5 ms·

I can't find the blog post, but some blog wrote a while ago why VCs invest in companies like Github. TL;DR -- basically it provides infrastructure for other sta

by drchiu 10y ago

I can't find the blog post, but some blog wrote a while ago why VCs invest in companies like Github. TL;DR -- basically it provides infrastructure for other startups. The business itself may not be a great business due to the amount of cost it takes to run it -- but it's necessary for the running of other ventures. Sort of like highways and non-toll bridges.

ktamura 10y ago
>The business itself may not be a great business due to the amount of cost it takes to run it -- but it's necessary for the running of other ventures. The latter half of the statement applies to Stripe as well. The big difference between GitHub and Stripe is that Stripe's business model is more directly tied to the growth of entrepreneurship economy: the more money goes through Stripe-powered businesses, the more money Stripe makes. In GitHub's case, the correlation is less direct and less predictable.
cperciva 10y ago
Are you saying that VCs are investing because they see companies like GitHub as being public goods? That's contrary to normal investing principles, unless there's some reason to think that a VC investing will result in their portfolio companies having superior access.
- LiamMcCalloway 10y ago
  As a natural monopoly seems closer to the GP's argument.
- stock_toaster 10y ago
  This could be the article the parent was referencing: http://words.steveklabnik.com/is-npm-worth-26mm http://words.steveklabnik.com/is-npm-worth-26mm
- joering2 10y ago
  Actually... without any proofs whatsover, who knows who is really glancing over private repos parked at GitHub. I bet there are many projects with multi-million dollar source code (aka secret sauce) that many would love to look into.
- jakub_g 10y ago
  The point is more or less, if VC invests (or plans to) in 20 software companies, investing additionally in something like GitHub or npm makes it more likely that the other 20 companies will succeed. They don't invest just in GitHub from the goodness of their hearts.
  - DrJokepu 10y ago
    I know nothing about investing but I feel somewhat skeptical about these arguments. How many startups actually failed because they were using a poor package manager or source control host?
    - bmelton 10y ago
      This sounds more like a spin-off of the old investment adage: "Buy stock in the products you actually use." If you spin that argument slightly as a proxy purchase, it makes sense that VCs would be investing in the products that their other startups are using heavily. As an super-small-time investor who only owns stock in companies whose products that I use and enjoy, I can't knock them for it. For me, the logic is that whenever I tire of using something or no longer find it valuable, presumably I'll have early insight to sell the stock before the rest of the world catches on. I don't know if that same logic applies to proxy buying, but I suppose if you're intimate enough with your companies to know if they're abandoning Github for something else, as I don't know if pulling venture capital is as easy as selling the stock.
      - cstavish 10y ago
        > as I don't know if pulling venture capital is as easy as selling the stock. There's generally minimal liquidity. During a round, an existing investor may have the opportunity to sell some shares to new/other investors, but if she knows something that's not coming out during diligence, there's definitely something fishy going on. If the round is shaping up to be a major up-round, maybe an early investor wants to lock in a good return, but that's beside the point here. And then of course if things really aren't going well for the company, you're looking at the bad kind of liquidity event--a liquidation. So if a VC wants to pull out based on a negative hunch, it's probably either impossible or the signal itself will doom the company if it wasn't already doomed. Just my 2 cents as a first-time founder.
- deleted 10y ago
  [deleted]
- whywhywhywhy 10y ago
  think people in the industry are just desperate to try and find justification and sanity where there really is none because it makes them feel the whole system is more stable than it truly is. The reality is there is no reason for GitHub to have this much funding and spend so frivolously. This should be a warning.
tootie 10y ago
I don't get it. They're taking one for the team? Seems more like dumping to stymie competition.
jakub_g 10y ago
>I can't find the blog post You probably meant this: http://words.steveklabnik.com/is-npm-worth-26mm http://words.steveklabnik.com/is-npm-worth-26mm
dsacco 10y ago
In other words, "commoditizing the complements." As GitHub makes certain parts of the software industry significantly more accessible or cheaper, its complements will succeed commensurately. For example, easy access to, and encouraged proliferation of, skilled talent and robust open source (free) software. That GitHub provides infrastructure for other startups makes sense, but I'd strongly push back on the idea that VCs will invest in a particular company like GitHub primarily because they think it will improve their investments elsewhere. That's a leap in market forecasting, and the simpler (Occam's Razor) and more rational explanation is that they expect(ed) a good return with some added benefit to "the ecosystem." I'd be more in favor of this argument if you restated it slightly as, "Investors like investing in companies like GitHub because they can initiate feedback loops with their existing investments that result in mutual prosperity."
- sqeaky 10y ago
  I think I am missing the subtle distinction you are trying to make. It seems like you have real point, but I don't understand; could you expand on it?
  - dsacco 10y ago
    In economic terms, it is beneficial for companies to "commoditize their complements." If flights to Miami become cheaper, hotels there can raise their rates. When web browsers became free and ubiquitous, it allowed web applications to prosper on the new influx of people with access to the internet. Google built an empire on this principle. GitHub commoditizes (or more accurately, pressures costs lower to commoditization for) several complements that would otherwise reduce the profitability and viability of software based businesses. It provides widespread, free access to software as a hosting provider of open source software. It also provides widespread, comparatively low cost access to proven software talent as a sort of professional social network. As the costs associated with one part of an industry fall, the company that causes that decline and the companies that are complementary to those costs benefit greatly. It is hard to start a new company offering a product for a market inefficiency that has been thoroughly solved for most use cases by commoditized, open source software. However, companies with a complementary relationship to that software will benefit greatly, either because they will have a wider market potential through new customers or because their own costs will drop precipitously. Similarly, developers commoditize themselves and their own costs to a company if they cease differentiating themselves or make it easier to find a supply of them. As an exercise, who do you think is better off in the video game industry - video game studios who make games with a de facto maximum price of $60 (ignoring DLC and in-game purchases), or Microsoft and Sony, who can charge for access to all of those games on an initial (hardware) and monthly (network) basis? Do you think it is in Apple's favor as a company that sells expensive hardware to have developers on their platform charge more or less for their software? Anyway, my main point was acknowledging that, yes, GitHub makes a lot of other software companies easier through this principle, but no, I don't really agree that venture capitalists have this as an explicit investment strategy. That attributes to them spectacular market forecasting ability and there is a much simpler explanation, which is that they actually believe the company will do well.
kevinstubbs 10y ago
Is Marc Andreessen's "Software is Eating the World" the blog post you were referring to? http://genius.com/Marc-andreessen-why-software-is-eating-the-world-annotated http://genius.com/Marc-andreessen-why-software-is-eating-the... Linked to the Genius page because the original WSJ is behind a pay-wall[0]. On the back end, software programming tools and Internet-based services make it easy to launch new global software-powered start-ups in many industries—without the need to invest in new infrastructure and train new employees. [0]Pay-wall WSJ: http://www.wsj.com/articles/SB10001424053111903480904576512250915629460 http://www.wsj.com/articles/SB100014240531119034809045765122...
OliverJones 10y ago
Whoa. Dumb money, those VCs, if this is true. A scrappy low-budget startup can do just fine with a medium sized vm on one of the several places renting vms, running a simple source code control system server. Blowing dozens of megabucks to build a palace in a high-rent district to replace something that's close to free seems, well, dumb.
- tekklloneer 10y ago
  Github is better. It just is. You don't have to worry about backups, it has great tools built on top of the vcs to make working with it and project management easier. It makes it easier to manage the D part of DVCS, and it lets you easily put your tools into the community. I suspect they see it as a charity case, if true.
  - robszumski 10y ago
    If you run an open-source project, the community is on Github and that's where they expect to file bugs. Most users/contributors already have their notifications tweaked the way that they like, understand the workflow and website, etc.
    - matt4077 10y ago
      At this point, Github is in the same league as Wikipedia in terms of "a fantastic story of technology helping people to create ad-hoc, altruistic collaborations".
  - OliverJones 10y ago
    Of course github is better. That's not my point. The question I'm asking is whether it's better enough to justify a vast investment. New businesses -- startups -- need to take actions to conserve their cash, and sometimes "good enough" is good enough. It's especially important to get this right when one choice is an unprofitable unicorn-style company with vast cash outflow.
annon 10y ago
Except as pointed out in the article, the massive increase in spending was fairly frivolous. They spent crazy money on a new huge office, threw big parties, and sent their employees traveling everywhere. They also doubled their headcount, when I think we can all agree that they haven't had a surge in volume or features that merits that many new employees. There's no reason that GitHub couldn't be run profitably if they weren't just out there burning VC money as quickly as possible.
- dangoor 10y ago
  New features doesn't generally scale linearly with employee count (due to required communication paths, etc.) That said, I actually do think there's been an uptick in useful new features from GitHub this year. We use Phabricator at Khan Academy, and many aspects of Phab that were superior last year when I joined KA are now in line with GitHub's offering.
  - epriest 10y ago
    We've been working hard to remove features, introduce bugs, and decrease quality throughout the year.
    - dangoor 10y ago
      Phabricator definitely has a superior sense of humor. (If anyone reading this hasn't checked out their website, I highly recommend it) I was, of course, not trying to say that Phab was regressing but rather that GitHub had picked up the pace. There have absolutely been good improvements to Phab this year too!
      - douche 10y ago
        In the case of Phabricator, I wonder if that sense of humor works against them. The first time I followed a link to their site and read the description[1], I was convinced that it was a joke poking fun at how ridiculous overwrought do-everything enterprise systems tend to be. [1] https://www.phacility.com/phabricator/ https://www.phacility.com/phabricator/
notahacker 10y ago
Sounds a little unlikely tbh. A VC fund exists to invest in a small portfolio of ventures to maximise returns over a fixed period to the Limited Partners who have invested in that particular fund. The Limited Partners aren't donating their money to help the wider ecosystem, and if they suspect the VC firm is investing in businesses without massive profit potential because they might assist the growth of startups in their other VC funds, it's lawyer time.
Taek 10y ago
That's a huge part of the investment behind Bitcoin's Blockstream. Blockstream pays more more development hours then any other entity by far. There's no direct revenue to be had by improving bitcoin-core. But without that development we'd be stuck with less security, less features, and a blockchain that took weeks or months to download and verify (instead of days). Bitcoin is only possible because of the massive amount of development going into this unprofitable codebase. And I believe that Blockstream's investors are well aware that they will never have direct ROI on many of those upgrades.
jartelt 10y ago
If that was the case, I think you would expect small investments from VCs and strong calls for sustainable spending. Github had a $100M Series A and a $250M Series B, so the VCs were not playing around when they invested. Even if a VC firm has a $1B fund, a $50M investment is 5% of the fund and has to be a serious investment.
sdesol 10y ago
> basically it provides infrastructure for other startups The good news for them, is they can become much more. GitLab learned earlier on, the value of selling to Enterprise as opposed to startups. They (GitHub) really should have gone on a hiring blitz a few years ago, to find people who understood Enterprise. GitHub, way over estimated the value of "social programming", when it comes to Enterprise. I would say 80% of programmers in Enterprise, are not passionate about programming and have no interest, in the "social" value, that is offered by GitHub Enterprise. The vast majority of Enterprise programmers see it as a job, and really don't care about what others are working on, unless it directly affects whether or not they can leave work on time. What GitHub needs to focus on, is doing the hard things, that GitLab and Bitbucket will not be able to do, without serious R&D. I personally think, they should abandon Atom at this point, and use those resources to work on solving harder problems, that Enterprise would gladly pay for. Like better searches, better analytics/reports, better code reviews, and so forth.
- di4na 10y ago
  more like 100%. But the better solution may be to reverse than instead of coping with the system in place.

by drchiu 10y ago

ktamura 10y ago

>The business itself may not be a great business due to the amount of cost it takes to run it -- but it's necessary for the running of other ventures. The latter half of the statement applies to Stripe as well. The big difference between GitHub and Stripe is that Stripe's business model is more directly tied to the growth of entrepreneurship economy: the more money goes through Stripe-powered businesses, the more money Stripe makes. In GitHub's case, the correlation is less direct and less predictable.

cperciva 10y ago

Are you saying that VCs are investing because they see companies like GitHub as being public goods? That's contrary to normal investing principles, unless there's some reason to think that a VC investing will result in their portfolio companies having superior access.

LiamMcCalloway 10y ago
As a natural monopoly seems closer to the GP's argument.
stock_toaster 10y ago
This could be the article the parent was referencing: http://words.steveklabnik.com/is-npm-worth-26mm http://words.steveklabnik.com/is-npm-worth-26mm
joering2 10y ago
Actually... without any proofs whatsover, who knows who is really glancing over private repos parked at GitHub. I bet there are many projects with multi-million dollar source code (aka secret sauce) that many would love to look into.
jakub_g 10y ago
The point is more or less, if VC invests (or plans to) in 20 software companies, investing additionally in something like GitHub or npm makes it more likely that the other 20 companies will succeed. They don't invest just in GitHub from the goodness of their hearts.
- DrJokepu 10y ago
  I know nothing about investing but I feel somewhat skeptical about these arguments. How many startups actually failed because they were using a poor package manager or source control host?
  - bmelton 10y ago
    This sounds more like a spin-off of the old investment adage: "Buy stock in the products you actually use." If you spin that argument slightly as a proxy purchase, it makes sense that VCs would be investing in the products that their other startups are using heavily. As an super-small-time investor who only owns stock in companies whose products that I use and enjoy, I can't knock them for it. For me, the logic is that whenever I tire of using something or no longer find it valuable, presumably I'll have early insight to sell the stock before the rest of the world catches on. I don't know if that same logic applies to proxy buying, but I suppose if you're intimate enough with your companies to know if they're abandoning Github for something else, as I don't know if pulling venture capital is as easy as selling the stock.
    - cstavish 10y ago
      > as I don't know if pulling venture capital is as easy as selling the stock. There's generally minimal liquidity. During a round, an existing investor may have the opportunity to sell some shares to new/other investors, but if she knows something that's not coming out during diligence, there's definitely something fishy going on. If the round is shaping up to be a major up-round, maybe an early investor wants to lock in a good return, but that's beside the point here. And then of course if things really aren't going well for the company, you're looking at the bad kind of liquidity event--a liquidation. So if a VC wants to pull out based on a negative hunch, it's probably either impossible or the signal itself will doom the company if it wasn't already doomed. Just my 2 cents as a first-time founder.
deleted 10y ago
[deleted]
whywhywhywhy 10y ago
think people in the industry are just desperate to try and find justification and sanity where there really is none because it makes them feel the whole system is more stable than it truly is. The reality is there is no reason for GitHub to have this much funding and spend so frivolously. This should be a warning.

tootie 10y ago

I don't get it. They're taking one for the team? Seems more like dumping to stymie competition.

jakub_g 10y ago

>I can't find the blog post You probably meant this: http://words.steveklabnik.com/is-npm-worth-26mm http://words.steveklabnik.com/is-npm-worth-26mm

dsacco 10y ago

In other words, "commoditizing the complements." As GitHub makes certain parts of the software industry significantly more accessible or cheaper, its complements will succeed commensurately. For example, easy access to, and encouraged proliferation of, skilled talent and robust open source (free) software. That GitHub provides infrastructure for other startups makes sense, but I'd strongly push back on the idea that VCs will invest in a particular company like GitHub primarily because they think it will improve their investments elsewhere. That's a leap in market forecasting, and the simpler (Occam's Razor) and more rational explanation is that they expect(ed) a good return with some added benefit to "the ecosystem." I'd be more in favor of this argument if you restated it slightly as, "Investors like investing in companies like GitHub because they can initiate feedback loops with their existing investments that result in mutual prosperity."

sqeaky 10y ago
I think I am missing the subtle distinction you are trying to make. It seems like you have real point, but I don't understand; could you expand on it?
- dsacco 10y ago
  In economic terms, it is beneficial for companies to "commoditize their complements." If flights to Miami become cheaper, hotels there can raise their rates. When web browsers became free and ubiquitous, it allowed web applications to prosper on the new influx of people with access to the internet. Google built an empire on this principle. GitHub commoditizes (or more accurately, pressures costs lower to commoditization for) several complements that would otherwise reduce the profitability and viability of software based businesses. It provides widespread, free access to software as a hosting provider of open source software. It also provides widespread, comparatively low cost access to proven software talent as a sort of professional social network. As the costs associated with one part of an industry fall, the company that causes that decline and the companies that are complementary to those costs benefit greatly. It is hard to start a new company offering a product for a market inefficiency that has been thoroughly solved for most use cases by commoditized, open source software. However, companies with a complementary relationship to that software will benefit greatly, either because they will have a wider market potential through new customers or because their own costs will drop precipitously. Similarly, developers commoditize themselves and their own costs to a company if they cease differentiating themselves or make it easier to find a supply of them. As an exercise, who do you think is better off in the video game industry - video game studios who make games with a de facto maximum price of $60 (ignoring DLC and in-game purchases), or Microsoft and Sony, who can charge for access to all of those games on an initial (hardware) and monthly (network) basis? Do you think it is in Apple's favor as a company that sells expensive hardware to have developers on their platform charge more or less for their software? Anyway, my main point was acknowledging that, yes, GitHub makes a lot of other software companies easier through this principle, but no, I don't really agree that venture capitalists have this as an explicit investment strategy. That attributes to them spectacular market forecasting ability and there is a much simpler explanation, which is that they actually believe the company will do well.

kevinstubbs 10y ago

Is Marc Andreessen's "Software is Eating the World" the blog post you were referring to? http://genius.com/Marc-andreessen-why-software-is-eating-the-world-annotated http://genius.com/Marc-andreessen-why-software-is-eating-the... Linked to the Genius page because the original WSJ is behind a pay-wall[0]. On the back end, software programming tools and Internet-based services make it easy to launch new global software-powered start-ups in many industries—without the need to invest in new infrastructure and train new employees. [0]Pay-wall WSJ: http://www.wsj.com/articles/SB10001424053111903480904576512250915629460 http://www.wsj.com/articles/SB100014240531119034809045765122...

OliverJones 10y ago

Whoa. Dumb money, those VCs, if this is true. A scrappy low-budget startup can do just fine with a medium sized vm on one of the several places renting vms, running a simple source code control system server. Blowing dozens of megabucks to build a palace in a high-rent district to replace something that's close to free seems, well, dumb.

tekklloneer 10y ago
Github is better. It just is. You don't have to worry about backups, it has great tools built on top of the vcs to make working with it and project management easier. It makes it easier to manage the D part of DVCS, and it lets you easily put your tools into the community. I suspect they see it as a charity case, if true.
- robszumski 10y ago
  If you run an open-source project, the community is on Github and that's where they expect to file bugs. Most users/contributors already have their notifications tweaked the way that they like, understand the workflow and website, etc.
  - matt4077 10y ago
    At this point, Github is in the same league as Wikipedia in terms of "a fantastic story of technology helping people to create ad-hoc, altruistic collaborations".
- OliverJones 10y ago
  Of course github is better. That's not my point. The question I'm asking is whether it's better enough to justify a vast investment. New businesses -- startups -- need to take actions to conserve their cash, and sometimes "good enough" is good enough. It's especially important to get this right when one choice is an unprofitable unicorn-style company with vast cash outflow.

annon 10y ago

Except as pointed out in the article, the massive increase in spending was fairly frivolous. They spent crazy money on a new huge office, threw big parties, and sent their employees traveling everywhere. They also doubled their headcount, when I think we can all agree that they haven't had a surge in volume or features that merits that many new employees. There's no reason that GitHub couldn't be run profitably if they weren't just out there burning VC money as quickly as possible.

dangoor 10y ago
New features doesn't generally scale linearly with employee count (due to required communication paths, etc.) That said, I actually do think there's been an uptick in useful new features from GitHub this year. We use Phabricator at Khan Academy, and many aspects of Phab that were superior last year when I joined KA are now in line with GitHub's offering.
- epriest 10y ago
  We've been working hard to remove features, introduce bugs, and decrease quality throughout the year.
  - dangoor 10y ago
    Phabricator definitely has a superior sense of humor. (If anyone reading this hasn't checked out their website, I highly recommend it) I was, of course, not trying to say that Phab was regressing but rather that GitHub had picked up the pace. There have absolutely been good improvements to Phab this year too!
    - douche 10y ago
      In the case of Phabricator, I wonder if that sense of humor works against them. The first time I followed a link to their site and read the description[1], I was convinced that it was a joke poking fun at how ridiculous overwrought do-everything enterprise systems tend to be. [1] https://www.phacility.com/phabricator/ https://www.phacility.com/phabricator/

notahacker 10y ago

Sounds a little unlikely tbh. A VC fund exists to invest in a small portfolio of ventures to maximise returns over a fixed period to the Limited Partners who have invested in that particular fund. The Limited Partners aren't donating their money to help the wider ecosystem, and if they suspect the VC firm is investing in businesses without massive profit potential because they might assist the growth of startups in their other VC funds, it's lawyer time.

Taek 10y ago

That's a huge part of the investment behind Bitcoin's Blockstream. Blockstream pays more more development hours then any other entity by far. There's no direct revenue to be had by improving bitcoin-core. But without that development we'd be stuck with less security, less features, and a blockchain that took weeks or months to download and verify (instead of days). Bitcoin is only possible because of the massive amount of development going into this unprofitable codebase. And I believe that Blockstream's investors are well aware that they will never have direct ROI on many of those upgrades.

jartelt 10y ago

If that was the case, I think you would expect small investments from VCs and strong calls for sustainable spending. Github had a $100M Series A and a $250M Series B, so the VCs were not playing around when they invested. Even if a VC firm has a $1B fund, a $50M investment is 5% of the fund and has to be a serious investment.

sdesol 10y ago

> basically it provides infrastructure for other startups The good news for them, is they can become much more. GitLab learned earlier on, the value of selling to Enterprise as opposed to startups. They (GitHub) really should have gone on a hiring blitz a few years ago, to find people who understood Enterprise. GitHub, way over estimated the value of "social programming", when it comes to Enterprise. I would say 80% of programmers in Enterprise, are not passionate about programming and have no interest, in the "social" value, that is offered by GitHub Enterprise. The vast majority of Enterprise programmers see it as a job, and really don't care about what others are working on, unless it directly affects whether or not they can leave work on time. What GitHub needs to focus on, is doing the hard things, that GitLab and Bitbucket will not be able to do, without serious R&D. I personally think, they should abandon Atom at this point, and use those resources to work on solving harder problems, that Enterprise would gladly pay for. Like better searches, better analytics/reports, better code reviews, and so forth.

di4na 10y ago
more like 100%. But the better solution may be to reverse than instead of coping with the system in place.