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I think the biggest difference between today and 20 years ago when I first go into Silicon Valley is that most founders are generally already planning their exi

I think the biggest difference between today and 20 years ago when I first go into Silicon Valley is that most founders are generally already planning their exit. There are a lot of startups whose mentality is "get big quick enough so that we can get bought out by Google/Facebook/Amazon/etc". And unfortunately this is a legitimate play because it leads to quick payouts so it motivates founders and VCs alike. It's a fair mentality but it changes the nature of the game because most founders back in the 20th century wanted to helm their company until their last dying breath. So the fact that this person is already targeting a $50M exit makes it less interesting to me. I just don't think I would get excited working for someone I know with that short term of a mentality.

isalmon 8y ago
>> I think the biggest difference between today and 20 years ago when I first go into Silicon Valley is that most founders are generally already planning their exit. There are a lot of startups whose mentality is "get big quick enough so that we can get bought out by Google/Facebook/Amazon/etc". Exactly the same mentality 20 years ago, except back then it was mostly about the IPO.
- docker_up 8y ago
  Fair point. IPO was the goal during the dot-com boom/bust (I saw this all first hand as well) but at least the founders weren't looking to ditch the company right after. The VCs were of course, they're always the snakes in the grass no matter what the backstory is.
  - tptacek 8y ago
    My experience is that there was a fairly brief window in which founders believed an IPO was a plausible way to flip a company, and that before, during, and after that, the more common objective was to build a company to flip to some other firm that already had done an IPO. When we started our multicast company in early 1999, none of us believed for a second that an IPO was in our future, and our VC pitches (mostly guided by the VCs, some of whom ended up funding us) were almost entirely about who might end up buying us.
malvosenior 8y ago
You can thank Sarbanes-Oxley for this. Edit: For further context: It used to be that a technology company could go public and provide an exit to investors. After the dot com crash, Sarbanes-Oxley regulations made it much more difficult to IPO. It has many administrative requirements, greatly increases run rate to support and raises the finanical bar significantly to which companies can go IPO. The VC model however remains the same, they need 10X returns. Thus you see them pushing entrepreneurs to go IPO which post-SO means a longer runway to exit fraught with a lot of risk mostly placed on the entrepreneurs (compared to pre-SO). It became a rational choice for the founders to take smaller, faster exits since "the big one" (IPO) now looks less certain for all but the most successful startups.
- CalChris 8y ago
  That is a reasonable take but then you can also blame Sarbanes-Oxley on the likes of pets.com. SO is 2002 and while it was unquestionably a reaction to the dot com era and bust, it was also a reaction to Enron and others. Hell, it was passed and signed in the Bush administration. Yeah, SO raised the bar to get into (and stay in) the public markets. Maybe regulation minded Congress had a point there. In any case, this correction didn't prevent private MA. Moreover, VCs still get their funds funded. So SO hasn't killed any golden gooses. Maybe we should have corrected something in 2008. We certainly un-corrected Glass-Steagall in 1999.
thisisit 8y ago
> So the fact that this person is already targeting a $50M exit makes it less interesting to me. I just don't think I would get excited working for someone I know with that short term of a mentality. But how do you know how much time will it take to reach that $50 million? If it was a VC backed company sure it might have taken couple of years ie short term. But for a bootstrap company focusing on a smaller pie or niche markets this could take years to happen.
piokoch 8y ago
Yup, the side effect is that customers of a given startup often get abandon with "it was great journey for us, you have one month to get your toys somewhere else" note.
rememberlenny 8y ago
> I just don't think I would get excited working for someone I know with that short term of a mentality. This. I was recently the first full-time hire at a seed funded company that was in the right place and the right time. They grew to 10 people over a few months, and I loved the people I was working with. Knowing that the founders had a 10-40x equity stake larger than mine made it nearly impossible to feel invested in the company.
- ausjke 8y ago
  That. Until you become a founder yourself and know how hard it has been might change your mind. Otherwise we're all just employees. One big difference is that founders take bold moves and risks. I also consider this is capitalism at work.
  - scarface74 8y ago
    What bold move are they taking if they are using other people’s money?
    - p1esk 8y ago
      The bold move of starting a company, obviously, rather than working for someone else, like most regular people usually do.
    - arthurcolle 8y ago
      It's not like the money's a gift... you have various metrics presumably that you have to hit once you raise money, especially once you're past the angel/seed stages.
      - scarface74 8y ago
        It’s not a gift, but if they fail, they have lost nothing but time - if they are paying themselves a salary.
- grendix 8y ago
tptacek 8y ago
I've been working at startups since the mid-1990s and building-to-flip was as prevalent then as it is now. I'd say the much bigger change is that randos have a real shot at getting funded today, due to YC and the syndicated convertible debt round. It's hard to overstate how much more open the funding market is now than it was even 15 years ago.
- idlewords 8y ago
  Funny what happens when you have stupid amounts of institutional money pour into a sector for 15 years.
  - tptacek 8y ago
    I think there was less money in the sector for the first 10 years or so of YC than there was during the dot-com era, so I don't know that it's true that the opening of funding markets to first-time founders is a consequence of too much VC funding.
    - idlewords 8y ago
      YC exists because a dude made it big in the initial dot-com bubble. With every subsequent wave of windfalls, you get a larger pool of founders who struck gold and now want to play investor, and over a sustained length of time with no bust, that leads to a pretty founder-friendly ecosystem for funding. But the whole arrangement relies on there being ample institutional money available and no downturns sips from juicebro
      - tptacek 8y ago
        I don't disagree with that diagnosis but think that's more a question of how money within the VC sector is allocated, not how much money is being allocated to VC in the first place. Like you, I see a lot of money going to people wearing cargo shorts and brightly colored sneakers and then getting plowed back into the startup casino. I'm just saying, that money used to go to country club investment bankers; it didn't --- at least until recently --- get diverted from the broader economy.
dalbasal 8y ago
I think this is just an extreme boomtime mentality. Investors are cashed up, and so are the large tech companies buying these startups. Valuations are so high that building companies to flip is just too damned lucrative to do much else. I think part of the difference between the late 90s and now (besides scale) is that small IPOs don't exist anymore. VCs need exits and once founders own n% of a $100m company, they need a way to realize those, unless they're willing to totally ignore their own financial interests. The 1990s IPOs didn't work out well though. These companies were still longshots, and public markets lend better to lower risk-reward companies. The second part of the problem is tech "monopolies," in the thiel sense. Google and FB's business models, for example, needs massive scale. A social network or search engine with 10% of the user's is not worth anywhere near 10% of what FB or google are worth. So... the "highest value use" of a smaller startup is to help maintain a larger company's monopoly. Finally, the tech space (especially consumer web stuff) just changes too fast to "build something lasting." .. I'm not sure everything needs to be lasting. Do we even want dating apps or online loyalty programs that last a century? Maybe we just need classier ways of doing shorter horizon stuff.
luckydata 8y ago
You must be young because the quick flip was always the most common strategy. You just noticed?
reaperducer 8y ago
There are a lot of startups whose mentality is "get big quick enough so that we can get bought out by Google/Facebook/Amazon/etc" Yep. I worked with a startup that, after a few months, obviously had this as its primary motive. They made an app similar to another big-name (at the time) app, with the intent of having that bigger app buy them out. When the big fish didn't swallow their little fish they blew all of their remaining cash on a big party in New York and flew in all kinds of bold-faced names to bring attention to themselves. And it worked. A few months later they were eaten by another company, everyone lost their jobs, and the founders retired at 31. The irony is that a few months after that, its only competitor "pivoted" and abandoned the space it was competing in. If the small fish had held on, it would have owned that market.
- lozzo 8y ago
  It's hard to fully appreciate this story without you naming names. Any reason why not to ?
  - deleted 8y ago
    [deleted]
  - reaperducer 8y ago
    Basic human tact. If I was mad at the company, I would probably overcome decorum and dish. But I wasn't an employee, just someone involved with the company. I gave them data from my company, and they gave me things in return. Through a bunch of sales that database ended up being the core of a large mobile app that's a household name, but you'd never know it from the outside.
- hinkley 8y ago
  I got 'stuck' at a similar place during the recession around '05. One of their projects was just demo-ware we were selling as finished product. When I wasn't on the project it wasn't so much my problem, but as time went on they consolidated all their work on that one, in part to improve their financial story for investors. So then I'm working on a slow trainwreck that I didn't get to set strategic direction on when the project was young and flexible. So many antipatterns repeated throughout that code. I learned to hate/fear caching on that project (ex: you can't cache a table scan, unless the entire table fits into memory, and then it's not a cache). When we got bought the founders complained about how it wasn't enough to retire on. Aww, poor babies. We were too early (Apple introduced a similar product 6+ years after we started ours), so the payoff was only enough for them to live comfortably for the rest of their lives. Except they immediately got condos downtown with unobstructed water views so I doubt that lasted very long. I think you had the same problem we did. Potential investors take competition in a space as validation. Legitimate competition just solidifies that validation. The moment you folded, the screws got tightened on the other company. Either they didn't get any offers at all, or with terms that were terrible. Founders don't want to be treated the same way they treat their employees. (This thing where companies get bought out and discontinue their flagship product is, in my mind, a failure mode. That's not success if you make things for a living. Somebody, not us, got rich, while we have a project on our resume that was a failure by our standards, but makes us more attractive to the next guy who wants to pump and dump a company. An attractive little cog for their big wheel. And maybe, just maybe, enough from shares or bonuses to get a loan on a new car)
myth_buster 8y ago
> already targeting a $50M exit makes it less interesting to me [...] with that short term of a mentality. $50M is short term or long term depends totally on the growth rate and while bootstrapping, that target could be a formidable challenge.
ig1 8y ago
No VC of any meaningful size is interested in a $50m exit. Let's say as a VC you invested $3m and are holding 20% of the company at exit, that means you'll make $10m. A 3x return is nice but not going to be fund-maker. If you're a $50m fund then you're expected to return >$150m, 10m will nudge you along to that target, but isn't going to be significant. Because a majority of your investments will go to zero or be small returners (1x-3x), it essentially means the good exits have to be >10x in order to be able to achieve reasonable returns for the fund.

isalmon 8y ago

>> I think the biggest difference between today and 20 years ago when I first go into Silicon Valley is that most founders are generally already planning their exit. There are a lot of startups whose mentality is "get big quick enough so that we can get bought out by Google/Facebook/Amazon/etc". Exactly the same mentality 20 years ago, except back then it was mostly about the IPO.

docker_up 8y ago
Fair point. IPO was the goal during the dot-com boom/bust (I saw this all first hand as well) but at least the founders weren't looking to ditch the company right after. The VCs were of course, they're always the snakes in the grass no matter what the backstory is.
- tptacek 8y ago
  My experience is that there was a fairly brief window in which founders believed an IPO was a plausible way to flip a company, and that before, during, and after that, the more common objective was to build a company to flip to some other firm that already had done an IPO. When we started our multicast company in early 1999, none of us believed for a second that an IPO was in our future, and our VC pitches (mostly guided by the VCs, some of whom ended up funding us) were almost entirely about who might end up buying us.

malvosenior 8y ago

You can thank Sarbanes-Oxley for this. Edit: For further context: It used to be that a technology company could go public and provide an exit to investors. After the dot com crash, Sarbanes-Oxley regulations made it much more difficult to IPO. It has many administrative requirements, greatly increases run rate to support and raises the finanical bar significantly to which companies can go IPO. The VC model however remains the same, they need 10X returns. Thus you see them pushing entrepreneurs to go IPO which post-SO means a longer runway to exit fraught with a lot of risk mostly placed on the entrepreneurs (compared to pre-SO). It became a rational choice for the founders to take smaller, faster exits since "the big one" (IPO) now looks less certain for all but the most successful startups.

CalChris 8y ago
That is a reasonable take but then you can also blame Sarbanes-Oxley on the likes of pets.com. SO is 2002 and while it was unquestionably a reaction to the dot com era and bust, it was also a reaction to Enron and others. Hell, it was passed and signed in the Bush administration. Yeah, SO raised the bar to get into (and stay in) the public markets. Maybe regulation minded Congress had a point there. In any case, this correction didn't prevent private MA. Moreover, VCs still get their funds funded. So SO hasn't killed any golden gooses. Maybe we should have corrected something in 2008. We certainly un-corrected Glass-Steagall in 1999.

thisisit 8y ago

> So the fact that this person is already targeting a $50M exit makes it less interesting to me. I just don't think I would get excited working for someone I know with that short term of a mentality. But how do you know how much time will it take to reach that $50 million? If it was a VC backed company sure it might have taken couple of years ie short term. But for a bootstrap company focusing on a smaller pie or niche markets this could take years to happen.

piokoch 8y ago

Yup, the side effect is that customers of a given startup often get abandon with "it was great journey for us, you have one month to get your toys somewhere else" note.

rememberlenny 8y ago

> I just don't think I would get excited working for someone I know with that short term of a mentality. This. I was recently the first full-time hire at a seed funded company that was in the right place and the right time. They grew to 10 people over a few months, and I loved the people I was working with. Knowing that the founders had a 10-40x equity stake larger than mine made it nearly impossible to feel invested in the company.

ausjke 8y ago
That. Until you become a founder yourself and know how hard it has been might change your mind. Otherwise we're all just employees. One big difference is that founders take bold moves and risks. I also consider this is capitalism at work.
- scarface74 8y ago
  What bold move are they taking if they are using other people’s money?
  - p1esk 8y ago
    The bold move of starting a company, obviously, rather than working for someone else, like most regular people usually do.
  - arthurcolle 8y ago
    It's not like the money's a gift... you have various metrics presumably that you have to hit once you raise money, especially once you're past the angel/seed stages.
    - scarface74 8y ago
      It’s not a gift, but if they fail, they have lost nothing but time - if they are paying themselves a salary.
grendix 8y ago

tptacek 8y ago

I've been working at startups since the mid-1990s and building-to-flip was as prevalent then as it is now. I'd say the much bigger change is that randos have a real shot at getting funded today, due to YC and the syndicated convertible debt round. It's hard to overstate how much more open the funding market is now than it was even 15 years ago.

idlewords 8y ago
Funny what happens when you have stupid amounts of institutional money pour into a sector for 15 years.
- tptacek 8y ago
  I think there was less money in the sector for the first 10 years or so of YC than there was during the dot-com era, so I don't know that it's true that the opening of funding markets to first-time founders is a consequence of too much VC funding.
  - idlewords 8y ago
    YC exists because a dude made it big in the initial dot-com bubble. With every subsequent wave of windfalls, you get a larger pool of founders who struck gold and now want to play investor, and over a sustained length of time with no bust, that leads to a pretty founder-friendly ecosystem for funding. But the whole arrangement relies on there being ample institutional money available and no downturns sips from juicebro
    - tptacek 8y ago
      I don't disagree with that diagnosis but think that's more a question of how money within the VC sector is allocated, not how much money is being allocated to VC in the first place. Like you, I see a lot of money going to people wearing cargo shorts and brightly colored sneakers and then getting plowed back into the startup casino. I'm just saying, that money used to go to country club investment bankers; it didn't --- at least until recently --- get diverted from the broader economy.

dalbasal 8y ago

I think this is just an extreme boomtime mentality. Investors are cashed up, and so are the large tech companies buying these startups. Valuations are so high that building companies to flip is just too damned lucrative to do much else. I think part of the difference between the late 90s and now (besides scale) is that small IPOs don't exist anymore. VCs need exits and once founders own n% of a $100m company, they need a way to realize those, unless they're willing to totally ignore their own financial interests. The 1990s IPOs didn't work out well though. These companies were still longshots, and public markets lend better to lower risk-reward companies. The second part of the problem is tech "monopolies," in the thiel sense. Google and FB's business models, for example, needs massive scale. A social network or search engine with 10% of the user's is not worth anywhere near 10% of what FB or google are worth. So... the "highest value use" of a smaller startup is to help maintain a larger company's monopoly. Finally, the tech space (especially consumer web stuff) just changes too fast to "build something lasting." .. I'm not sure everything needs to be lasting. Do we even want dating apps or online loyalty programs that last a century? Maybe we just need classier ways of doing shorter horizon stuff.

luckydata 8y ago

You must be young because the quick flip was always the most common strategy. You just noticed?

reaperducer 8y ago

There are a lot of startups whose mentality is "get big quick enough so that we can get bought out by Google/Facebook/Amazon/etc" Yep. I worked with a startup that, after a few months, obviously had this as its primary motive. They made an app similar to another big-name (at the time) app, with the intent of having that bigger app buy them out. When the big fish didn't swallow their little fish they blew all of their remaining cash on a big party in New York and flew in all kinds of bold-faced names to bring attention to themselves. And it worked. A few months later they were eaten by another company, everyone lost their jobs, and the founders retired at 31. The irony is that a few months after that, its only competitor "pivoted" and abandoned the space it was competing in. If the small fish had held on, it would have owned that market.

lozzo 8y ago
It's hard to fully appreciate this story without you naming names. Any reason why not to ?
- deleted 8y ago
  [deleted]
- reaperducer 8y ago
  Basic human tact. If I was mad at the company, I would probably overcome decorum and dish. But I wasn't an employee, just someone involved with the company. I gave them data from my company, and they gave me things in return. Through a bunch of sales that database ended up being the core of a large mobile app that's a household name, but you'd never know it from the outside.
hinkley 8y ago
I got 'stuck' at a similar place during the recession around '05. One of their projects was just demo-ware we were selling as finished product. When I wasn't on the project it wasn't so much my problem, but as time went on they consolidated all their work on that one, in part to improve their financial story for investors. So then I'm working on a slow trainwreck that I didn't get to set strategic direction on when the project was young and flexible. So many antipatterns repeated throughout that code. I learned to hate/fear caching on that project (ex: you can't cache a table scan, unless the entire table fits into memory, and then it's not a cache). When we got bought the founders complained about how it wasn't enough to retire on. Aww, poor babies. We were too early (Apple introduced a similar product 6+ years after we started ours), so the payoff was only enough for them to live comfortably for the rest of their lives. Except they immediately got condos downtown with unobstructed water views so I doubt that lasted very long. I think you had the same problem we did. Potential investors take competition in a space as validation. Legitimate competition just solidifies that validation. The moment you folded, the screws got tightened on the other company. Either they didn't get any offers at all, or with terms that were terrible. Founders don't want to be treated the same way they treat their employees. (This thing where companies get bought out and discontinue their flagship product is, in my mind, a failure mode. That's not success if you make things for a living. Somebody, not us, got rich, while we have a project on our resume that was a failure by our standards, but makes us more attractive to the next guy who wants to pump and dump a company. An attractive little cog for their big wheel. And maybe, just maybe, enough from shares or bonuses to get a loan on a new car)

myth_buster 8y ago

> already targeting a $50M exit makes it less interesting to me [...] with that short term of a mentality. $50M is short term or long term depends totally on the growth rate and while bootstrapping, that target could be a formidable challenge.

ig1 8y ago

No VC of any meaningful size is interested in a $50m exit. Let's say as a VC you invested $3m and are holding 20% of the company at exit, that means you'll make $10m. A 3x return is nice but not going to be fund-maker. If you're a $50m fund then you're expected to return >$150m, 10m will nudge you along to that target, but isn't going to be significant. Because a majority of your investments will go to zero or be small returners (1x-3x), it essentially means the good exits have to be >10x in order to be able to achieve reasonable returns for the fund.