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"More funding like that means more companies trusted to spend that money into creating something profitable. If this goes into people who have grown companies i

by timr 8y ago

"More funding like that means more companies trusted to spend that money into creating something profitable. If this goes into people who have grown companies into a unicorn a couple of times; scaling faster local operations lead by managers with relevant experience; AWS, GCP, Twilio & Square bills, it’s certainly expensive but overall sensical." Who are these founders who have grown "a couple" of unicorns? There are huge numbers of them walking around now? More importantly: who are these mythical founders who have experience growing/managing a company by hundreds of percent in a single year? They're pretty thin on the ground. This money is going to inexperienced people. Save for (maybe) a few founders who lived through the late 90s, nobody has experience with this. It's new territory. Also, Let's not kid ourselves: this money isn't going to AWS and Twilio. It's going to salaries, and it's going to marketing. And that's why it's risky. When you have to hire insanely quickly and buy revenue with marketing spend, it's essentially impossible to manage the growth. Overfunding is a real thing, and unless you've seen it firsthand, it's hard to internalize the perverse incentives it creates.

mbesto 8y ago
> It's going to salaries, and it's going to marketing. And that's why it's risky. Risky to who though? S&M salaries are expendable. If you can achieve 90% gross margins, you can basically flip the switch, turn S&M off, and you're profitable. > Overfunding is a real thing Overfunding has only real two business-centric downsides: undue dilution and chaotic operations. As they say though, revenue solves everything.
bertil 8y ago
Google has 88k employees today, almost 20 years of existence, and an average tenure of about two years. I would estimate that people who have worked at Google and learned valuable lessons, and able to secure director-level roles in start-ups to be in the thousands; many have gone to Facebook (25k employees, 14 years, similar retention). There are hundreds of people who similarly left Facebook for Uber, Lyft, AirBnB, Booking, Coinbase, etc. I personally know at least a dozen who made that move before their new employer raised more money, and can name three friends who went from Google to Facebook and to a third now-10B$ company, moving to pre-IPO company each time. And I don’t even live in the US. If you include probably several dozen people from PayPal (not just the six founders but the people who reported to them); hundreds of YCombinator alumni, who learned from their own failed company but leveraged the success of the friends they made in YC, and probably ended up working with; if you include people who have done their four years at DropBox, Zynga, SurveyMonkey, Twilio, etc. overall, yes, I expect to find several people with relevant experience at key positions in hundreds of companies. Some might have gone to investing full time, but they are if anything more likely to trust and advise appropriately their former colleagues. A lot of them are “anonymous” in the sense that TechCrunch wouldn’t name-drop them, but they would be familiar with, say, SQLite, AirFlow, or know from experience whether RedShift is the right solution at scale; they would know how to setup a Salesforce cluster; who to ask about address format in South-East Asia; they know about bugs in Samsung’s Android video codecs; they would have coordinated a launch in Arab-speaking countries before, know that React works well with Big5, or know that VAT is processed differently in Islamic finance. I expect those people to be asking for, and justifying convincingly compensations several times higher than what people could justify in 2000. You are certainly right about marketing: I should have mentioned far better targeting and control tools. CPA probably went up overall, but more importantly: the ability to measure it, to optimise campaign, interrupt ridiculous PR stunts before they cost too much, leverage them, etc. all that has become better. Analysts measure LTV with less ridiculous estimations now. That justifies trusting people with more money because when you hit the product-market fit, you know that this money will make more.
- user5994461 8y ago
  Working at any of the big tech companies gives you zero experience in growing a small company. Startups don't care about Salesforce or Arabic translations before they are many years old and have thousands of employees.
  - dmritard96 8y ago
    Agreed for the most part. With that said, startups at the seed and pre-A don't need or care about any of that. Startups with 100M in financing might, although most likely don't care that much either. Skills startups do care about at the early stages - Self management/motivation and independence more generally - 0 to MVP fast, well and affordably - 0 to N customers fast, affordably - etc. There are so many caveats of course. Some startups (ours for instance) builds hardware so you need a few engineers that are truly full stack (plastic forming -> css). Bio startups don't need any of this. The nuances of VATs really don't matter.
    - bertil 8y ago
      I would have to disagree: it’s probably different in the US, but I worked for a start-up that decided to go through international expansion (12 countries at once) after Series B: that the CFO knew about nuances of VAT in each country was key to lower the burn rate. I’m seen many people from the companies that I listed, some who joined very early, some who joined after they had more than 100M raised, have the right experience to start a company, or join early. My point is not that those people are essential, or even that their are a majority at big companies; my point is that, with people who can justify several significant failures and success, especially public ones like accelerators and major companies, you have stronger signal, more trust and one could interpret larger rounds as a sign of institutional progress.
      - user5994461 8y ago
        US companies don't need to care about this, that's why their startups are so much more successful. They have a single market with 300 million customers. Don't get me wrong, there are nuances between states and a few subtleties, but it's negligible compared to expanding across European countries or Asia.
jahewson 8y ago
> Who are these founders who have grown "a couple" of unicorns? His comment said “people” not “founders”. Plenty of c-level execs have grown multiple unicorns. Plenty of employees have worked at multiple unicorns in the early stages.

by timr 8y ago

mbesto 8y ago

> It's going to salaries, and it's going to marketing. And that's why it's risky. Risky to who though? S&M salaries are expendable. If you can achieve 90% gross margins, you can basically flip the switch, turn S&M off, and you're profitable. > Overfunding is a real thing Overfunding has only real two business-centric downsides: undue dilution and chaotic operations. As they say though, revenue solves everything.

bertil 8y ago

Google has 88k employees today, almost 20 years of existence, and an average tenure of about two years. I would estimate that people who have worked at Google and learned valuable lessons, and able to secure director-level roles in start-ups to be in the thousands; many have gone to Facebook (25k employees, 14 years, similar retention). There are hundreds of people who similarly left Facebook for Uber, Lyft, AirBnB, Booking, Coinbase, etc. I personally know at least a dozen who made that move before their new employer raised more money, and can name three friends who went from Google to Facebook and to a third now-10B$ company, moving to pre-IPO company each time. And I don’t even live in the US. If you include probably several dozen people from PayPal (not just the six founders but the people who reported to them); hundreds of YCombinator alumni, who learned from their own failed company but leveraged the success of the friends they made in YC, and probably ended up working with; if you include people who have done their four years at DropBox, Zynga, SurveyMonkey, Twilio, etc. overall, yes, I expect to find several people with relevant experience at key positions in hundreds of companies. Some might have gone to investing full time, but they are if anything more likely to trust and advise appropriately their former colleagues. A lot of them are “anonymous” in the sense that TechCrunch wouldn’t name-drop them, but they would be familiar with, say, SQLite, AirFlow, or know from experience whether RedShift is the right solution at scale; they would know how to setup a Salesforce cluster; who to ask about address format in South-East Asia; they know about bugs in Samsung’s Android video codecs; they would have coordinated a launch in Arab-speaking countries before, know that React works well with Big5, or know that VAT is processed differently in Islamic finance. I expect those people to be asking for, and justifying convincingly compensations several times higher than what people could justify in 2000. You are certainly right about marketing: I should have mentioned far better targeting and control tools. CPA probably went up overall, but more importantly: the ability to measure it, to optimise campaign, interrupt ridiculous PR stunts before they cost too much, leverage them, etc. all that has become better. Analysts measure LTV with less ridiculous estimations now. That justifies trusting people with more money because when you hit the product-market fit, you know that this money will make more.

user5994461 8y ago
Working at any of the big tech companies gives you zero experience in growing a small company. Startups don't care about Salesforce or Arabic translations before they are many years old and have thousands of employees.
- dmritard96 8y ago
  Agreed for the most part. With that said, startups at the seed and pre-A don't need or care about any of that. Startups with 100M in financing might, although most likely don't care that much either. Skills startups do care about at the early stages - Self management/motivation and independence more generally - 0 to MVP fast, well and affordably - 0 to N customers fast, affordably - etc. There are so many caveats of course. Some startups (ours for instance) builds hardware so you need a few engineers that are truly full stack (plastic forming -> css). Bio startups don't need any of this. The nuances of VATs really don't matter.
  - bertil 8y ago
    I would have to disagree: it’s probably different in the US, but I worked for a start-up that decided to go through international expansion (12 countries at once) after Series B: that the CFO knew about nuances of VAT in each country was key to lower the burn rate. I’m seen many people from the companies that I listed, some who joined very early, some who joined after they had more than 100M raised, have the right experience to start a company, or join early. My point is not that those people are essential, or even that their are a majority at big companies; my point is that, with people who can justify several significant failures and success, especially public ones like accelerators and major companies, you have stronger signal, more trust and one could interpret larger rounds as a sign of institutional progress.
    - user5994461 8y ago
      US companies don't need to care about this, that's why their startups are so much more successful. They have a single market with 300 million customers. Don't get me wrong, there are nuances between states and a few subtleties, but it's negligible compared to expanding across European countries or Asia.

jahewson 8y ago

> Who are these founders who have grown "a couple" of unicorns? His comment said “people” not “founders”. Plenty of c-level execs have grown multiple unicorns. Plenty of employees have worked at multiple unicorns in the early stages.