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Bad Times in Tech? Not If You’re a Startup Serving Other Startups
- paxys 7y ago> for his Bernese mountain dog, Ruby, who is named after the coding language Ruby on Rails /facepalm
- xkcd-sucks 7y agoHope it doesn't get hit by a train
- rchaves 7y agoI remember Pedro giving talks on Rubyconf in Brazil with only 15 years old, this kid grew with the help of Ruby community, so it makes sense he gives so much importance to it
- skrebbel 7y agoI think the facepalm was meant to be "OMG this finance journalist doesn't know the difference between a framework and a language, what an idiot". (Fwiw, the difference between the two is super nuanced and irrelevant to most journalism about tech. They're both "tools to make software". If I were a journalist, I'd also call Rails a programming language, because that's a term much of the general public understands is "a thing people use to build software with") (so who knows, maybe the author actually knows, but decided to write for the NYT audience and not pedants on HN)
- dang 7y ago> I think the facepalm was meant to be Reading it again, I'm sure you're right, but I totally missed that. Actually the lines between language and library and framework are not so easy to pin down. Maybe the finance journalists are on to something.
- jonathanedwards 7y agoThe scariest thing about this article is it didn't contain the word "bubble"
- fizx 7y agoI ran a bootstrapped company with $150k/mo of well-documented, above-board recurring revenue and Chase wouldn't give it a credit limit above $5k. Entrusting my finances to another startup like Brex is scary, but damn is the pitch compelling compared to mainstream banks.
- adventured 7y agoWhat did you ultimately end up doing for a line of credit for the business? That's obviously a very tight threshold of max credit to run a $1.8m sales business on. At the time did you consider trying to get a private line of credit (private as in from an individual)?
- fizx 7y agoWe ended up leaving a few hundred thousand in the bank and running it off debit.
- opportune 7y agoI think you could easily buy an hq (or any other relatively liquid asset that would also help the business in other ways) outright with that kind of money and use that to collateralize a much larger credit limit
- parsimo2010 7y agoGP said $150k in revenue, not profit. If their operating costs are $149k there isn’t much anyone can do without a loan or outside investment.
- insulanus 7y agoWhat's an hq?
- QuantumGood 7y agoHeadquarters (real estate)
- jhayward 7y agoIn a gold rush the miners go broke but the hardware store makes boatloads of cash.
- rolltiide 7y ago"sell shovels during a gold rush" if you like brevity
- OldHand2018 7y agoIn a tech boom the startups go broke but the property owners make boatloads in rent.
- gingabriska 7y agoWho are property owner if not executives at big companies and also people who are contributor of VC funds?
- lawlorino 7y agoI've heard it as "if everyone's making pizza, start making pizza ovens".
- auvi 7y agoI think this is a good example of a "Submarine"[0] article [0] http://www.paulgraham.com/submarine.html
- IgorPartola 7y agoDuring a gold rush the best way to make money is to sell shovels.
- opportune 7y agoOr invest a small amount in a number of small shovel-part, shovel-services, and shovel-as-a-service outfits all shuffling money between each other looking like they have actual traction in hopes of fooling other investors into buying in
- bitwize 7y agoThat's yesterday's business model. The future is shovelless. You specify where to dig, and a team of experts will dig for you; you pay only for the dirt removed.
- rb808 7y agoTell that to Sun Microsystems
- lallysingh 7y agoSelling expensive heavy iron shovels when cheap aluminum ones worked better didn't help.
- grogenaut 7y agoSun was selling steam shovels.
- adventured 7y ago> During a gold rush the best way to make money is to sell shovels. That's never actually true, it's just a nice saying. The most money is always made in owning a super structure business - in tech, a platform - that has very wide appeal, rather than concerning yourself with trying to compete to sell shovels to a temporary gold rush. Selling shovels is an opportunistic business, only good for a short-term run. The real money is always made by focusing instead on larger, longer term opportunities that are sustainable. Some things persistently ignored about the shovel selling business during gold rushes: most of the shovel sellers lose their hats in the bust, because they don't see it coming and they carry inventory and speculate on demand constantly. The history of gold rushes is that the shovel sellers frequently miscalculate the duration of the rushes. They get hammered when it ends, most of them go bankrupt (see: every oil boom in US history). It's better to be Exxon or Chevron and own large reserves in the ground, not the primary company selling little pieces of gear to Exxon. It's better to be the majors in the Permian (gold rush) making money long-term off the reserves, not the little shovel sellers that constantly boom and bust with each big blip in the oil market. It was far better to own refining and pipelines - chokepoint super structures - during the oil boom in Standard Oil's time, than to be a shovel seller to the oil industry or oil wildcatters. It's better to be Rio Tinto, Newmont or BHP and own the mines & supply than to be selling mining equipment. BHP is a $137b company, Rio Tinto is a $91b company. The shovel sellers are comically tiny by comparison, borderline irrelevant in size versus these juggernauts. For the last century it has been better to be De Beers than to be selling diamond industry equipment. During the car boom in Henry Ford's time, it was better to be one of the surviving majors than to be a shovel seller. This fundamental is always true. During the mobile gold rush it's better to be Apple and Google than ARM, Foxconn or Qualcomm (Samsung for their part covers all the bases). The super structures - Apple & Google platforms in this case - usually by far make the most money, the shovel sellers are typically much smaller and less profitable.
- zed88 7y agoHow is it different than say, stripe issuing? https://stripe.com/nz/issuing https://stripe.com/nz/issuing
- relyks 7y agoBrex is identical to what Stripe is offering, but Brex's cards offer credit. From what I can see and correct me if I'm wrong, Stripe doesn't offer credit lines
- deleted 7y ago[deleted]
- nekitamo 7y agohttps://stripe.com/partners/fundingcircle https://stripe.com/partners/fundingcircle I’ve used it for my bootstrapped company, works great.
- albertshin 7y agoI haven't touched base with these lenders in a while but I thought p2p lenders like fundingcircle only offer term loans?... Do they offer credit lines and revolvers now too? Curious how that works out in the p2p space.
- hn_throwaway_99 7y agoAs this is Hacker News, Paul Graham's comments on Yahoo during the .com bubble are particularly relevant: By 1998, Yahoo was the beneficiary of a de facto Ponzi scheme. Investors were excited about the Internet. One reason they were excited was Yahoo's revenue growth. So they invested in new Internet startups. The startups then used the money to buy ads on Yahoo to get traffic. Which caused yet more revenue growth for Yahoo, and further convinced investors the Internet was worth investing in. When I realized this one day, sitting in my cubicle, I jumped up like Archimedes in his bathtub, except instead of "Eureka!" I was shouting "Sell!" http://www.paulgraham.com/yahoo.html http://www.paulgraham.com/yahoo.html
- ec109685 7y agoWhy do you say that? It doesn’t seem like Brex is unsustainable in the long run.
- azylman 7y agoCurrently they're unprofitable and their target market is other, unprofitable companies (e.g. turning away Fortune 500s, from the article). If that changes then it looks more sustainable.
- quickthrower2 7y agoFunny, but really, I wonder how much of Yahoo's ad revenue was from start ups? Any data on this?
- jjeaff 7y agoI would guess nearly all of it. Mainstream companies were not spending marketing money on the internet until much later.
- quickthrower2 7y agoHow do you define mainstream company? The point I am getting at, is that if Amazon and similar companies had ads on Yahoo and was making money profitably from it, that is different from a startup who is burning VC money on ads on the hope of making money in the future.
- trhway 7y agoBad times? Only lazy bums like me and poor H1s are still sitting at our old BigCo (life work balance is amazing, plus there are too few of us left who is doing the stuff so we are treated pretty soft and accurately :) . Anybody who left during the last year and a half got minimum 300 (junior and/or really incapable engineers) with the normal engineers getting 400-500K and that isn't in a red hot AI and the likes. The money is just sloshing around. Granted everything comes to an end, and we're definitely due for the one, yet it definitely didn't happen yet.
- meddlepal 7y agoIsn't this just a reformation of the idea there's only two business models? Either you mine for gold yourself or you sell shovels to others who want to mine for gold.
- pkaye 7y agoBtw Google for the word "Bre-X" and you will read about a gold mining scandal from the dotcom era.
- b_tterc_p 7y agoBrex sounds like it’s headed for bankruptcy based on the article. They’re unprofitable now, and have incredibly risky clients sitting in front of what feels like a looming recession.
- rchaves 7y agoThis Pedro Franceschi is the same kid that created iUsers to allow multi-users in iPad and hacked Siri to understand portuguese years before Apple. I’m really happy that their startup has a big potential and I hope it succeeds, I’m a real fan
- nlh 7y agoI will say, for what it’s worth, that the customer experience of using Brex is really quite outstanding (my current startup is a customer.) They’ve figured out things that in hindsight just seem so obvious to a good UX, and yet we’ve all been so trained to have low expectations from the mediocre service traditional banks/corporate card providers offer that it seems outstanding. From limited experience - the fact that virtual cards are first-party citizens, the helpful text messages you get (which include a warning the first time you use a card physically, instant text records when you use a card physically, the ability to photograph receipts and send them back to that same text phone #, and and and.) American Express (my only other corporate card comparison) of course _could_ offer this stuff, but it’s just not in their DNA because, well, they haven’t had to innovate because they had what amounts to a monopoly on corporate spending cards. And I should note - Amex ties the credit on those cards to the founder (requiring a personal guarantee until the company reaches a certain - large - size.) Anyway, this is all to say I’m a fan and it doesn’t surprise me they’ve having the success they are so far. Let’s hope they can do it profitably and keep it up!
- tempguy9999 7y agoI have a visa card. They introduced a verification check for online use a few years ago. This involved giving the answer to a question or typing in a passphrase or something (can't remember, I almost never use it). When setting it up on the web I had to type in the answer/passphrase/whatever. It was rejected. I read the form again, looked at the error msg, no indication why, typed it in again, again rejected. I called the bank, "oh, it's got to have a digit in it". It did not say on the form a digit was needed, nor did the error message. They could not even manage to tell the users the most trivial requirements either directly or in the error message. It's beyond pathetic. It's literally incomprehensibly incompetent to fail at such a low level.
- PaulHoule 7y agoI remember "Verified By Visa" which would send you to a site that looked like it was drawn by a crayon. It shocks me how financial institutions often make web sites that look like a parody of a phishing site. For instance, my credit union had an online banking service which used the name "myvaultsentry.com" which just seemed liked something a high school hacker would think up. It is strange because operationally Visa is good at what they do, and they put a huge amount of effort and expense into developing a brand, but for legacy organizations (academia too) the web seems to be made of kryptonite.
- cryptica 7y agoIt seems like it's doing well because things are bad in silicon valley, not in spite of. It sounds like there are a lot of desperate startups getting loans to 'simulate' growth by having negative profit margins (since they can't get real growth otherwise), then they use that fake growth to get investors' money which they use to service debt, then they keep raising money until they exit or IPO. It doesn't seem sustainable. All these debts end up the hands of corporate shareholders. There's a point where companies and the public will stop buying useless startups (if that point hasn't already passed).
- dehrmann 7y ago> things are bad in silicon valley Really? > there are a lot of desperate startups getting loans to 'simulate' growth by having negative profit margins (since they can't get real growth otherwise) You're conflating a few things, here. The Amazon strategy of reinvestment works as long as it's genuine growth and not overdone. Uber's more of an open question: they've increased demand through subsidies, the question is what will demand look like when prices reflect the true cost. Postmates is in the same situation as Uber, but much worse because they offer a service people can trivially do themselves. > All these debts end up the hands of corporate shareholders. Not usually. And startups don't usually use debt (except in ~2015/2016), they sell equity. VC funds tend to have more pensions and sovereign wealth.
- wishrider 7y agoI offer small services other startups too https://launchpropeller.com/#/ https://launchpropeller.com/#/
- itschekkers 7y agoThere's always a PG article -- http://www.paulgraham.com/submarine.html http://www.paulgraham.com/submarine.html [April 2005]
- drawnwren 7y agoBrex's PR firm certainly seems to be earning their keep. This is the third or fourth article about Brex that 'wasn't about Brex' I've seen on HN in the last couple of months.
- deleted 7y ago[deleted]
- CPLX 7y agoFor those that are familiar with the service are they really mostly/only focused on companies that have outside investment? From glancing at their literature it seemed like their gig was lending money to companies that actually already had the money in the bank, like providing company spending cards to a startup with a few million in VC money sitting somewhere. Is that correct or do they lend to companies with more traditional economics, like a bootstrapped company with a million or two in annual revenue but without major cash reserves or investment?
- johns 7y agoThey told me they basically only serve companies with VC investment. We were declined despite meeting the stated balance requirements because we were self-funded.
- chiefalchemist 7y agoIs it official? The Startup Industrial Complex?
- remote_phone 7y agoStartups serving other startups sounds exactly like the dot com boom/bust. When the bust started, it spread across the entire Valley because exactly this.
- scarface74 7y agoIt’s nothing more than the same Ponzi scheme we saw in 1999. If venture funding dries up, for their customers, they are also toast. I hate that the modern idea of a “successful” company is how much money they can raise and at what evaluation.
- analog31 7y agoDuring a shovel rush, sell shovel making machines.
- dehrmann 7y agoIt's very different. Look at how the public market is treating Uber. Its pre-IPO valuation was rosy, but not out-of-line, and its price has been pretty consistent since the first few weeks. It's not like every tech IPO is up 200%-500% on the first day, then keeps climbing by 1% per day. > I hate that the modern idea of a “successful” company is how much money they can raise and at what evaluation. So the value of the company? I agree that it doesn't capture value to society, but it's better than "community-adjusted EBITDA."
- scarface74 7y agoIt’s always “different this time”. Uber still hasn’t proven it has a sustainable business model. It’s marginal profit is still negative with no signs of bring cash flow positive. During the dot com boom the first time, you also had companies going public with no profitability and crazy valuations.
- xivzgrev 7y agoI.e., when people are mining for gold, sell pick axes!
- brexthrowaway 7y agoThe Brex interview handed out real customer bank balance and transaction history and suggested that that data was all they they used to build their underwriting model.
- segmondy 7y agoHow do they monitor the bank account and balances?
- rjzotti 7y agoI don’t understand the economics of Brex. I used to work for a large, analytics-savvy credit card company, and people would freak out if the percentage of customers going bad (not paying their debt) exceeded something like 3-5%. Given that VC-funded startups fail at a rate of 11/12, isn’t Brex effectively throwing money down a massive black hole, assuming they’re extending credit? And this is at the top of credit cycle, probably within a few years of a recession, where a higher than normal percentage of good debt will go bad too.