6 ms·

Thiel: The majority of the capital I give companies is just going to landlords

47 points by arikr 9y ago

sytelus 9y ago
I have no idea why people still insist on building their startups in SV. As a startup founder, you want to be penny pincher and have maximum runway. Even keeping aside high commercial rents, the people available for hiring need huge salaries + options because they need to pay their bills as well. Why not just go to SV for fund raising and go back as fast as possible?
- nthj 9y ago
  It’s my understanding founders sometimes want to go back home while the VCs insist on SV. From the VC side, I wonder if the high burn is almost a plus: they need the founders to need a lot of money so the VCs can scoop up a higher percentage, and they need the founders to feel the monthly burn so they build something fast.
  - jmalicki 9y ago
    From the VC side, it's because they don't want to help build your business, they either want you to be a unicorn (where you absolutely need the top talent that can only be found in SV for exorbitant salaries) or go bankrupt. If you want to build a business with less than a billion dollars of revenue, best to avoid the VCs altogether, they'll just fuck you.
- corvallis 9y ago
  If the geography is important, there are still more affordable locales in the Bay Area without being in SF or SV. Dublin/Pleasanton/Livermore/Tracy, Richmond/Pinole/El Sobrante, even Newark/Hayward/San Leandro are all traveling distance to VCs, and it's actually possible to buy a house for some of the employees who wish to do so. I wonder the same thing as you though, there are so many great cities in this vast country, and we are a highly connected society thanks to technology. Why is physical geography still important? You could set up in another city, and even after plane tickets to Palo Alto to meet with VCs, would still come out ahead.
  - jmalicki 9y ago
    Tracy is a two hour drive in traffic... Seattle and Portland are closer by travel time.
    - corvallis 9y ago
      Yes, my point was that the proximity to VCs should not be relevant, and if it’s that important to be in the Bay Area, for the number of times you would actually need to meet with VCs, you could set up in places like Tracy. I’m sure many workers would like to live in more affordable and less dense areas. The other point is exactly what you said. Set up anywhere in the country and fly in to meet VCs. You’d still come out ahead.
- jmalicki 9y ago
  "I have no idea why people still insist on building their startups in SV. As a startup founder, you want to be penny pincher and have maximum runway." People build their startups in SV because they disagree with your latter sentence. If you want to penny pinch and build a long runway, yes, SV is horrible. SV is where you want to go if you want to spend exhorbitant amounts of money to hire top talent (i.e. outbid Google and Facebook) in expectation of making even more money.
- vfulco 9y ago
  Some like to "play" startup as long as they can.
- DoreenMichele 9y ago
  In addition to what others have said, it can kill the business to move it elsewhere. If all your connections are in the Bay Area, leaving it can amount to cutting your own throat. Business owners often don't really know why it is working. So once you get something that works, it is quite dangerous to change the formula in any way. You may be killing it and you may have no idea how to remedy it if it goes bad.
draw_down 9y ago
Yeah, capitalism is a real bummer that way.
rdlecler1 9y ago
Maybe nitpicking here but Theil is not giving money away. He’s investing it as he is expecting a return. He invests it in Silicon Valley companies because there is a concentration of talent and capital. Is this an optimal way to distribute resources when the vast majority of that money will ultimately go to landlords? Probably not, but Thiel is also not running a charity.
- xkcd-sucks 9y ago
  A large portion of his funded companies' profits go to investors, and the circle of life is complete.
jmalicki 9y ago
Where else would you expect the money to go? Would you prefer it be spent on coke and hookers?
- rainbowmverse 9y ago
  There are ways to spend money other than real estate, drugs, and sex workers.
  - jmalicki 9y ago
    Like what would you spend it on that doesn't ultimately end up in one of those buckets? Because if you spend it on salaries that's where it will go in the long run...
namlem 9y ago
Time for land value tax.
- forgottenman 9y ago
  Texas uses property taxes instead of income tax. This seems to benefit landlords more since they can afford lawyers to argue with appraisal boards to lower the appraised value of their properties and ultimately their tax basis. This is among other loopholes like agriculture exemptions that they use. I'm starting to think an income tax would be preferable.

47 points by arikr 9y ago

I have no idea why people still insist on building their startups in SV. As a startup founder, you want to be penny pincher and have maximum runway. Even keeping aside high commercial rents, the people available for hiring need huge salaries + options because they need to pay their bills as well. Why not just go to SV for fund raising and go back as fast as possible?

nthj 9y ago
It’s my understanding founders sometimes want to go back home while the VCs insist on SV. From the VC side, I wonder if the high burn is almost a plus: they need the founders to need a lot of money so the VCs can scoop up a higher percentage, and they need the founders to feel the monthly burn so they build something fast.
- jmalicki 9y ago
  From the VC side, it's because they don't want to help build your business, they either want you to be a unicorn (where you absolutely need the top talent that can only be found in SV for exorbitant salaries) or go bankrupt. If you want to build a business with less than a billion dollars of revenue, best to avoid the VCs altogether, they'll just fuck you.
corvallis 9y ago
If the geography is important, there are still more affordable locales in the Bay Area without being in SF or SV. Dublin/Pleasanton/Livermore/Tracy, Richmond/Pinole/El Sobrante, even Newark/Hayward/San Leandro are all traveling distance to VCs, and it's actually possible to buy a house for some of the employees who wish to do so. I wonder the same thing as you though, there are so many great cities in this vast country, and we are a highly connected society thanks to technology. Why is physical geography still important? You could set up in another city, and even after plane tickets to Palo Alto to meet with VCs, would still come out ahead.
- jmalicki 9y ago
  Tracy is a two hour drive in traffic... Seattle and Portland are closer by travel time.
  - corvallis 9y ago
    Yes, my point was that the proximity to VCs should not be relevant, and if it’s that important to be in the Bay Area, for the number of times you would actually need to meet with VCs, you could set up in places like Tracy. I’m sure many workers would like to live in more affordable and less dense areas. The other point is exactly what you said. Set up anywhere in the country and fly in to meet VCs. You’d still come out ahead.
jmalicki 9y ago
"I have no idea why people still insist on building their startups in SV. As a startup founder, you want to be penny pincher and have maximum runway." People build their startups in SV because they disagree with your latter sentence. If you want to penny pinch and build a long runway, yes, SV is horrible. SV is where you want to go if you want to spend exhorbitant amounts of money to hire top talent (i.e. outbid Google and Facebook) in expectation of making even more money.
vfulco 9y ago
Some like to "play" startup as long as they can.
DoreenMichele 9y ago
In addition to what others have said, it can kill the business to move it elsewhere. If all your connections are in the Bay Area, leaving it can amount to cutting your own throat. Business owners often don't really know why it is working. So once you get something that works, it is quite dangerous to change the formula in any way. You may be killing it and you may have no idea how to remedy it if it goes bad.

draw_down 9y ago

Yeah, capitalism is a real bummer that way.

rdlecler1 9y ago

Maybe nitpicking here but Theil is not giving money away. He’s investing it as he is expecting a return. He invests it in Silicon Valley companies because there is a concentration of talent and capital. Is this an optimal way to distribute resources when the vast majority of that money will ultimately go to landlords? Probably not, but Thiel is also not running a charity.

xkcd-sucks 9y ago
A large portion of his funded companies' profits go to investors, and the circle of life is complete.

jmalicki 9y ago

Where else would you expect the money to go? Would you prefer it be spent on coke and hookers?

rainbowmverse 9y ago
There are ways to spend money other than real estate, drugs, and sex workers.
- jmalicki 9y ago
  Like what would you spend it on that doesn't ultimately end up in one of those buckets? Because if you spend it on salaries that's where it will go in the long run...

namlem 9y ago

Time for land value tax.

forgottenman 9y ago
Texas uses property taxes instead of income tax. This seems to benefit landlords more since they can afford lawyers to argue with appraisal boards to lower the appraised value of their properties and ultimately their tax basis. This is among other loopholes like agriculture exemptions that they use. I'm starting to think an income tax would be preferable.