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Paul Graham: New trends in startup fundraising [video]

62 points by flexterra 16y ago

2arrs2ells 16y ago
I was there, and liked the talk. One of the questioners asked pg if the trend of Google/Facebook (and to a lesser degree, Apple/Microsoft) buying out companies for $20-30 mil to get engineering talent is sustainable. pg's answer was more or less "Who knows?" but I wonder if others have additional thoughts. To me, it seems like a terribly inefficient system. The actual promising startup idea/engineering gets thrown out. The cost per new hire is absurdly high. And it doesn't seem all that likely that a successful entrepreneur will be as successful inside a larger company (especially with a few million in his/her back pocket). At the same time, Zuckerberg said that Facebook has been happy buying talent and is likely to accelerate the pace of acquisitions in the future... so who knows.
- tptacek 16y ago
  $30MM is a disaster for a VC for structural reasons, but it doesn't inherently mean "talent acquisition". Is it really the case that (say) Google is buying companies for $30MM strictly for the talent? I had a significantly smaller number in my head associated with "talent acquisition". I assume at $30MM there's a technology or line of business being purchased as well.
  - 2arrs2ells 16y ago
    Can anyone speak to the size of the acquisitions Facebook has made? Zuckerberg said they were for talent - and I know some (friendfeed) must have pretty significant in size. Additionally, Dalton Caldwell (imeem) said that he thought Apple's lala acquisition was just for talent as well.
    - tptacek 16y ago
      Lala was effectively bought for under 5MM (they were still flush from an investment). And, like FriendFeed, that was a marquee talent acquisition.
_stephan 16y ago
Is the written form of the talk already published somewhere?
- 2arrs2ells 16y ago
  Up on pg's site soon, I imagine.
savrajsingh 16y ago
How do I view this and other Justin.TV videos on iPhone? I have the app but can't figure out how to get it to open this video.
bambax 16y ago
[Caveat: I really don't know anything about raising money, so this question may be stupid. If so, please be kind!] PG says that 1. "super angels" (acting like angels, but with outside money) are out to eat VCs' lunch by filling the gap between ordinary angels and VCs, putting more money than angels into startups but without requiring a board seat like VCs usually demand 2. VCs react to this threat by blowing up "valuation": they invest just like super angels, but at higher valuations, because they don't really care about valuation; they aim for the Big Exit (IPO) 3. super angels have a problem with high valuations because (presumably) they want to exit early; in an early exit the multiple is very dependent on the initial valuation. Super angels are so reluctant to accept high valuations that they brag not to fund the most high valued startups (which sounds crazy: the most high valued startups are probably the best ones) So, here's my question: does valuation have to be uniform? If I sell 2% of my company to Mr. A for x amount of dollars, do I have to sell 4% to Mr. B for $2x? Or can I sell 4% to Mr. B for the same $x, because he values the company less? It would seem, value is in the eyes of each buyer, who can pay what they want; I don't understand how VCs can single-handedly manipulate the total valuation of a startup? Why not segment the price for each kind of investor?
- pg 16y ago
  It's difficult technically to do this in an equity round, but you can do it if you're raising money with convertible notes. We encourage startups to do it, actually, as a way to reward investors who are useful sources of advice and/or commit before the others.

62 points by flexterra 16y ago

I was there, and liked the talk. One of the questioners asked pg if the trend of Google/Facebook (and to a lesser degree, Apple/Microsoft) buying out companies for $20-30 mil to get engineering talent is sustainable. pg's answer was more or less "Who knows?" but I wonder if others have additional thoughts. To me, it seems like a terribly inefficient system. The actual promising startup idea/engineering gets thrown out. The cost per new hire is absurdly high. And it doesn't seem all that likely that a successful entrepreneur will be as successful inside a larger company (especially with a few million in his/her back pocket). At the same time, Zuckerberg said that Facebook has been happy buying talent and is likely to accelerate the pace of acquisitions in the future... so who knows.

tptacek 16y ago
$30MM is a disaster for a VC for structural reasons, but it doesn't inherently mean "talent acquisition". Is it really the case that (say) Google is buying companies for $30MM strictly for the talent? I had a significantly smaller number in my head associated with "talent acquisition". I assume at $30MM there's a technology or line of business being purchased as well.
- 2arrs2ells 16y ago
  Can anyone speak to the size of the acquisitions Facebook has made? Zuckerberg said they were for talent - and I know some (friendfeed) must have pretty significant in size. Additionally, Dalton Caldwell (imeem) said that he thought Apple's lala acquisition was just for talent as well.
  - tptacek 16y ago
    Lala was effectively bought for under 5MM (they were still flush from an investment). And, like FriendFeed, that was a marquee talent acquisition.

_stephan 16y ago

Is the written form of the talk already published somewhere?

2arrs2ells 16y ago
Up on pg's site soon, I imagine.

savrajsingh 16y ago

How do I view this and other Justin.TV videos on iPhone? I have the app but can't figure out how to get it to open this video.

bambax 16y ago

[Caveat: I really don't know anything about raising money, so this question may be stupid. If so, please be kind!] PG says that 1. "super angels" (acting like angels, but with outside money) are out to eat VCs' lunch by filling the gap between ordinary angels and VCs, putting more money than angels into startups but without requiring a board seat like VCs usually demand 2. VCs react to this threat by blowing up "valuation": they invest just like super angels, but at higher valuations, because they don't really care about valuation; they aim for the Big Exit (IPO) 3. super angels have a problem with high valuations because (presumably) they want to exit early; in an early exit the multiple is very dependent on the initial valuation. Super angels are so reluctant to accept high valuations that they brag not to fund the most high valued startups (which sounds crazy: the most high valued startups are probably the best ones) So, here's my question: does valuation have to be uniform? If I sell 2% of my company to Mr. A for x amount of dollars, do I have to sell 4% to Mr. B for $2x? Or can I sell 4% to Mr. B for the same $x, because he values the company less? It would seem, value is in the eyes of each buyer, who can pay what they want; I don't understand how VCs can single-handedly manipulate the total valuation of a startup? Why not segment the price for each kind of investor?

pg 16y ago
It's difficult technically to do this in an equity round, but you can do it if you're raising money with convertible notes. We encourage startups to do it, actually, as a way to reward investors who are useful sources of advice and/or commit before the others.