7 ms·

Welcome to the Lost Decade (for Entrepreneurs, IPOs, and VCs)

85 points by grellas 16y ago

smysore 16y ago
what about companies that never IPO but grow and become successful private entities (and hence, are never acquired)? that seems like a good place to end up
- arnorhs 16y ago
  That's a great argument. But I think his point was that from the VCs point of view that doesn't look like the kind of fast ROI they're always after.
jswinghammer 16y ago
Given that the whole capital structure is in a state of flux right now with the reality of deflation (the exit of money from the system) while massive inflation is going on at the same time (the creation of new money not the increase in prices) why should we expect much of anything good to come out of the next ten years? I think that a lot of people will take their ideas and implement them on a smaller scale and grow organically instead of getting big fast. This site is filled with people doing or planning on doing just that right now. I'm not optimistic about the next ten years but I think that we'll end up leaving this decade with some rather nice companies that will really contribute something substantial to the ten years that follow this decade. I'm assuming the next ten years will be like 70s with stagflation defining our experience and mainstream economists having nothing useful to say about why it is happening.
- coliveira 16y ago
  I agree that the problem is that web developers don't need funding anymore. Creating a web company is not something "urgent" like it was in the 90s, and it doesn't need large amounts of capital or labor. The same way small inventors don't need huge amounts of capital, web companies will continue to appear without the need of VC money.
- borism 16y ago
  I think you're a bit confused about inflation vs. deflation. There's either one or the other, not both at the same time.
  - jswinghammer 16y ago
    The overall trend is deflation. There is a massive amount of inflation occurring though. It's just happening at a slower rate than the rate of deflation.
edw519 16y ago
Hmmm, the seismic shift from MoreLikelyToIPO to MoreLikelyToGetAcquired happened around the same time as Enron and its ensuing government yoke, Sarbanes-Oxley. Coincidence? I doubt it. When compliance raises expenses 1%, no big deal. But if that number approaches 50% for small, nimble, well-leveraged tech start-ups, then public markets become closed to them. SOX is an awfully big variable to not be considered.
- j_baker 16y ago
  I think a simpler explanation is that IPOs simply weren't a good idea for most technology firms, which is part of what led to the dot-com crash.
  - aspiringsensei 16y ago
    Exactly - if you need proof that equity of tech companies is a different investment than equity of staid, ordinary companies, look at the capital structure of successful tech companies. Google, Microsoft, Nvidia, Apple...No Debt. The existence of large cash cushions on these balance sheets is insurance against a rainy day, and changes the risk profile. If these companies had been levered during the 03-07 expansion, they would have exploded in value. They didn't, because it makes no sense to lever a tech company to the hilt, even if you believe it makes sense to lever a manufacturing company to high heaven. Cashflows are too variable and too prone to disruption. It takes a special kind of tech co to go public, and many (i'm lookin' at you pets.com) weren't that kind.
- _delirium 16y ago
  SOX took effect in late 2002, but the big seismic shift had happened by 2001 (look at the drop-off in IPOs between 2000 and 2001, which never recovered). Seems like the dot-com crash leading to greatly decreased public demand for tech shares is a lot more likely explanation.
  - gojomo 16y ago
    Clearly the dotcom bust (and closely-following recessions and wars) explained the immediate drop in IPOs. But those are cyclical matters. Why they haven't come back 10 years later is what requires some structural explanation. SOX is both proximate in time and plausible as a mechanism, on the 10-year scale. Never mind the crazy IPO levels of bubble years 1999-2000. Why can't we get back to the modest 100-200 IPOs a year of the early 1990s?
wheaties 16y ago
That's scary because Web 2.0 companies aren't the be-all end-all of the world. We're in a decidedly fantastic spot, don't get me wrong. However, people are going to need batteries that last longer, they'll want windows in their houses that change shade, or soil that repairs and replenishes itself (South America looking at you.) This type of thing takes the hard money web companies don't need. It's the real source of growth.
- rlyboslavsky 16y ago
  Tom Seibel once said during an interview at Stanford that Big Innovation in software is over. 90s won't come back and another startup of Microsoft/Google is unlikely. When asked what are the areas of future growth/innovation he said: energy, water management and green technologies. My take on this is that software has changed so much, that it became kind of enabling/supporting service that nobody can do anything without, i.e. even in green tech field (assuming it indeed is going to be huge) there's plenty of code to be written (and sold)
  - http-kid 16y ago
    What's water management?
    - kaib 16y ago
      In general it seems to refer to the fact that drinking and irrigation water is becoming more scarce in parts of the world and we need both technological and social systems for managing this resource. Aside from pure diminishing of water stock a practical example could be one country building a dam upriver from some other country.
      - zandorg 16y ago
        We need the gadget from Waterworld that turns urine into clean water, but somehow doesn't turn sea water into the same...
    - Shorel 16y ago
startuprules 16y ago
US is in for another lost decade ahead for innovation, as: - US venture capital industry is expected to shrink considerably (http://techcrunch.com/2010/07/13/report-u-s-venture-capital-industry-expected-to-shrink-while-emerging-markets-grow/ http://techcrunch.com/2010/07/13/report-u-s-venture-capital-...) - Immigration brain drain takes place. Only 18,000 applications had been filed for regular H-1Bs so far this year. (http://money.cnn.com/2010/06/14/news/economy/immigration_brain_drain.fortune/index.htm http://money.cnn.com/2010/06/14/news/economy/immigration_bra...) - US manufacturing jobs keep slipping away, and the trend will likely continue - Nation's 100 biggest markets have lost ~40% jobs compared to a decade ago (http://buffalo.bizjournals.com/buffalo/blog/the_score/2010/07/manufacturing_jobs_keep_slipping_away.html http://buffalo.bizjournals.com/buffalo/blog/the_score/2010/0...) We need to act now to reverse these long term trends, otherwise innovation will dissipate rather quickly, as the world braces austerity and the second US recession
- cjy 16y ago
  Manufacturing jobs are disappearing but real manufacturing output has actually been steadily increasing over the last 50 years.
  - lispygem 16y ago
    Yeah, imagine a production line hooked up directly to a web-based storefront where people are buying things to build. We're not far from it, and when this happens it probably won't be in China.
  - jbooth 16y ago
    Very true, but still not a great place to be. Whether the boogeymen are robots or chinese workers, not having a market for manufacturing labor is a bad position for an economy.
    - dstorrs 16y ago
      Serious question: why? I understand an economy that does not produce any of its own goods is in a jam -- it's an external critical dependency that can be wielded like a club against you. But if you have adequate internal production, what does it matter if it's done by humans, robots, or hyperintelligent cyborg orangutans? It may take a generation or so, but the people who would have been manufacturing labor will be absorbed into other markets -- or should be, as I understand it.
travem 16y ago
It would be interesting to see how may of the M&A's were planning an IPO prior to being acquired. A recent study shows that a better price can be extracted from the acquiring company if the sellers adopt this dual-track strategy. See http://news.byu.edu/archive10-jun-dualtracksellouts.aspx http://news.byu.edu/archive10-jun-dualtracksellouts.aspx
all 16y ago
I am not trying to be smart, but the irony did strike me. From Blank's "Lessons Learned", no.1: "Advice that’s more than 5 years old is obsolete." The blurb under his "Posts from an Entrepreneurial Career: "Steve Blank's 30 years of Silicon Valley startup advice." So, does that mean that 83% of his book is obsolete?
- sblank 16y ago
  at least half is. that's why the blog updates it with new thinking.
  - all 16y ago
    Thanks for clarifying. Thanks also for your blog, from which I have learned much.
brc 16y ago
It's not just IPOs that have had a lost decade. All major US stock indices have not increased in value (inflation adjusted) since 2000. As an equities investor in the last decade, chance are you haven't made any money at all. In 2000 some warned about a Japan-style slump, people said it coudn't happen. They still say that today, not realising, that, for 10 years, it's already true. Sure, there was a runup from about 03-07, but unless you got out at the top, you're back to where you started. And it's not just stock indices, it's also real estate and the number of jobs.
c00p3r 16y ago
It could be called the end of PC era and personal computing in general. Look at this shift from general purpose desktop devices to specialized (TVs, consoles) and mobile ones. Also the web is not something special nowadays. It is rather overloaded and boring. To many blogs, social networks which no one read anymore. The web will remain, of course, the primary commercial media, that is why google buys that travel search service. Web is a perfect media for such services. But it is not for a small, let alone individual players. So, we could speak rather about the end of PC-era, rather than lost decade of IT-investing. It is a time to invest into a global services.

85 points by grellas 16y ago

what about companies that never IPO but grow and become successful private entities (and hence, are never acquired)? that seems like a good place to end up

arnorhs 16y ago
That's a great argument. But I think his point was that from the VCs point of view that doesn't look like the kind of fast ROI they're always after.

jswinghammer 16y ago

Given that the whole capital structure is in a state of flux right now with the reality of deflation (the exit of money from the system) while massive inflation is going on at the same time (the creation of new money not the increase in prices) why should we expect much of anything good to come out of the next ten years? I think that a lot of people will take their ideas and implement them on a smaller scale and grow organically instead of getting big fast. This site is filled with people doing or planning on doing just that right now. I'm not optimistic about the next ten years but I think that we'll end up leaving this decade with some rather nice companies that will really contribute something substantial to the ten years that follow this decade. I'm assuming the next ten years will be like 70s with stagflation defining our experience and mainstream economists having nothing useful to say about why it is happening.

coliveira 16y ago
I agree that the problem is that web developers don't need funding anymore. Creating a web company is not something "urgent" like it was in the 90s, and it doesn't need large amounts of capital or labor. The same way small inventors don't need huge amounts of capital, web companies will continue to appear without the need of VC money.
borism 16y ago
I think you're a bit confused about inflation vs. deflation. There's either one or the other, not both at the same time.
- jswinghammer 16y ago
  The overall trend is deflation. There is a massive amount of inflation occurring though. It's just happening at a slower rate than the rate of deflation.

edw519 16y ago

Hmmm, the seismic shift from MoreLikelyToIPO to MoreLikelyToGetAcquired happened around the same time as Enron and its ensuing government yoke, Sarbanes-Oxley. Coincidence? I doubt it. When compliance raises expenses 1%, no big deal. But if that number approaches 50% for small, nimble, well-leveraged tech start-ups, then public markets become closed to them. SOX is an awfully big variable to not be considered.

j_baker 16y ago
I think a simpler explanation is that IPOs simply weren't a good idea for most technology firms, which is part of what led to the dot-com crash.
- aspiringsensei 16y ago
  Exactly - if you need proof that equity of tech companies is a different investment than equity of staid, ordinary companies, look at the capital structure of successful tech companies. Google, Microsoft, Nvidia, Apple...No Debt. The existence of large cash cushions on these balance sheets is insurance against a rainy day, and changes the risk profile. If these companies had been levered during the 03-07 expansion, they would have exploded in value. They didn't, because it makes no sense to lever a tech company to the hilt, even if you believe it makes sense to lever a manufacturing company to high heaven. Cashflows are too variable and too prone to disruption. It takes a special kind of tech co to go public, and many (i'm lookin' at you pets.com) weren't that kind.
_delirium 16y ago
SOX took effect in late 2002, but the big seismic shift had happened by 2001 (look at the drop-off in IPOs between 2000 and 2001, which never recovered). Seems like the dot-com crash leading to greatly decreased public demand for tech shares is a lot more likely explanation.
- gojomo 16y ago
  Clearly the dotcom bust (and closely-following recessions and wars) explained the immediate drop in IPOs. But those are cyclical matters. Why they haven't come back 10 years later is what requires some structural explanation. SOX is both proximate in time and plausible as a mechanism, on the 10-year scale. Never mind the crazy IPO levels of bubble years 1999-2000. Why can't we get back to the modest 100-200 IPOs a year of the early 1990s?

wheaties 16y ago

That's scary because Web 2.0 companies aren't the be-all end-all of the world. We're in a decidedly fantastic spot, don't get me wrong. However, people are going to need batteries that last longer, they'll want windows in their houses that change shade, or soil that repairs and replenishes itself (South America looking at you.) This type of thing takes the hard money web companies don't need. It's the real source of growth.

rlyboslavsky 16y ago
Tom Seibel once said during an interview at Stanford that Big Innovation in software is over. 90s won't come back and another startup of Microsoft/Google is unlikely. When asked what are the areas of future growth/innovation he said: energy, water management and green technologies. My take on this is that software has changed so much, that it became kind of enabling/supporting service that nobody can do anything without, i.e. even in green tech field (assuming it indeed is going to be huge) there's plenty of code to be written (and sold)
- http-kid 16y ago
  What's water management?
  - kaib 16y ago
    In general it seems to refer to the fact that drinking and irrigation water is becoming more scarce in parts of the world and we need both technological and social systems for managing this resource. Aside from pure diminishing of water stock a practical example could be one country building a dam upriver from some other country.
    - zandorg 16y ago
      We need the gadget from Waterworld that turns urine into clean water, but somehow doesn't turn sea water into the same...
  - Shorel 16y ago

startuprules 16y ago

US is in for another lost decade ahead for innovation, as: - US venture capital industry is expected to shrink considerably (http://techcrunch.com/2010/07/13/report-u-s-venture-capital-industry-expected-to-shrink-while-emerging-markets-grow/ http://techcrunch.com/2010/07/13/report-u-s-venture-capital-...) - Immigration brain drain takes place. Only 18,000 applications had been filed for regular H-1Bs so far this year. (http://money.cnn.com/2010/06/14/news/economy/immigration_brain_drain.fortune/index.htm http://money.cnn.com/2010/06/14/news/economy/immigration_bra...) - US manufacturing jobs keep slipping away, and the trend will likely continue - Nation's 100 biggest markets have lost ~40% jobs compared to a decade ago (http://buffalo.bizjournals.com/buffalo/blog/the_score/2010/07/manufacturing_jobs_keep_slipping_away.html http://buffalo.bizjournals.com/buffalo/blog/the_score/2010/0...) We need to act now to reverse these long term trends, otherwise innovation will dissipate rather quickly, as the world braces austerity and the second US recession

cjy 16y ago
Manufacturing jobs are disappearing but real manufacturing output has actually been steadily increasing over the last 50 years.
- lispygem 16y ago
  Yeah, imagine a production line hooked up directly to a web-based storefront where people are buying things to build. We're not far from it, and when this happens it probably won't be in China.
- jbooth 16y ago
  Very true, but still not a great place to be. Whether the boogeymen are robots or chinese workers, not having a market for manufacturing labor is a bad position for an economy.
  - dstorrs 16y ago
    Serious question: why? I understand an economy that does not produce any of its own goods is in a jam -- it's an external critical dependency that can be wielded like a club against you. But if you have adequate internal production, what does it matter if it's done by humans, robots, or hyperintelligent cyborg orangutans? It may take a generation or so, but the people who would have been manufacturing labor will be absorbed into other markets -- or should be, as I understand it.

travem 16y ago

It would be interesting to see how may of the M&A's were planning an IPO prior to being acquired. A recent study shows that a better price can be extracted from the acquiring company if the sellers adopt this dual-track strategy. See http://news.byu.edu/archive10-jun-dualtracksellouts.aspx http://news.byu.edu/archive10-jun-dualtracksellouts.aspx

all 16y ago

I am not trying to be smart, but the irony did strike me. From Blank's "Lessons Learned", no.1: "Advice that’s more than 5 years old is obsolete." The blurb under his "Posts from an Entrepreneurial Career: "Steve Blank's 30 years of Silicon Valley startup advice." So, does that mean that 83% of his book is obsolete?

sblank 16y ago
at least half is. that's why the blog updates it with new thinking.
- all 16y ago
  Thanks for clarifying. Thanks also for your blog, from which I have learned much.

brc 16y ago

It's not just IPOs that have had a lost decade. All major US stock indices have not increased in value (inflation adjusted) since 2000. As an equities investor in the last decade, chance are you haven't made any money at all. In 2000 some warned about a Japan-style slump, people said it coudn't happen. They still say that today, not realising, that, for 10 years, it's already true. Sure, there was a runup from about 03-07, but unless you got out at the top, you're back to where you started. And it's not just stock indices, it's also real estate and the number of jobs.

c00p3r 16y ago

It could be called the end of PC era and personal computing in general. Look at this shift from general purpose desktop devices to specialized (TVs, consoles) and mobile ones. Also the web is not something special nowadays. It is rather overloaded and boring. To many blogs, social networks which no one read anymore. The web will remain, of course, the primary commercial media, that is why google buys that travel search service. Web is a perfect media for such services. But it is not for a small, let alone individual players. So, we could speak rather about the end of PC-era, rather than lost decade of IT-investing. It is a time to invest into a global services.