8 ms·

What’s Really Going on in the VC Industry? What Does it Mean for Startups?

65 points by wheels 16y ago

arnorhs 16y ago
Great article. Mark is so damn smart. He essentially covered the same topic on This week in VC so if you like to watch a video of the same topic: http://www.youtube.com/watch?v=tNaZfLV-5SA#t=41m38s http://www.youtube.com/watch?v=tNaZfLV-5SA#t=41m38s
csbartus 16y ago
Summary + Opinion : Mark Suster, the prominent VC writes a highly supported (by Brad Feld, Fred Wilson etc.) article about the current status of his industry. During their lost decade —since the 2001 bubble— they have realized startups need significantly less investment than before. That’s right, this is the 37 Signal way with no investment at all. Since there is no need anymore for money to start up many investors will close their business. For the others there is one card left: scalability. They think a business to become mature, to serve millions needs heavy investment. They only forget 37 Signals has over 3 million customers paying an average $50 monthly fee without any investment, with less than 20 employees and no offices at all. Don’t repeat yourself and Less is more — staying lean — are amongst the basic principles of scalability. Their only hope, the Fat model resembles ironically Clay Shirky’s, their mentors principle: “Institutions will try to preserve the problem to which they are the solution.” The complete article is at http://metaman.tumblr.com/post/819220481/the-current-state-of-the-venture-capital-industry http://metaman.tumblr.com/post/819220481/the-current-state-o...
- rmah 16y ago
  They only forget 37 Signals has over 3 million customers paying an average $50 monthly fee without any investment, with less than 20 employees and no offices at all. Really? 37Signals is generating $150 mil * 12 = $1.8 bil in revenues per year? At the stated 20 employees, that's $90 mil in revenue per employee. I think 37 Signals is an awesome company and I have the utmost respect for them. But I find these numbers hard to believe. More likely they have 3 mil customers using free accounts. and a few percent of that -- I hear 2% is the average conversion rate for freemium, but let's be nice and say 4% -- or 120,000 as paying customers. At $600/yr, that leads to $72 mil per year in revenues or $3.6 mil per employee. Which is both amazingly great and within the realm of believability. P.S. 37 Signals does have an office in Chicago.
  - csbartus 16y ago
    Yes that was the hype in me, they say "people" not "customers".
  - rimantas 16y ago
    P.S. 37 Signals does have an office in Chicago. Since today: http://37signals.com/svn/posts/2456-thank-you-coudal http://37signals.com/svn/posts/2456-thank-you-coudal
    - rmah 16y ago
      From earlier this year: http://37signals.com/svn/posts/2344-construction-on-the-new-office-continues http://37signals.com/svn/posts/2344-construction-on-the-new-... Guess they're finally moving in.
  - deleted 16y ago
    [deleted]
- borisk 16y ago
  37 Signals did take some VC money.
- msuster 16y ago
  37Signals is a phenomenally successful company. The exception does not prove the rule.
10ren 16y ago
(naive) Question: What do web startups need $20mm for? (linked from the article: http://www.avc.com/a_vc/2010/07/some-thoughts-on-the-seed-fund-phenomenon.html http://www.avc.com/a_vc/2010/07/some-thoughts-on-the-seed-fu...) I mean, what can they spend it on? I can think of servers and bandwidth (but they're pretty cheap these days, except for youtube-content intensive), and staff (but what would they do?) and perhaps advertising and publicity in general can absorb as much money as you can throw. I guess a professional sales force would be expensive.
- starkfist 16y ago
  Servers are not as cheap as everyone says. You need the staff to keep the servers working.
  - csbartus 16y ago
    There are platforms as service like Heroku emerging with no need for staff at all
    - starkfist 16y ago
      Platforms as service don't work as well as advertised once you get past a certain point.
      - csbartus 16y ago
        Ok, but spending millions on infrastructure?
        starkfist 16y ago
        Well you gotta do what you gotta do. In my experience if you are really doing serious traffic, you have to do a lot of custom stuff. The platform-as-service vendors are not prepared to really help you. Or if they say they are, they will charge you so much money that it is cheaper to do it yourself. In fact... I actually worked at one of those platform-as-service places, back in the day before they were called such. This is how it works: You are a big whale of a client, like twitter. Nobody at twitter likes systems engineering or sysadmins, so they call up the platform-as-service place. The platform-as-service place doesn't really know how to do it either... but they are thinking "fuck... this is TWITTER... we NEED this account." So they say they can do it. Then when they get twitter, they are totally in over their head and are scrambling to hire people who can fix twitter's shit. So essentially you are not just outsourcing your infrastructure, you are outsourcing the hiring of the sysadmins. You could just bypass this altogether and hire your own systems engineers in the first place. However lately it seems like the story has to include 7 months of half-assed "platform as service" with ultimate failure before realizing this on your own.
sabat 16y ago
This is a somewhat distressing post if you actually need VC.

65 points by wheels 16y ago

Great article. Mark is so damn smart. He essentially covered the same topic on This week in VC so if you like to watch a video of the same topic: http://www.youtube.com/watch?v=tNaZfLV-5SA#t=41m38s http://www.youtube.com/watch?v=tNaZfLV-5SA#t=41m38s

csbartus 16y ago

Summary + Opinion : Mark Suster, the prominent VC writes a highly supported (by Brad Feld, Fred Wilson etc.) article about the current status of his industry. During their lost decade —since the 2001 bubble— they have realized startups need significantly less investment than before. That’s right, this is the 37 Signal way with no investment at all. Since there is no need anymore for money to start up many investors will close their business. For the others there is one card left: scalability. They think a business to become mature, to serve millions needs heavy investment. They only forget 37 Signals has over 3 million customers paying an average $50 monthly fee without any investment, with less than 20 employees and no offices at all. Don’t repeat yourself and Less is more — staying lean — are amongst the basic principles of scalability. Their only hope, the Fat model resembles ironically Clay Shirky’s, their mentors principle: “Institutions will try to preserve the problem to which they are the solution.” The complete article is at http://metaman.tumblr.com/post/819220481/the-current-state-of-the-venture-capital-industry http://metaman.tumblr.com/post/819220481/the-current-state-o...

rmah 16y ago
They only forget 37 Signals has over 3 million customers paying an average $50 monthly fee without any investment, with less than 20 employees and no offices at all. Really? 37Signals is generating $150 mil * 12 = $1.8 bil in revenues per year? At the stated 20 employees, that's $90 mil in revenue per employee. I think 37 Signals is an awesome company and I have the utmost respect for them. But I find these numbers hard to believe. More likely they have 3 mil customers using free accounts. and a few percent of that -- I hear 2% is the average conversion rate for freemium, but let's be nice and say 4% -- or 120,000 as paying customers. At $600/yr, that leads to $72 mil per year in revenues or $3.6 mil per employee. Which is both amazingly great and within the realm of believability. P.S. 37 Signals does have an office in Chicago.
- csbartus 16y ago
  Yes that was the hype in me, they say "people" not "customers".
- rimantas 16y ago
  P.S. 37 Signals does have an office in Chicago. Since today: http://37signals.com/svn/posts/2456-thank-you-coudal http://37signals.com/svn/posts/2456-thank-you-coudal
  - rmah 16y ago
    From earlier this year: http://37signals.com/svn/posts/2344-construction-on-the-new-office-continues http://37signals.com/svn/posts/2344-construction-on-the-new-... Guess they're finally moving in.
- deleted 16y ago
  [deleted]
borisk 16y ago
37 Signals did take some VC money.
msuster 16y ago
37Signals is a phenomenally successful company. The exception does not prove the rule.

10ren 16y ago

(naive) Question: What do web startups need $20mm for? (linked from the article: http://www.avc.com/a_vc/2010/07/some-thoughts-on-the-seed-fund-phenomenon.html http://www.avc.com/a_vc/2010/07/some-thoughts-on-the-seed-fu...) I mean, what can they spend it on? I can think of servers and bandwidth (but they're pretty cheap these days, except for youtube-content intensive), and staff (but what would they do?) and perhaps advertising and publicity in general can absorb as much money as you can throw. I guess a professional sales force would be expensive.

starkfist 16y ago
Servers are not as cheap as everyone says. You need the staff to keep the servers working.
- csbartus 16y ago
  There are platforms as service like Heroku emerging with no need for staff at all
  - starkfist 16y ago
    Platforms as service don't work as well as advertised once you get past a certain point.
    - csbartus 16y ago
      Ok, but spending millions on infrastructure?
      - starkfist 16y ago
        Well you gotta do what you gotta do. In my experience if you are really doing serious traffic, you have to do a lot of custom stuff. The platform-as-service vendors are not prepared to really help you. Or if they say they are, they will charge you so much money that it is cheaper to do it yourself. In fact... I actually worked at one of those platform-as-service places, back in the day before they were called such. This is how it works: You are a big whale of a client, like twitter. Nobody at twitter likes systems engineering or sysadmins, so they call up the platform-as-service place. The platform-as-service place doesn't really know how to do it either... but they are thinking "fuck... this is TWITTER... we NEED this account." So they say they can do it. Then when they get twitter, they are totally in over their head and are scrambling to hire people who can fix twitter's shit. So essentially you are not just outsourcing your infrastructure, you are outsourcing the hiring of the sysadmins. You could just bypass this altogether and hire your own systems engineers in the first place. However lately it seems like the story has to include 7 months of half-assed "platform as service" with ultimate failure before realizing this on your own.

sabat 16y ago

This is a somewhat distressing post if you actually need VC.