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The Expanding Birthrate Of Web Startups

65 points by DanielH 16y ago

Ardit20 16y ago
How do you know that the birthrate of startups is expanding? I was expecting to see numbers and graphs.
stackthat 16y ago
I think VCs need to understand that not all startups want to be a billionaire hence they don't need baby sitters and they can take care of themselves.
- deleted 16y ago
  [deleted]
- pclark 16y ago
  what do you mean?
- timme 16y ago
  Agreed. I can't help but think that the article has an arrogant undertone to it. There are plenty of startups who do just fine without VC 'support'.
  - fredwilson 16y ago
    i can see how you can take the post in that way. but i didn't mean it that way. i'm just concerned that there isn't as much capital around to fund all of these companies in the follow on rounds
    - stackthat 16y ago
      What round? In a small startup you don't have rounds. You are ramen profitable in your first year which is generally not more than $5K-$30K per month (depending on the size) and then you stay alive, you don't get huge or big or massive and generally you don't care. $5-10K per month is good salary for a (co-)founder. These small startups funded by their customers after 3 months to 1 year, after a year if they are not ramen profitable then it's generally end of the game. In the long term it gets bigger and in which case you are already big which means either someone is going to acquire you or you can fund yourself and keep getting bigger and bigger. I understand that some startups need load of money and stuff but many don't.
      - imp 16y ago
        Not everyone can be ramen profitable in their first year. I think his point is that people assume it's easy to get to profitability and end up out of cash when they don't get there right away.
  - earle 16y ago
    Can you name startups launched since 2005 which have > 20M in revenue and haven't taken series a capitalization?
cageface 16y ago
As a survivor of the first big .com crash, the current froth around startups seems uncomfortably familiar in some ways. There are a lot of companies making sustainable, growable revenue a priority. There also seems to be a lot of companies that are just throwing any idea they can think of against the social networking wall to see if it sticks. I expect there to be some significant winnowing out, although perhaps not as destructively as 1999.
- stackthat 16y ago
  Well if you are 2 people who runs a startup for $1000-5000 per month what's going to happen? In 1999 1 chair of a startup was $1500
  - cageface 16y ago
    Those are the sustainable startups I mentioned. I have higher hopes for those, even if the stakes they're playing for are smaller. I still see plenty of companies raising a lot of VC and tracking drop-dead burn rates of 1-2 years.
- nickpinkston 16y ago
  Look at it through the hype-cycle: -Tech Trigger: PC's are common -Peak of Expectations: ~2000, max unsustainable web investment/activity. -Trough of Disillusionment: Bubble explodes, the web bleeds cash. -Slope of Enlightenment: Agile/Lean startups rise from the ashes. - Plateau of Productivity: Startup environment becomes normal and fundamentals increasing known. Conclusion: There are plenty of bubble, but general web startups aren't one of them. Let's look at green tech's future as the next Bubble D'Jure.
  - nickpinkston 16y ago
    Did I seriously get down nodded for a constructive comment? Or is someone a little green sensitive?
frederickcook 16y ago
Isn't this the opposite of what we've been hearing the last couple years? The trend of companies being cheaper to start and the rise of angel and super-angel funds have left VC's without a place to make large investments? Isn't that the reason for the contraction of the "VC industry" in the first place?
- thaumaturgy 16y ago
  > ...have left VC's without a place to make large investments? OK, I've got a gripe about this: I get the sense that VCs have done this to themselves, and it's kinda funny. My view on it might be -- and probably is -- influenced too much by the kind of slant that the stuff on HN has. There are probably other investment circles out there that concentrate on other things; I just don't know where they are or what they're up to. But try getting a small team of brilliant young engineers, chemists, scientists, and mechanics together, and then go looking for VC to build a prototype electric sports car. Let's even say you've built most of the drivetrain and software already, and you're looking for VC so that you can afford a designer for it, flesh it out, shop it around to some shows, and make some connections. Now, let's imagine you take a similar team of brilliant young people, and -- with only a few lines of code written -- you say, "We want to build the next great social media app." I'd bet you're a lot more likely to see funding for the social media app than for the next electric sports car, and that makes perfect sense: the development of the social media app requires way less up-front expense, which in turn means it carries less risk, and it promises far earlier profitability if it's successful. If the electric sports car beats all expectations and finds a huge demand, you're still going to have to spend millions on a factory and tooling and everything else before money will begin to trickle in. Here's the catch though: social media whatsits are also much less likely to need VC. Programming methodologies and technology have been developing at a breakneck pace for decades now. What used to take a room full of software engineers months to roll out can now instead be launched by two guys in a couple of weeks. Hell, some people on HN have gone and launched basic startups from scratch over a weekend. Now you can come up with an idea, order a VPS for 20 bucks from Linode, click to run a StackScript that will build your server for you, download a pre-built free PSD template, plug in jQuery and jQuery UI, spend a couple hours writing content, download some graphics, and then open up an AWS account and have your application backed by a massively scalable, highly reliable backend. Ding, done. Fred Wilson's main concern -- that there isn't enough money to go around for these kinds of things -- is perfectly wrong, I think. The neat thing about this is that everyone involved has been acting rationally according to their own self-interest, and this has resulted in the VCs self-selecting themselves into a niche that decreasingly needs them in order to be successful. At this point, if a web or software company has burned through a million dollars of investment and still isn't breaking even, then their business model is broken. We also have to look at the lifecycles of these respective business approaches. Things seem to work out best for VCs if they get into a company that grows for a few years, but as Fred says, they're getting purchased earlier. Others are probably dying out faster. The overall life cycle for these businesses seems to be very short. (Myspace was launched in 2003, just 7 years ago; who here has an account with them?) The life cycle of the successful "hard" business meanwhile hasn't really changed much; the rule still seems to be that you have to work for three years before you'll be profitable (if you're not doing R&D, that is), and then as long as you're careful not to blow it, you can be around and be making fine money for decades. ...But VCs don't seem to be as interested in sending those kids to college.
startuprules 16y ago
The author says: "I think this expanding birthrate is a great thing" I think it's the dot-com bubble all over again. But this time, it's coinciding with a worldwide economic depression, market saturation and shrinking venture capital. Therefore, it does not bode well for the copy-cat startups and investors. Alot of the big venture raised were from the heydays of 1999-2001, when the funds had 10 year lifespan. Those are expiring now/soon. Recently, venture fund raising is down 50% from last quarter, close to 2009 lows. http://venturebeat.com/2010/08/11/vc-portfolios-improve-in-q2-but-funding-pipeline-runs-low/ http://venturebeat.com/2010/08/11/vc-portfolios-improve-in-q.... So venture is definitely shrinking. Although startups nowadays require less capital, there are also fewer (niche) markets to go into these days, as those have already been filled up. So startups have to compete for the same niche market. Look at ycombinator's 3 (!!) social mail plugin companies (rapportive, xobni, etacts) (in pg's defense, those company founders chose to pivot and cannibalize the same market) And look at techstar/ycombinator/funded institues: They have alot of overlapping generic startups. And with platforms becoming ever so dominant (twitter, facebook, google), startups can't compete in the same massive market. So there will be lots of startup death as funds run dry and economy gets worse. As dave mcclure recently pronounced, "90% of you will fail". But the important thing is to know that, and to hunker down and focus on surviving.
swombat 16y ago
I think he means "increasing". I don't think a rate can expand any more than a temperature can elongate.
- nickpinkston 16y ago
  In all possibleness, it's a perfectly cromulent usage.
gokhan 16y ago
It's much more easier to start a web company today than 10 years ago. Cheap cloud services. Endless web frameworks. Client side libraries. Server side libraries. Matured architectures. Many best practices. What's improved in VC world in the last 10 years? Better laws? Better standardized practices?
- patio11 16y ago
  I suspect "better deal flow", since they're essentially colleges in a world where high schools have just arrived to supplement the traditional "single master and apprentice" mode of instruction.
endlessvoid94 16y ago
Every time I read "If you're an entrepreneur, you need to focus on profitability", I think to myself: No shit.
earle 16y ago
The thing that nobody understands until you've lived through it is just how long it takes for some companies to get profitable and self sustaining. And just how long it takes for some companies to get liquid and leave the portfolio." The thing that less people understand is when to cut bait. I think avc is making excuses here.
- fredwilson 16y ago
  if i had cut bait on comscore in 2001, i'd have left tens of millions on the table if i had cut bait on multex in 1995, i'd have left tens of millions on the table if i had cut bait on TACODA in 2004, i'd have left tens of millions on the table venture capital sounds easy. it is not
  - earle 16y ago
    All those examples had justifiable reasoning beyond "stay and pray"..... right?
rwhitman 16y ago
Well I think the unsaid thing here is that the social media 'startup' itself is quickly being commodified... If you can write code, you can potentially build a semi-profitable product on your own for less than the cost of a TV. All the other business infrastructure can be handled by free or nearly-free web services, crowdsourcing etc. A lot of the marketing channels are free as well.

65 points by DanielH 16y ago

How do you know that the birthrate of startups is expanding? I was expecting to see numbers and graphs.

I think VCs need to understand that not all startups want to be a billionaire hence they don't need baby sitters and they can take care of themselves.

deleted 16y ago
[deleted]
pclark 16y ago
what do you mean?
timme 16y ago
Agreed. I can't help but think that the article has an arrogant undertone to it. There are plenty of startups who do just fine without VC 'support'.
- fredwilson 16y ago
  i can see how you can take the post in that way. but i didn't mean it that way. i'm just concerned that there isn't as much capital around to fund all of these companies in the follow on rounds
  - stackthat 16y ago
    What round? In a small startup you don't have rounds. You are ramen profitable in your first year which is generally not more than $5K-$30K per month (depending on the size) and then you stay alive, you don't get huge or big or massive and generally you don't care. $5-10K per month is good salary for a (co-)founder. These small startups funded by their customers after 3 months to 1 year, after a year if they are not ramen profitable then it's generally end of the game. In the long term it gets bigger and in which case you are already big which means either someone is going to acquire you or you can fund yourself and keep getting bigger and bigger. I understand that some startups need load of money and stuff but many don't.
    - imp 16y ago
      Not everyone can be ramen profitable in their first year. I think his point is that people assume it's easy to get to profitability and end up out of cash when they don't get there right away.
- earle 16y ago
  Can you name startups launched since 2005 which have > 20M in revenue and haven't taken series a capitalization?

cageface 16y ago

As a survivor of the first big .com crash, the current froth around startups seems uncomfortably familiar in some ways. There are a lot of companies making sustainable, growable revenue a priority. There also seems to be a lot of companies that are just throwing any idea they can think of against the social networking wall to see if it sticks. I expect there to be some significant winnowing out, although perhaps not as destructively as 1999.

stackthat 16y ago
Well if you are 2 people who runs a startup for $1000-5000 per month what's going to happen? In 1999 1 chair of a startup was $1500
- cageface 16y ago
  Those are the sustainable startups I mentioned. I have higher hopes for those, even if the stakes they're playing for are smaller. I still see plenty of companies raising a lot of VC and tracking drop-dead burn rates of 1-2 years.
nickpinkston 16y ago
Look at it through the hype-cycle: -Tech Trigger: PC's are common -Peak of Expectations: ~2000, max unsustainable web investment/activity. -Trough of Disillusionment: Bubble explodes, the web bleeds cash. -Slope of Enlightenment: Agile/Lean startups rise from the ashes. - Plateau of Productivity: Startup environment becomes normal and fundamentals increasing known. Conclusion: There are plenty of bubble, but general web startups aren't one of them. Let's look at green tech's future as the next Bubble D'Jure.
- nickpinkston 16y ago
  Did I seriously get down nodded for a constructive comment? Or is someone a little green sensitive?

frederickcook 16y ago

Isn't this the opposite of what we've been hearing the last couple years? The trend of companies being cheaper to start and the rise of angel and super-angel funds have left VC's without a place to make large investments? Isn't that the reason for the contraction of the "VC industry" in the first place?

thaumaturgy 16y ago
> ...have left VC's without a place to make large investments? OK, I've got a gripe about this: I get the sense that VCs have done this to themselves, and it's kinda funny. My view on it might be -- and probably is -- influenced too much by the kind of slant that the stuff on HN has. There are probably other investment circles out there that concentrate on other things; I just don't know where they are or what they're up to. But try getting a small team of brilliant young engineers, chemists, scientists, and mechanics together, and then go looking for VC to build a prototype electric sports car. Let's even say you've built most of the drivetrain and software already, and you're looking for VC so that you can afford a designer for it, flesh it out, shop it around to some shows, and make some connections. Now, let's imagine you take a similar team of brilliant young people, and -- with only a few lines of code written -- you say, "We want to build the next great social media app." I'd bet you're a lot more likely to see funding for the social media app than for the next electric sports car, and that makes perfect sense: the development of the social media app requires way less up-front expense, which in turn means it carries less risk, and it promises far earlier profitability if it's successful. If the electric sports car beats all expectations and finds a huge demand, you're still going to have to spend millions on a factory and tooling and everything else before money will begin to trickle in. Here's the catch though: social media whatsits are also much less likely to need VC. Programming methodologies and technology have been developing at a breakneck pace for decades now. What used to take a room full of software engineers months to roll out can now instead be launched by two guys in a couple of weeks. Hell, some people on HN have gone and launched basic startups from scratch over a weekend. Now you can come up with an idea, order a VPS for 20 bucks from Linode, click to run a StackScript that will build your server for you, download a pre-built free PSD template, plug in jQuery and jQuery UI, spend a couple hours writing content, download some graphics, and then open up an AWS account and have your application backed by a massively scalable, highly reliable backend. Ding, done. Fred Wilson's main concern -- that there isn't enough money to go around for these kinds of things -- is perfectly wrong, I think. The neat thing about this is that everyone involved has been acting rationally according to their own self-interest, and this has resulted in the VCs self-selecting themselves into a niche that decreasingly needs them in order to be successful. At this point, if a web or software company has burned through a million dollars of investment and still isn't breaking even, then their business model is broken. We also have to look at the lifecycles of these respective business approaches. Things seem to work out best for VCs if they get into a company that grows for a few years, but as Fred says, they're getting purchased earlier. Others are probably dying out faster. The overall life cycle for these businesses seems to be very short. (Myspace was launched in 2003, just 7 years ago; who here has an account with them?) The life cycle of the successful "hard" business meanwhile hasn't really changed much; the rule still seems to be that you have to work for three years before you'll be profitable (if you're not doing R&D, that is), and then as long as you're careful not to blow it, you can be around and be making fine money for decades. ...But VCs don't seem to be as interested in sending those kids to college.

startuprules 16y ago

The author says: "I think this expanding birthrate is a great thing" I think it's the dot-com bubble all over again. But this time, it's coinciding with a worldwide economic depression, market saturation and shrinking venture capital. Therefore, it does not bode well for the copy-cat startups and investors. Alot of the big venture raised were from the heydays of 1999-2001, when the funds had 10 year lifespan. Those are expiring now/soon. Recently, venture fund raising is down 50% from last quarter, close to 2009 lows. http://venturebeat.com/2010/08/11/vc-portfolios-improve-in-q2-but-funding-pipeline-runs-low/ http://venturebeat.com/2010/08/11/vc-portfolios-improve-in-q.... So venture is definitely shrinking. Although startups nowadays require less capital, there are also fewer (niche) markets to go into these days, as those have already been filled up. So startups have to compete for the same niche market. Look at ycombinator's 3 (!!) social mail plugin companies (rapportive, xobni, etacts) (in pg's defense, those company founders chose to pivot and cannibalize the same market) And look at techstar/ycombinator/funded institues: They have alot of overlapping generic startups. And with platforms becoming ever so dominant (twitter, facebook, google), startups can't compete in the same massive market. So there will be lots of startup death as funds run dry and economy gets worse. As dave mcclure recently pronounced, "90% of you will fail". But the important thing is to know that, and to hunker down and focus on surviving.

swombat 16y ago

I think he means "increasing". I don't think a rate can expand any more than a temperature can elongate.

nickpinkston 16y ago
In all possibleness, it's a perfectly cromulent usage.

gokhan 16y ago

It's much more easier to start a web company today than 10 years ago. Cheap cloud services. Endless web frameworks. Client side libraries. Server side libraries. Matured architectures. Many best practices. What's improved in VC world in the last 10 years? Better laws? Better standardized practices?

patio11 16y ago
I suspect "better deal flow", since they're essentially colleges in a world where high schools have just arrived to supplement the traditional "single master and apprentice" mode of instruction.

endlessvoid94 16y ago

Every time I read "If you're an entrepreneur, you need to focus on profitability", I think to myself: No shit.

earle 16y ago

The thing that nobody understands until you've lived through it is just how long it takes for some companies to get profitable and self sustaining. And just how long it takes for some companies to get liquid and leave the portfolio." The thing that less people understand is when to cut bait. I think avc is making excuses here.

fredwilson 16y ago
if i had cut bait on comscore in 2001, i'd have left tens of millions on the table if i had cut bait on multex in 1995, i'd have left tens of millions on the table if i had cut bait on TACODA in 2004, i'd have left tens of millions on the table venture capital sounds easy. it is not
- earle 16y ago
  All those examples had justifiable reasoning beyond "stay and pray"..... right?

rwhitman 16y ago

Well I think the unsaid thing here is that the social media 'startup' itself is quickly being commodified... If you can write code, you can potentially build a semi-profitable product on your own for less than the cost of a TV. All the other business infrastructure can be handled by free or nearly-free web services, crowdsourcing etc. A lot of the marketing channels are free as well.