5 ms·

There Are Two VC Industries

30 points by krschultz 16y ago

rubyrescue 16y ago
is it possible to get pg to filter out the utm_source= google/feedburner querystring params on submit? it would filter out a lot of dupes...
- garret 16y ago
  http://news.ycombinator.com/item?id=363 http://news.ycombinator.com/item?id=363
krschultz 16y ago
There have been a bunch of articles about VCs being replaced by Angels and Bootstrapping, but really those articles should just be saying that software businesses have matured to the point where VC funding might not be necessary at all. At what point can I walk into a bank and get a normal business loan for my web app company? I think we're approaching that point. In my mind you can bootstrap the average web app company, and when you actually acquire some revenue and need capital to grow, get a small business loan. Is the risk in these kind of companies any greater than the average restaurent? I don't think it is. Software has lower capital requirements at first, lower operating expenses, lower overhead, but for some reason the norm is still to trade equity for cash. Forget that, just trade debt for cash like a normal business. I'm not sure banks will go for it yet but I think we're approaching that point when it is possible.
- david927 16y ago
  But if a restaurant goes under, you have all the capital right there (pizza ovens, tables). Software consumes its capital. Banks aren't the answer. If it fails, what are they going to get back? That year of your life? What we need is crowd-sourced, micro-equity. Anyone who thinks an idea is good to invest small amounts for small stakes of equity. The barriers have been regulatory legal issues, but those will be soon eliminated. OpenStarts is one such initiative working on this.
  - Swizec 16y ago
    But isn't it also true that "crowd-sourced, micro-equity" can easily be understood as, you know, SELL SOMETHING to SOMEONE? No giving up equity and you still get the "funding". The thing is, that's called bootstrapping and the problem with bootstrapping is that it's just very damn slow. Sure you can do it, but you won't get the anorganic super fast growth you need to compete against the whole world. It works when you're doing stuff locally, now that everybody's shooting for global markets via the internet it can be a dash troublesome no?
    - david927 16y ago
      But isn't it also true that "crowd-sourced, micro-equity" can easily be understood as [bootstrapping]? No. I'm talking about something else. Micro-equity means giving up a small amount of equity for a small amount of money. Instead of an angel getting 100,000 shares for 200,000 dollars, you get lots of investments of 50 dollars for 25 shares. Take a look here: http://www.me-vc.com http://www.me-vc.com
      - eru 16y ago
        Yes. Too bad the legal framework isn't ready, yet.
  - T_S_ 16y ago
    If a restaurant goes under, whoever provided funding takes a big hit. Losses = value destroyed. Liquidation values on fixtures and equipment are low. BTW, here's a good rule of thumb for investing in restaurants as a non-controlling partner: Don't. I never heard of a good ending, even if it was good for a while.
    - blasdel 16y ago
      That's why realistic restaurateurs buy all their initial fixtures and equipment used from liquidation auctions :)
- pjhyett 16y ago
  When we started GitHub, I looked into getting a loan from the SBA because we didn't want to go the VC route, but the requirements were off-putting to say the least. Stuff like "SBA requires the borrower to have invested between 25 to 50 percent of the amount requested." So, you'd have to toss in 5k just so they'd give you 10k-20k and for that kind of money, it didn't seem worth the hassle at all. Banks won't ever give out tech company loans unless you have the personal collateral to back it, because they can't repossess your code.
- blasdel 16y ago
  My parents did this when they started their software company in the early 80s. It only happened because a group of their friends was starting a bank -- they got a sweetheart deal that included a mortgage for the neighboring apartments in the co-op they lived and worked in (later combined into one 1700 sqft apartment). My mother worked out a sweet tax deal where the business paid them rent on the office portion of the apartment, including the 'executive washroom' (complete with kiddie pool). At some point in the 90s the bank got merged and acquired a dizzying number of times. I'm pretty sure the business loans got paid off before that, but the sweetheart mortgage remained.
mjfern 16y ago
This article raises an interesting point. However, I would argue that the startup costs have fallen across the board, whether you're a software startup or a startup in another field. First, it's much less expensive today for startups to obtain key services due to the prevalence and availability of offshoring. Second, new technology enables many startups to handle some services in-house, whereas before it required hiring an expensive service provider (e.g., Google AdWords). Third, there is a shift in mentality towards a leaner, smarter mode of starting up. Founders no longer feel the need to obtain overhead that (a) requires substantial investment and (b) creates little direct value for customers. If I remember correctly, a story from the dot com bust was when eToys used some of its funding to BUY a high-rise office building in Los Angeles.
- eru 16y ago
  Your second point: Isn't Google AdWords an example of a good third party service that replaces an expensive in-house specialist (or hired outside specialist)?
tspare 16y ago
Since the capital requirement is no longer a large barrier to entry for web startups, I am wondering this mean: - a startup should stay in stealth mode longer in order to give it a bigger legs up on its possible competitors - silicon valley connection to VC money becomes less critical and the team makeup for execution becomes more important. This may mitigate some of the advantages of starting in the valley. What do you think about the assertion above?
- Swizec 16y ago
  Working on a web startup in Europe the big majority of advice I get is saying "Go to the Valley". The thing is, in Europe, nobody takes web startups seriously yet. The web is still seen as something that neighbour kid does perfectly well. Why start a company based on that when some kid can do it for a fraction of the price and just as well? In the Valley, I hear, the attitude is a lot different and if nothing else that means it's a lot easier to get traction.
  - tspare 16y ago
    Yes I can see the value of an open attitude towards web startup would help you hire or partner. And if you are trying to solve a technology problem, you also have an easier time to reach your target customer (other techies). But if your web startup is not tech focused (i.e e-commerce, b2c), does the valley really help you any more in getting traction by growing your user base?
    - greg_holsclaw 16y ago
      User based growth, I would say no, the valley doesn't help grow that base is not tech focused. But word of mouth exposure, and the possibility of doing face to faces with potential experienced engineers/managers that you want to join, If you already have all the pieces for partners, and your user base is dispersed, and you don't need capital for growth, then headquarter somewhere cheaper than the Valley (housing and office space can be half to a third the prices you pay here). Just look at zappos.com. They moved away from the Valley, partly to be in a customer service hub in Las Vegas, and partly because is was just play cheaper.
deleted 16y ago
[deleted]
asanwal 16y ago
Here's data that breaks the "Two Venture Capital Industries" down by dollars of funding, # of deals and median deal size. http://www.cbinsights.com/blog/venture-capital/there-are-two-venture-capital-industries-heres-the-data http://www.cbinsights.com/blog/venture-capital/there-are-two...

30 points by krschultz 16y ago

is it possible to get pg to filter out the utm_source= google/feedburner querystring params on submit? it would filter out a lot of dupes...

garret 16y ago
http://news.ycombinator.com/item?id=363 http://news.ycombinator.com/item?id=363

krschultz 16y ago

There have been a bunch of articles about VCs being replaced by Angels and Bootstrapping, but really those articles should just be saying that software businesses have matured to the point where VC funding might not be necessary at all. At what point can I walk into a bank and get a normal business loan for my web app company? I think we're approaching that point. In my mind you can bootstrap the average web app company, and when you actually acquire some revenue and need capital to grow, get a small business loan. Is the risk in these kind of companies any greater than the average restaurent? I don't think it is. Software has lower capital requirements at first, lower operating expenses, lower overhead, but for some reason the norm is still to trade equity for cash. Forget that, just trade debt for cash like a normal business. I'm not sure banks will go for it yet but I think we're approaching that point when it is possible.

david927 16y ago
But if a restaurant goes under, you have all the capital right there (pizza ovens, tables). Software consumes its capital. Banks aren't the answer. If it fails, what are they going to get back? That year of your life? What we need is crowd-sourced, micro-equity. Anyone who thinks an idea is good to invest small amounts for small stakes of equity. The barriers have been regulatory legal issues, but those will be soon eliminated. OpenStarts is one such initiative working on this.
- Swizec 16y ago
  But isn't it also true that "crowd-sourced, micro-equity" can easily be understood as, you know, SELL SOMETHING to SOMEONE? No giving up equity and you still get the "funding". The thing is, that's called bootstrapping and the problem with bootstrapping is that it's just very damn slow. Sure you can do it, but you won't get the anorganic super fast growth you need to compete against the whole world. It works when you're doing stuff locally, now that everybody's shooting for global markets via the internet it can be a dash troublesome no?
  - david927 16y ago
    But isn't it also true that "crowd-sourced, micro-equity" can easily be understood as [bootstrapping]? No. I'm talking about something else. Micro-equity means giving up a small amount of equity for a small amount of money. Instead of an angel getting 100,000 shares for 200,000 dollars, you get lots of investments of 50 dollars for 25 shares. Take a look here: http://www.me-vc.com http://www.me-vc.com
    - eru 16y ago
      Yes. Too bad the legal framework isn't ready, yet.
- T_S_ 16y ago
  If a restaurant goes under, whoever provided funding takes a big hit. Losses = value destroyed. Liquidation values on fixtures and equipment are low. BTW, here's a good rule of thumb for investing in restaurants as a non-controlling partner: Don't. I never heard of a good ending, even if it was good for a while.
  - blasdel 16y ago
    That's why realistic restaurateurs buy all their initial fixtures and equipment used from liquidation auctions :)
pjhyett 16y ago
When we started GitHub, I looked into getting a loan from the SBA because we didn't want to go the VC route, but the requirements were off-putting to say the least. Stuff like "SBA requires the borrower to have invested between 25 to 50 percent of the amount requested." So, you'd have to toss in 5k just so they'd give you 10k-20k and for that kind of money, it didn't seem worth the hassle at all. Banks won't ever give out tech company loans unless you have the personal collateral to back it, because they can't repossess your code.
blasdel 16y ago
My parents did this when they started their software company in the early 80s. It only happened because a group of their friends was starting a bank -- they got a sweetheart deal that included a mortgage for the neighboring apartments in the co-op they lived and worked in (later combined into one 1700 sqft apartment). My mother worked out a sweet tax deal where the business paid them rent on the office portion of the apartment, including the 'executive washroom' (complete with kiddie pool). At some point in the 90s the bank got merged and acquired a dizzying number of times. I'm pretty sure the business loans got paid off before that, but the sweetheart mortgage remained.

mjfern 16y ago

This article raises an interesting point. However, I would argue that the startup costs have fallen across the board, whether you're a software startup or a startup in another field. First, it's much less expensive today for startups to obtain key services due to the prevalence and availability of offshoring. Second, new technology enables many startups to handle some services in-house, whereas before it required hiring an expensive service provider (e.g., Google AdWords). Third, there is a shift in mentality towards a leaner, smarter mode of starting up. Founders no longer feel the need to obtain overhead that (a) requires substantial investment and (b) creates little direct value for customers. If I remember correctly, a story from the dot com bust was when eToys used some of its funding to BUY a high-rise office building in Los Angeles.

eru 16y ago
Your second point: Isn't Google AdWords an example of a good third party service that replaces an expensive in-house specialist (or hired outside specialist)?

tspare 16y ago

Since the capital requirement is no longer a large barrier to entry for web startups, I am wondering this mean: - a startup should stay in stealth mode longer in order to give it a bigger legs up on its possible competitors - silicon valley connection to VC money becomes less critical and the team makeup for execution becomes more important. This may mitigate some of the advantages of starting in the valley. What do you think about the assertion above?

Swizec 16y ago
Working on a web startup in Europe the big majority of advice I get is saying "Go to the Valley". The thing is, in Europe, nobody takes web startups seriously yet. The web is still seen as something that neighbour kid does perfectly well. Why start a company based on that when some kid can do it for a fraction of the price and just as well? In the Valley, I hear, the attitude is a lot different and if nothing else that means it's a lot easier to get traction.
- tspare 16y ago
  Yes I can see the value of an open attitude towards web startup would help you hire or partner. And if you are trying to solve a technology problem, you also have an easier time to reach your target customer (other techies). But if your web startup is not tech focused (i.e e-commerce, b2c), does the valley really help you any more in getting traction by growing your user base?
  - greg_holsclaw 16y ago
    User based growth, I would say no, the valley doesn't help grow that base is not tech focused. But word of mouth exposure, and the possibility of doing face to faces with potential experienced engineers/managers that you want to join, If you already have all the pieces for partners, and your user base is dispersed, and you don't need capital for growth, then headquarter somewhere cheaper than the Valley (housing and office space can be half to a third the prices you pay here). Just look at zappos.com. They moved away from the Valley, partly to be in a customer service hub in Las Vegas, and partly because is was just play cheaper.

deleted 16y ago

[deleted]

asanwal 16y ago

Here's data that breaks the "Two Venture Capital Industries" down by dollars of funding, # of deals and median deal size. http://www.cbinsights.com/blog/venture-capital/there-are-two-venture-capital-industries-heres-the-data http://www.cbinsights.com/blog/venture-capital/there-are-two...