they're ~7 year funds, we're going to see an increase in LP and board pressure over the next few years, as these funds come to maturity.
known 10y ago
Employment is to succeed in job. Entrepreneurship is to succeed in life.

230 points by my_first_acct 10y ago

throwanem 10y ago

When the New York Times can see it coming...

pcunite 10y ago
it is too late ...
- designium 10y ago
  too too late.
adventurer 10y ago
They are wildly guessing based on the past in my view. MarketWatch.com has an author that's been predicting the market crash for the past 3-4 years. Eventually he will be right.
- throwanem 10y ago
  NYT hasn't been.
epa 10y ago
NYT/WSJ are understandably biased towards east coast markets and typically pessimistic of silicon valley as a whole.
spaceflunky 10y ago
A broken clock is right two times a day.
jseliger 10y ago
As with most markets, my guess is that the market will go up, go down, or stay the same in the coming year. WRT startups specifically, I do like the sama post: http://blog.samaltman.com/were-in-a-bubble http://blog.samaltman.com/were-in-a-bubble. If Katie Banner really thinks we're heading towards a crash in a defined time frame, I recommend that she start shorting, as that'll pay off way more handsomely than writing for the NYT.
marcosdumay 10y ago
... it's either happening for 6 months already, or won't come at all. I, personally, have no idea which is it.

cylinder 10y ago

Crash is going to happen. Most of these startups are not run by people with business sense who know how to make a company profitable. They are raised by people who know how to tell stories to raise easy money. The money is not there anymore, soon enough they'll run out and won't get a lifeline.

throwaway2016a 10y ago
The good ones know how to tell a story... a lot of them can't even do that. They just have wealthy friends/family or made some money from another deal where they got lucky and think they can do a startup. I work at a consulting company and it's amazing. Some of the customers come in and have five employees, no product, no story, but a rich dad. I have literally seen a millionaire dad sit across their kid in a meeting trying to explain what minimum viable product is and ended up giving in and paying to have their over-blown product made anyway. It's worth noting that we also explain and strongly encourage the client to stick to MVP, we never recommend overly broad feature sets. Not saying those are common but they do exist.
- duaneb 10y ago
  It's so odd. Most of the attraction I see in starting a business is the problem of bootstrapping it—there are many business ideas that are attractive, and the game is in separating the viable ones from the busts. I'm not sure why you would start one if you really just want to be a PM and not think about the cash flow.
swalsh 10y ago
I thought that too, but that last YC batch was filled with some solid (read boring) start-ups. They all had potential... not sure they all had the potential to be billion-dollar companies, but I doubt YC is going to lose any money on that batch. It was a lot more down to earth than the typical silicon valley type nonsense I've personally become used to.
- freyr 10y ago
  That's great to hear, but a crash would be due to typical Silicon Valkey, and the latest HN batch can't prevent it.

cloudjacker 10y ago

How to keep the money machine going: If one of your investors or potential acquirers is a big company and you already have contacts with them, get that company to do a Euro corporate bond issuance, and use the proceeds to buy your company A) this is already happening B) it isn't the strangest thing that has happened Silicon Valley downturn talk is ignoring broader macroeconomic fundamentals, at this point in time. Economically unsound? SURE! Are you in a privileged enough position to make a lot of money? DEFINITELY!

api 10y ago
This is why I don't think a 2001-style crash is coming. A slowdown maybe, but not too hard a landing. Since 2008 global central banks have made it abundantly clear that deflation in any major asset class will not be permitted. If it begins to occur, governments and central banks will intervene with infinite QE and other actions that will restore "confidence" in the market and prop up the asset. In some cases that amounts to actually entering stock, bond, and RE markets and buying stuff with printed money, or giving printed money directly to banks with incentives to do the same. Major players in this unwritten pact include the USA, China, and the EU. It's so large you might almost think of it as WWIII, but being fought with monetary policy (mostly) instead of guns. It's not really a classical bubble but (IMHO) more properly thought of as an economic war. The loser of this global conflict will be the first nation or economic union unable to pump any further. At this point the loser will experience hyper-deflationary collapse and will be bought by the winners. Either that or the war will go hot with the loser being forced to substitute military action for economic might. Startup stock is obviously not on the list of TBTF assets, but it certainly rides on others like stocks, bonds, and real estate. To the extent that startup markets are international, dips will be seen by foreign actors as buying opportunities. Chinese money is already flooding into SV and tech in general. EU money is there as well, albeit more quietly, since right now real yields in the EU are in some cases actually negative and people are looking for ways to diversify more globally. Ploughing some money into high-risk assets like startup stock can be part of a larger diversification push, and the startup world is so tiny compared to the truly massive markets of bonds, stocks, and real estate, that all it takes is a little bit of this behavior to keep the music playing. Edit: add in the fact that startup crowdfunding is going live and you now have a second firehose opening up. I do think things have gotten frothy but I don't think it's over.

chatmasta 10y ago

It seems like a lot of the "easy money" in early rounds comes from institutional seed investors like SV Angel, who are happy to hand you a $100k note with a good story and a bit of traction. The problem I see with this is that their willingness to do that is tied to the performance of their early investments that have turned into unicorns. So for SV Angel for example, that would be Snapchat. As long as the unicorns are riding high at valuations that are obscene multiples of the initial VC investment, the VC can afford to make more small, early stage investments. If the goal is a 10x average return on the fund, then the higher the valuation of its unicorns, the more it can invest small sums in the "long tail" of early investments. The problem is that as soon as a unicorn sees a devaluation, the calculation of average return decreases, and therefore there is less money available for that long tail. This is how I see it, anyway, with a fairly unsophisticated understanding of the mechanisms. I'm curious to hear other input on this perspective.

rm_-rf_slash 10y ago
This very much ties into my answer elsewhere on this thread but I hadn't quite thought of it in your way. It's like what the Citibank CEO said about the subprime mortgage boom: as long as the music is playing, you've got to get up and dance. VCs are pressured by unicorn successes to 100x their investors' money, and the scarcity of decent (acceptablely small return without absurd risk or absurdly small return with acceptable risk) investments around the world are very hard to come by these days, so Silicon Valley is pretty much the only option left for people with money who want to see more of it.
seanieb 10y ago
Evernote is a bad datapoint for the Times to use as a starting point for some tech bubble tea leaf reading. The company was mismanaged for nearly 4 years. The founder and CEO walked or was pushed out over a year ago. And rightly so. It was like it was run by someone with A.D.D. For example they opened an online store that sold a bunch of branded Evernote junk, pens etc. including Evernote socks... They kept adding new features when core features were broken for several versions of the app. In some cases resulting in data lost, eroding customer confidence in the product. The tech winter came and took out VC funds, valuations, board seats and executives. It also slowed down the rate of new startups and IPO's. It didn't crush companies like reporters speculated or wished. This time companies that received large amounts of funding unlike the crazy web 1.0 companies of 1999. These companies have finical planners, oversight and accountants. This gave them some buffer.

izolate 10y ago

Evernote is not a startup any longer. I understand the grey area, but as an industry we need to reach some kind of consensus on this word.

icehawk219 10y ago
I've basically stopped using the word startup because at this point it seems to apply primarily to companies that only care about vanity metrics and nothing else. The word has been hijacked by investors and founders who want companies to appear profitable so they can cash out.
bps4484 10y ago
I love the Steve Blank definition that "A startup is a business in search of a scalable business model" because it really cuts out all of the companies have their business model and metrics in place. It would certainly eliminate a company like evernote, and most if not all unicorns for that matter.

rm_-rf_slash 10y ago

My main concern is that there are few investment avenues these days that provide a decent return without being extraordinarily risky. Stocks are stagnating. Bond yields are so dismal you have to invest in places like Turkey to see any sort of return - if it even happens. That pretty much makes Silicon Valley the default place to get any bang for your buck. Investors in VC funds want to see returns. VCs want to keep investing in winners, getting more investment in their funds, and making good money along the way. People want to turn their sweat into gold so there is no shortage of aspirational entrepreneurs. So it seems to me that if there is anything that could turn a cautious slowdown into a full-blown crash, it's a scarcity of decent investment options.

harryh 10y ago
Stocks are stagnating. * S&P500 YTD: Up 6.7% * S&P500 1 Year: Up 9.7% * S&P500 5 Year: Up 85.4%
- vidarh 10y ago
  (EDIT: Didn't notice that the emphasis in parent is a quote from grandparent. So consider the numbers below to further support parent rather than contradict it) Your numbers doesn't show that at all. 9.7% up in a year is roughly 0.775% average per month compounded. Assuming even growth through the year, which is obviously a simplification, to reach 9.7% at the end of the year you'd want to have appreciated 6.3% by now, so 6.7% doesn't sound all that bad. 85.4% over 5 years is roughly 13%/year compounded. Since 1950, the annualised average return of the S&P500 have fluctuated between -3.6% and 19.3% [1], so both the 1Y and 5Y are well within the norm. If 9.7% were to hold through a full decade, it'd still be far above the median per-decade averages. [1] http://www.simplestockinvesting.com/SP500-historical-real-total-returns.htm http://www.simplestockinvesting.com/SP500-historical-real-to...
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rdtsc 10y ago

At least based on HN coverage there seems to be a recently a wave of stories about scammers and wanterpreneurs, some questions about "signs of failed startups", warnings about red flags and so on. Is increasing scammer activity a sign of the tail-end of a market hype?

Benjammer 10y ago
Is there evidence these things are happening more often? Or are they just getting more exposure recently?
erichocean 10y ago
> Is increasing scammer activity a sign of the tail-end of a market hype? Absolutely, it's a leading indicator. Fraud rates skyrocketed prior to the stock market crash in 1929 and then again prior to the 2008 crash.
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patatino 10y ago

What would be the best way to make money betting on a crash?

Swizec 10y ago
Get a high paying job in an overfunded startup. Save aggressively. Build alternative income streams. If crash comes: ride it out on savings and alternative income streams. If crash doesn't come: congratz, you're rich.
- chubot 10y ago
  That doesn't sound right to me. As far as I can tell, for most positions, if you just care about money and are not counting on the IPO lottery, you're better off working at Google or Facebook (assuming you can get the job). In other words, overfunded startups aren't paying THAT much. And even then, most people would not call you "rich" by Silicon Valley standards. I would say "rich" at a minimum requires you to be able to buy a house in Silicon Valley or SF.
  - geggam 10y ago
    ... buy a modest house in SF or a castle... or an island with a house only rich people have houses in SF ... for now
  - Swizec 10y ago
    This is true, my strategy hedges bets. Get enough cash to cover expenses and save a lot -> no downside. Still participate in the potential upside. Low risk, high reward is the name of the game. A job at Google or Facebook, if you can get it, is just as stable these days as a job at a startup is.
    - tracker1 10y ago
      Depending on where you are, any job at $BIG_CORP is generally more stable than any startup I've worked for... at least outside SV. I've spent most of my life in the Phoenix area, and the job market for developers (outside late 2001 through mid 2002) has been very good, especially compared to cost of living. It's all been line of business work for the most part, and none of it too exciting. But it pays consistently. And does leave enough time to work on secondary projects. I've never really seen the draw into the startup lottery, it just seems like a bad bet as an employee most of the time.

icehawk219 10y ago

For the past 10 months or so I've been part of a 3 person team that is bootstrapping. I can't count how many times I've been looked at like I have two heads when I tell someone that no we don't have funding, and we aren't looking for it, and we aren't planning on looking for it, and we're not entirely sure we even want it. And when I tell someone that we're more worried about building a sustainable business that can stand on its own I might as well be speaking a foreign language.

Swizec 10y ago
It smells like this is becoming more and more common. Small startups with outsized redults for founders and employees, instead of big startups with small results for founders and miniscule results for employees. It seems like the trend has been growing for the past 5 to 6 years. Or I've been wrapped in the microconf crowd bubble and have a bonkers read on reality.
coffeemug 10y ago
You seem to be attaching a moral axis to the decision on whether to raise capital. Consider that people look at you like you have two heads because you're making an irrational decision. Capital usually comes with two strings -- giving up a part of your company, and giving up control (both of which are correlated, but not the same thing). In the current climate, if you could raise a seed round while giving away a minimal amount of your company and not giving away control, why wouldn't you? Put a different way, how good would the terms have to get for you to take the money? In the limit case, if someone wrote you a million dollar check, no strings attached, what would you do? How far are the current market conditions from this scenario?
- gist 10y ago
  The OP hasn't actually said that he turned down funding just that he wasn't looking for it and not sure he (?) wanted it. This is really similar to someone saying they aren't looking for a job. It's implied I guess that if someone offered them a million dollar job (where they had been making $100k) with complete freedom and great working conditions they'd at least consider it. Your point is taken though and very possibly might also mean "I take the high road and would turn it down no matter what". (Which doesn't mean they would of course just that they say they would).

jorblumesea 10y ago

This is just silicon valley growing up and joining the actual business world. It used to be a blank check, now people are asking questions about finances, valuation. VCs, startups were some super risky exotic venture. Now that it's become more commonplace, more common business controls are being put into place. Startup == small agile business. This is a good sign, in my opinion. It means the word startup is no longer some rocket to the stars but means a small business with bootstrapped capital that may or may not make it. Like every other small business tbh. VC has become a legitimate vehicle for investment and returns and not some exotic moonshot project. Therefore, financials are now questioned.

astazangasta 10y ago
I thought we "grew up and joined the actual business world" right after the last crash happened? It seems we regressed at some point in the interim...
mattmanser 10y ago
That's an odd thing to say, this exact same scenario happened before in the 90s in the exact same place for the exact same reasons. It's called the dot-com bubble if you're too young to know about it: https://en.m.wikipedia.org/wiki/Dot-com_bubble https://en.m.wikipedia.org/wiki/Dot-com_bubble There's lots of good books and stories about it if you're into tech and VC stuff.

yalogin 10y ago

What defines a startup? Everything that did not IPO yet is referred to as a startup. Sure everything starts at some point, but should Dropbox, Uber and Airbnb still be called start ups? Aren't these large companies?

sjg007 10y ago
Startups are companies designed to grow fast. This is not hire fast, but capture the market. The money is the rocket fuel to achieve escape velocity.
gist 10y ago
Better yet, is any new business a startup? Having been around business for a long long time I tend to see it as fitting a particular mold in terms of tech type product offering, young staff, desire to get venture funding, talking the talk and walking the walk. I think I know it when I see it but I can't even think of all of the qualifiers.
- fbonetti 10y ago
  Yep, the word "startup" has the same definition to me. It's more of a description of the culture than how new or scrappy the business is. I worked at a "startup" that had been around for 10 years, had no plans of exiting, and was sustainable, but had a very young staff, a keg in the kitchen, and pressured it's young developers to work late for shitty pizza. I think some small businesses are jumping on the startup train so that they can attract kids right of college.

Animats 10y ago

From the article: (failed startup) "providing valet parking with the touch of a smartphone button". What's ending, one can hope, is the idea that attaching some low-end labor-intensive service to a smartphone app is a "tech business".

gist 10y ago
The best ones actually are similar to what you are highlighting, but started by someone with a Phd in physics [1] and/or an MD that they walked away from to get in on the lottery. [1] Note that I do not know what the job market is for people with Phd's in Physics so pick another advanced degree as an example. I do know the market for MD's though.
- ry_ry 10y ago
  Not pure physics, but I know 2 astrophysics PhDs well, one works in publishing, the other is a programmer. Neither does anything particularly astrological, both have mentioned that it sounds way cooler than it is practical outside of academia.
danieltillett 10y ago
No business where the majority of labour is low-cost is a tech business nor one you want to start unless you are megalomaniacal empire builder.
- h4nkoslo 10y ago
  Counterpoint: warehouse operations.
  - exelius 10y ago
    All businesses will eventually become tech businesses once automation starts taking over. This has already happened in warehouse operations.
    - 10y ago

n72 10y ago

Pretty off topic, but is Chris O'Neill huge? Or did they choose very small people to flank him in the photo for the article?

ryandamm 10y ago
I wondered the same thing, even tried Googling his height. I think it's partly exaggerated by a somewhat-wide lens, and the two flankers leaning back in their chairs while he leans forward (nearer objects being represented as larger). Also, he's probably huge.

vonnik 10y ago

Katie Benner has written some good stories, but I'm suspicious of articles like this, because they insist almost irrationally on finding a trend that they can make a pronouncement about. The truth is, startups are all over the place. Some are wasting cash, and some are trying to build sustainable businesses, and some are trying to get acquihired. And all of those things are going on all the time. VCs have raised record levels of investment from LPs this year. And that money will get pushed into the system whether Bill Gurley wants the competition or not. The people who harp on an impending crash -- and they have been harping for quite some time now -- seem desperate for something to say about tech. In secular terms, tech's star is on the rise and everyone knows it, so the real news would be a crash. But the crash, like Godot, refuses to arrive. Actually, many parts of tech are pretty damn healthy, and moving fast, AI and robotics being just two.

dmix 10y ago
And there is a correlation between those who don't have time (or exposure) to talk to the press for fluffy articles about SV... because they are too busy building a real business that makes money. Meeting clients, investors, hiring, etc. PR is only on some startups lists and they are usually consumer plays which are always riskier (such as valet parking apps).

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alanh 10y ago

A welcome change: > Other entrepreneurs have a newfound air of practicality, no longer shooting for their companies to be the next tech behemoth like Facebook. I haven't been hearing much about raising lately — Is it still the case that you are expected to lay out a path to $1Bn in your pitch deck, no matter what your company does?

artursapek 10y ago

Is it really not a caricature that people in SV wear jeans and their startup's stock t-shirt with a blazer over it? People really dress like this?

staticautomatic 10y ago
Oh yeah. I could walk down the street and take pictures of people dressed like that right now.
mistersquid 10y ago
I work in the SF Financial District and one rarely sees T-shirt paired with a blazer. Lots of T-shirts (company-branded or otherwise) and jeans, occasional blazers with open collar dress shirt, more frequent outdoor jackets (e.g. North Face) with dress or T-shirt, or no jacket at all. Dress slacks are rare among anyone not in the SVP Or C-suite. (All this is me going from memory so undoubtedly if unintentionally inaccurate to some degree.)

danieltillett 10y ago

There won't be a crash until the rivers of money being pumped out by the central banks of the world stops. The entire VC industry is just a tiny cork floating on a gale-whipped sea. I do think that it is getting really hard to break through the noise with a new concept. There are just so many companies chasing the same eyeballs that it is really hard to get the traction needed to build a unicorn no matter how much money you raise. At this point it might be better to go hyper-niche and bootstrap.

adrenalinelol 10y ago
Well, from the point of view of the Central Banks, creating any kind of economic activity is a plus, regardless if it'll be viable longterm for it's employees or if its "true innovation" (not noise). So the money faucets are working as intended. Given how anemic our economy is compared to other post-recession economies, I suspect it'll stay that way.

zizzles 10y ago

Silicon Valley is in NEED of a crash. It is touted as a hub of "innovation" but I do not see it. There are exceptions that exist, scientific and medical companies perhaps, but the majority of tech-startups are not that at all, they are a fucking FUGAZI. They are speculative companies that are all about hype and getting an "exit" someday. Steve Jobs (as an example) is regarded as a "deity", a god of Silicon Valley. Because of wealth? Because the iPhone / iPod / iWhatever had a simple design? Step outside, the iPhone is used as a vessel for narcissism. Facebook and Instagram, two billion dollar companies in the valley, those two are the TEXTBOOK narcissism vessels of HUMAN HISTORY. These tech-startups are an absolute pathetic coping mechanism for humanity, they are not innovative or special.

tlogan 10y ago
I agree that Silicon Valley is in NEED of a crash. But NOT because there is no innovation. But because there is a lot of innovation and that real innovation is getting squished by get rich schemes (I have no other descriptions for some startups). This is like with all bubbles: fundamentals will start it but then speculators will take over causing the bubble.
- zizzles 10y ago
  You and I have different ideas of innovation. You are likely thinking in a capitalistic sense of a view (disclaimer before I get thrashed on: I am not thinking capitalistically) perhaps you can name me a few particular up and coming companies YOU think are doing imperative, highly-important and highly-beneficial things for us humans? Companies that, 10 years from now, will be so imperative to our survival and well-being that they will fit directly into the Maslow Heirarchy of Needs? https://upload.wikimedia.org/wikipedia/commons/thumb/6/60/Maslow's_Hierarchy_of_Needs.svg/2000px-Maslow's_Hierarchy_of_Needs.svg.png https://upload.wikimedia.org/wikipedia/commons/thumb/6/60/Ma... I scroll through Tech Crunch regularly. My honest observation: 95% of tech-startups are, as I said earlier, F-U-G-A-Z-I-S. Companies that fuel narcissism. Companies that are spin-offs of companies that fuel narcissism. Companies that perform services for other FUGAZI companies. Ad companies. Companies that provide streaming, so millions of Americans can watch Kim Kardashian on their Mac. I don't want to be a philosophical hippy, I am not one of those, but nobody here can deny that all of this is a pathetic coping mechanism. Why are we coping? We are coping because we are a too primitive and unevolved monkey species to take anything to the next parallel. Even something such as space exploration is science-fiction, meeting a different species of life? Science fiction. Some sort of child pipe-dream we've learned from Hollywood (another FUGAZI) How about something to help us find a slight meaning to existence. Isn't this the root-goal, at it's core? I look out with clear focus on the surroundings, but I do not understand. Then I go back to FUGAZI-land. It's imperative I figure out myself, but society is an obstacle (despite it's perks) To sum it up: 95% of Silicon Valley is a primitive coping mechanism.

swingbridge 10y ago

Lean and profitable is the new black.

matchagaucho 10y ago

Several VC funds were launched over the past few years. Assuming they're ~7 year funds, we're going to see an increase in LP and board pressure over the next few years, as these funds come to maturity.

known 10y ago

Employment is to succeed in job. Entrepreneurship is to succeed in life.