10 ms·

I know this might sound stupid but if you can get that much for something that wow's people, can you get like 100k for a "meh" idea? Like if you wanted to open

I know this might sound stupid but if you can get that much for something that wow's people, can you get like 100k for a "meh" idea? Like if you wanted to open a dry cleaners.

Analemma_ 7y ago
No, because the mania for throwing money at tech startups is specifically because of tech's unique promise of both worldwide scale and zero marginal costs after the initial Big Spend on capex, and hence potentially gigantic returns for investors. Now, how well the current crop of startups is delivering on that promise is an exercise left to the reader, but it's there in theory. A dry cleaner has marginal costs and no economy of scale, and so can't attract unicorn valuations.
- icedchai 7y ago
  Zero marginal cost in theory. In reality, you often find enormous cloud costs combined with huge marketing spend.
  - btilly 7y ago
    As long as your product is perfectly scalable and generates a profit for money spent that way, it makes perfect sense to take a loan, spend a fortune, make a fortune, then pay off the loan and take in profits. Then turn around and do it again. It isn't the absolute size of the numbers that matters. It is the ability to rapidly scale the business once you have the right business model and product.
    - x0x0 7y ago
      And in particular, if you sell low churn saas (like we do), you can comfortably spend the first year's annual contract value on customer acquisition and have an extremely profitable business. Just huge initial marketing costs. And quite possibly huge ongoing marketing costs! But if churn is low, or even negative, you can assume something like 10 year customer lifetimes, with a comfortable 5-ish percent cost increase per year, on sale for the first year's contract value. If you have cheap-ish money available, you should buy as many of those as the world is willing to sell.
    - icedchai 7y ago
      "As long as your product is perfectly scalable..." I agree. Usually it's not, and more difficult to get there than people think.
- __jal 7y ago
  > tech startups is specifically because of tech's unique promise of both worldwide scale and zero marginal costs This theory fails to adequately explain WeWork. I mean, I think you should be right, but in principle I do not see why WeDryClean should not work while WeWork does.
  - zaphod12 7y ago
    much like wework - all you gotta do is convince 1 person who controls vast sums of money that it will work. I'm very convinced by your WeDryClean idea! (Sadly no vast sums of money, though)
nostrademons 7y ago
Well, yes, but not in the way you mean. If you want $100K for a dry cleaners you get a bank loan, the same way people have been doing it for a century. Equity capital is solely interested in business models that either wow people or fail outright. The reason has to do with risk: most such business ideas have various things that can go wrong, and those risks are generally manageable but not really quantifiable. Basically a VC wants to see "These are the assumptions in our model, and if we build this it will revolutionize X industry, which is currently worth $50B but could be worth a lot more with our product, and that will give you a 50% annualized return on your fund." And they're giving you money to prove out whether those assumptions are actually true, with the expectations that for a good number of startups they won't be and their whole investment will be wasted.
nikanj 7y ago
As parodied some 5 years ago: https://medium.com/signal-v-noise/press-release-basecamp-valuation-tops-100-billion-after-bold-vc-investment-c221d8f86ad7#.68ocp8vwj https://medium.com/signal-v-noise/press-release-basecamp-val... Once you make money, it's much harder to come up with outlandish numbers. A dry cleaners has a well-established range for revenue and profit, so it's hard to justify why it would be worth $100 billion.
- alasdair_ 7y ago
  >Once you make money, it's much harder to come up with outlandish numbers. A dry cleaners has a well-established range for revenue and profit, so it's hard to justify why it would be worth $100 billion. If you want a cleaning company worth hundreds of millions, try ZZZZ Best https://www.investopedia.com/terms/z/zzzzbest.asp https://www.investopedia.com/terms/z/zzzzbest.asp
- bdcravens 7y ago
  Actually 10 years ago. Here's the original: https://signalvnoise.com/posts/1941-press-release-37signals-valuation-tops-100-billion-after-bold-vc-investment https://signalvnoise.com/posts/1941-press-release-37signals-... The Medium version did update the terminology a bit (since RSS and 3G weren't as exciting in 2015 as they were in 2009, hah)
vechagup 7y ago
Yes you can. It's called a small business loan. See https://www.sba.gov/funding-programs/loans https://www.sba.gov/funding-programs/loans and https://www.bankofamerica.com/smallbusiness/business-financing/ https://www.bankofamerica.com/smallbusiness/business-financi.... You'd finance your dry cleaners with debt rather than equity because (unless you are starting a chain) you are not shooting for the massive, near-zero marginal cost scaling that the venture capital model focuses on. Instead, the bank looks for a modest, predictable return through interest payments.
- StillBored 7y ago
  Yah, but re:wework, throw in a dry cleaning app that schedules a dirty laundry pickup and suddenly the valuation goes from marginal to billions. Especially if you get some machine learning in there to detect spots (or something).
  - alexhutcheson 7y ago
    http://nymag.com/news/features/laundry-apps-2014-5/ http://nymag.com/news/features/laundry-apps-2014-5/
  - petra 7y ago
    The economics of on-demand are totally different: First, there's a delivery part. Delivery companies often become very big and make a lot of money. Second, centralizing many small dry cleaning places into one has Significant economic advantages. Third, they probably use an asset-lite model like Uber. Fourth, all those make them somewhat similar to some sucsesfull, high growth companies , so it's possible they'll grow big.
    - munk-a 7y ago
      Does centralizing many small dry cleaning places have significant economic advantages assuming that each location has to negotiate independently for it's space and (to parallel wework) items like cleaning supplies and staff management necessarily vary from location to location due to local regulations? WeWork is sort of the golden example of a business being sold as something that works at scale... except the business doesn't actually work at scale.

I know this might sound stupid but if you can get that much for something that wow's people, can you get like 100k for a "meh" idea? Like if you wanted to open a dry cleaners.

Analemma_ 7y ago

No, because the mania for throwing money at tech startups is specifically because of tech's unique promise of both worldwide scale and zero marginal costs after the initial Big Spend on capex, and hence potentially gigantic returns for investors. Now, how well the current crop of startups is delivering on that promise is an exercise left to the reader, but it's there in theory. A dry cleaner has marginal costs and no economy of scale, and so can't attract unicorn valuations.

icedchai 7y ago
Zero marginal cost in theory. In reality, you often find enormous cloud costs combined with huge marketing spend.
- btilly 7y ago
  As long as your product is perfectly scalable and generates a profit for money spent that way, it makes perfect sense to take a loan, spend a fortune, make a fortune, then pay off the loan and take in profits. Then turn around and do it again. It isn't the absolute size of the numbers that matters. It is the ability to rapidly scale the business once you have the right business model and product.
  - x0x0 7y ago
    And in particular, if you sell low churn saas (like we do), you can comfortably spend the first year's annual contract value on customer acquisition and have an extremely profitable business. Just huge initial marketing costs. And quite possibly huge ongoing marketing costs! But if churn is low, or even negative, you can assume something like 10 year customer lifetimes, with a comfortable 5-ish percent cost increase per year, on sale for the first year's contract value. If you have cheap-ish money available, you should buy as many of those as the world is willing to sell.
  - icedchai 7y ago
    "As long as your product is perfectly scalable..." I agree. Usually it's not, and more difficult to get there than people think.
__jal 7y ago
> tech startups is specifically because of tech's unique promise of both worldwide scale and zero marginal costs This theory fails to adequately explain WeWork. I mean, I think you should be right, but in principle I do not see why WeDryClean should not work while WeWork does.
- zaphod12 7y ago
  much like wework - all you gotta do is convince 1 person who controls vast sums of money that it will work. I'm very convinced by your WeDryClean idea! (Sadly no vast sums of money, though)

nostrademons 7y ago

Well, yes, but not in the way you mean. If you want $100K for a dry cleaners you get a bank loan, the same way people have been doing it for a century. Equity capital is solely interested in business models that either wow people or fail outright. The reason has to do with risk: most such business ideas have various things that can go wrong, and those risks are generally manageable but not really quantifiable. Basically a VC wants to see "These are the assumptions in our model, and if we build this it will revolutionize X industry, which is currently worth $50B but could be worth a lot more with our product, and that will give you a 50% annualized return on your fund." And they're giving you money to prove out whether those assumptions are actually true, with the expectations that for a good number of startups they won't be and their whole investment will be wasted.

nikanj 7y ago

As parodied some 5 years ago: https://medium.com/signal-v-noise/press-release-basecamp-valuation-tops-100-billion-after-bold-vc-investment-c221d8f86ad7#.68ocp8vwj https://medium.com/signal-v-noise/press-release-basecamp-val... Once you make money, it's much harder to come up with outlandish numbers. A dry cleaners has a well-established range for revenue and profit, so it's hard to justify why it would be worth $100 billion.

alasdair_ 7y ago
>Once you make money, it's much harder to come up with outlandish numbers. A dry cleaners has a well-established range for revenue and profit, so it's hard to justify why it would be worth $100 billion. If you want a cleaning company worth hundreds of millions, try ZZZZ Best https://www.investopedia.com/terms/z/zzzzbest.asp https://www.investopedia.com/terms/z/zzzzbest.asp
bdcravens 7y ago
Actually 10 years ago. Here's the original: https://signalvnoise.com/posts/1941-press-release-37signals-valuation-tops-100-billion-after-bold-vc-investment https://signalvnoise.com/posts/1941-press-release-37signals-... The Medium version did update the terminology a bit (since RSS and 3G weren't as exciting in 2015 as they were in 2009, hah)

vechagup 7y ago

Yes you can. It's called a small business loan. See https://www.sba.gov/funding-programs/loans https://www.sba.gov/funding-programs/loans and https://www.bankofamerica.com/smallbusiness/business-financing/ https://www.bankofamerica.com/smallbusiness/business-financi.... You'd finance your dry cleaners with debt rather than equity because (unless you are starting a chain) you are not shooting for the massive, near-zero marginal cost scaling that the venture capital model focuses on. Instead, the bank looks for a modest, predictable return through interest payments.

StillBored 7y ago
Yah, but re:wework, throw in a dry cleaning app that schedules a dirty laundry pickup and suddenly the valuation goes from marginal to billions. Especially if you get some machine learning in there to detect spots (or something).
- alexhutcheson 7y ago
  http://nymag.com/news/features/laundry-apps-2014-5/ http://nymag.com/news/features/laundry-apps-2014-5/
- petra 7y ago
  The economics of on-demand are totally different: First, there's a delivery part. Delivery companies often become very big and make a lot of money. Second, centralizing many small dry cleaning places into one has Significant economic advantages. Third, they probably use an asset-lite model like Uber. Fourth, all those make them somewhat similar to some sucsesfull, high growth companies , so it's possible they'll grow big.
  - munk-a 7y ago
    Does centralizing many small dry cleaning places have significant economic advantages assuming that each location has to negotiate independently for it's space and (to parallel wework) items like cleaning supplies and staff management necessarily vary from location to location due to local regulations? WeWork is sort of the golden example of a business being sold as something that works at scale... except the business doesn't actually work at scale.