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With interest rates so low (and lots of headwinds for them to increase in the short-term), one has to think that this will be the new normal for a few years at

• seibelj 6y ago
  Salaries for good engineers have simply gone up. Competing with FAANG for good engineers is expensive. Need $5mil to get a small team for a couple years runway. That used to be an A. Having one or more cofounders as capable engineers to get MVP out is also beneficial.
  • flyinglizard 6y ago
    None of the early stage startups I know even tries to compete with FAANGs on compensation. I don’t know if it’s because of disparity of information on the side of the employees, or simply people joining for a wild ride (I suspect it’s both). Not to say salaries have not gone up, but not to those levels. That said, it is also uncommon for me to see startup employees which previously worked for FAANGs (you do see founders).
    • seibelj 6y ago
      No one is trying to pay 500k total comp but higher salaries have become the norm. Getting someone sub-100k with experience and knows what they are doing is impossible unless you are exploiting them.
      • sokoloff 6y ago
        In the US, agreed. In Eastern Europe and India, it’s very much possible. In Western Europe, you can get close.
    • bee_rider 6y ago
      I always imagined that startup folks were working for a lower salary, with the expectation that if it goes big, the have a chance at a massive payoff. Is that not how it is? I'd expect discontinuous QOL changes between: unsuccessful or not yet successful startup | working at a big company | successful startup (I'd rather not work for a startup because the middle bracket looks fine to me). If people are working for that startup lottery ticket and then not getting the full reward when it comes up a winner, they are just getting screwed. Which is a possibility but not very mysterious, right?
      • sdenton4 6y ago
        My understanding is that the actual payouts have gotten much worse for employees due to lots of special priveleges that the investors get: employees get paid last, and therefore get paid less. So the 'f you money' for an early employee these days buys a new car and that's about it. (In exchange for lost sleep and lower salary, and, oh, a high chance that you don't even get the car because most startups fail.) As a faang employee, it just looks like the startup space is completely uninterested in trying to hire me.
        • pushrax 6y ago
          > employees get paid last, and therefore get paid less Paid by who and in what case? If the company IPOs or buys back a sizeable chunk of stock as part of fundraising or acquisition, employees with options do just fine. Employees are paid when they choose to sell. If the company liquidates that's obviously a bad deal for employees, but it's a bad deal for everyone involved. In some sense, working for a tech startup is like working for FAANG and spending part of your salary on buying 10 year call options on random other private tech companies (if that were possible without having VC-tier wealth). Lost sleep is a founder issue.
          • xenihn 6y ago
            >If the company IPOs or buys back a sizeable chunk of stock as part of fundraising or acquisition, employees with options do just fine. You need to read up on preferred stock vs. common stock, and the shenanigans that startups can do in order to reduce employee payouts, e.g. stock dilution.
• zhoujianfu 6y ago
  I wonder if the issues with seed rounds is that it’s too much work to deploy the (abundant) capital. If you’ve got e.g. $300M to deploy, you really don’t want to be doing less than $5-10M a pop. Seed rounds (even these new big ones) are too small. If you do put $5M in, now you’ve now got to lead. Ugh, more work. Easier to just plow $50M a pop into a few series Ds led by others.
  • corry 6y ago
    Great point. YC's model allowed them to do seed investing at scale, but the classic way is likely difficult to do well even if you're great at picking companies.
  • fractionalhare 6y ago
    Harder to hedge against downside risk if you deploy $300M capital in six bets rather than 30, though.
    • filoleg 6y ago
      Not universally true. I would assume that an average Series D startup has way less risk of evaporating to zero than a seed stage startup. With that in mind, the risk hedging might actually work in favor of "six bets rather than 30". But you will need actual numbers to do that risk assessment, and I assume VCs do that. Let's say you invest $300mil into 30 seed bets, with each bet having a 10% chance of returning a 10x, 15% returning a 3x, and 85% of going to zero. But when you invest that same amount into 6 series D bets, each bet might have a 50% chance of returning 2x, 30% chance of going to zero, and 20% chance of going 3-4x. If you do the math to calculate the average expected payout using these numbers, you will get an expected average payout higher for the latter scenario. And assuming each bet is completely independent from another, it seems like a pretty solid hedge. Numbers are obviously made-up for illustrative purposes and are not the source of truth, but it shows a pretty good hypothetical situation when doing 6 bets is safer than 30 bets (given you have the same amount of money to spend on those bets). But, I think, it is fairly commonly agreed on that a Series D startup is way less likely to go to zero than a seed stage one, thus making a singular bet on a Series D startup much safer (but also less profitable in case of a success). Given many enough of those bets, the risk becomes pretty manageable and, imo, less risky than seed stage investing. I am not trying to say that what I am describing is the case, I am trying to say that it is a realistically possible case. Saying this as someone with no experience with that model whatsoever, so anyone is welcome to correct me if there is something glaringly wrong or missing in my assessment of this.
• ac29 6y ago
  > With interest rates so low (and lots of headwinds for them to increase in the short-term) Note that while interest rates are fairly low (especially for short term <5 yr debt), the yield on a 10 year US treasury, which is often used as a benchmark, has been consistently increasing for about 6 months and is ~50% higher than it was at the beginning of the year: https://fred.stlouisfed.org/series/DGS10/ https://fred.stlouisfed.org/series/DGS10/
  • fspeech 6y ago
    Yes but it is still below projected inflation, i.e. 10 year real yield is still negative.
• wayoutthere 6y ago
  So I actually think the flip side of this is that the founders finding success tend to be much older — in their late 30s or early 40s — because the green space that’s available for SaaS focuses on niche problem sets with mastery of a field required to even define a product. This path to success is becoming the norm, but it happens quietly because “guy leaves director-level role at a global bank to build a billion dollar fintech startup” isn’t as appealing of a story to the media. This kind of founder is much less of a risk in many ways than a younger one, but while the founder may be willing to live off savings for a year or two, the talent they would need to surround themselves with is also more experienced, with domain knowledge themselves. So why bother with a $500k seed round when it’s going to take $5M at a minimum to take a real crack at it? Now that we’re out of the “SaaS all the things” phase of this economy, you can’t just throw a bunch of overachieving 20 year olds at every problem.
• rafaelc 6y ago
  What are the headwinds for interest rates to increase?
  • coryrc 6y ago
    Pandemic and response destroyed the economy.
    • rafaelc 6y ago
      It is possible that by summer the pandemic is under control. So wouldn’t that suggest an interest rate increase is possible soon thereafter?
      • nikanj 6y ago
        Everyone and their dog is over-leveraged to the gills. The way things are with credit card debt, mortgages, corporate debt etc, it looks like we can't really raise interest rates in the next..ever.
• rsj_hn 6y ago
  In an economy with a working financial system there is no such thing as abundant or scarce capital, because financial capital is not used up when an investment is made, but merely transferred to the accounts of vendors and employees who then store it in funds which in turn seek new investments elsewhere. The issue is how a speculative cash-flow is priced relative to the risk free cash-flow - what is the discount demanded of a speculative venture? This discount, which is not the risk discount, but rather a measure of how risk is estimated, goes through secular swings: As investments are seen to pay off, investors update their priors and view similar investments as less risky relative to the previous pricing. In a bust, people are convinced many of the same investments wont pay off and become more skeptical of ventures. So I don't see this as a function of low rates so much as higher levels of confidence and optimism. That's all this is -- confidence and optimism, not scarcity or abundance of capital. If this analysis is true, then the current climate will flip back once there is a high profile series of busts, rather than once rates are raised. But as raising rates tends to slow down the economy, rising rates may be the trigger that creates the busts, but it's not the only possible trigger. Therefore, although I believe we are in a secular period of low rates, I don't believe we are in secular period of easy venture funding or "abundant capital". Note that one example would be Japan, where venture funding is historically hard to obtain as investors are much more conservative even though they have had a period of low rates for quite a while. This is because a risk free rate change from 1% to 2% isn't going to make a whole lot of difference to the discount demanded for a bet that has maybe a 50% chance to pay off. Updates of your assessment of risk are going to dominate the pricing of the venture's cashflow.
  • biztos 6y ago
    What does “secular” mean in this context?
    • ximeng 6y ago
      ECONOMICS (of a fluctuation or trend) occurring or persisting over an indefinitely long period. "there is evidence that the slump is not cyclical but secular"
    • oblio 6y ago
• onion2k 6y ago
  The appetite for risk in seed funding is almost entirely gone now. Two decades ago you could raise a small seed round with very little more than a good pitchdeck. Today you won't get a dime until you have an established business with significant revenue. In some ways that's quite reasonable - the barrier to getting traction is much lower now and you can build something very cheaply. It's still frustrating when people claim there's plenty of investment money around though.
  • osullivj 6y ago
    That was my experience. My guess is capital seems abundant to well connected insiders in the Bay Area. It's not in London where revenue is a prerequisite. One startup I know had to go to Berlin for funding.
  • andrewmcwatters 6y ago
    That's comical because if you have an established business, you're not looking for seed funding. You're looking for funding to expand.