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Though this post is great it makes me worry the tech sector has learned nothing from the past. If you're worried about the stock market and the climate for IPOs

by mapgrep 15y ago

Though this post is great it makes me worry the tech sector has learned nothing from the past. If you're worried about the stock market and the climate for IPOs and acquisitions you've failed to learn the lessons from the 2000 bust. Quick refresher: After the first, big dot-com bubble burst a new ethos based on its lessons spread and came to dominate biztech thinking for at least several years. It emphasized slow, organic growth; revenues exceeding expenses from almost the very start of a business; and a bootstrap self reliance that said you pay for growth from income, personal debt (credit cards) and maybe some very trusted seeders (friends and family). Think Joel Spolsky, 37signals, Paul Graham. This was the start of the deprecation of VC. People were receptive to this message not only because VC was discredited and largely AWOL, and because so many revenueless VC backed companies had blown up, and because Spolsky Fried and Graham were such articulate writers, but also because servers and bandwidth and hosting services got so cheap in the early aughts. You didn't need VC to get up and running on a Sun with Netscape Enterprise Server any more; you could conceivably launch with a VPS running a free LAMP stack for $100 month or less. It seems to me a lot of this very sensible, fundamentals-oriented thinking has been lost in the last several years. You still see a lot more bootstraping than in the first boom, don't get me wrong, but you also companies taking loads of VC to stay afloat, before they have a real revenue source, just like in the bad old days. The biggest companies doing this would be Twitter and Foursquare but there are loads more smaller ones beneath them in the same boat obviously. Even Spolsky who partly made his name railing against dot com era VCs (e.g. http://www.joelonsoftware.com/articles/VC.html http://www.joelonsoftware.com/articles/VC.html) took VC for Stack Exchange, a startup without much revenue (though the tech and user experience is superb and the whole Careers 2.0 thing could produce some very solid revenue some day). All of this is a long way of saying, if VCs had been investing in the 2001 style all along -- companies with a demonstrably viable business plan; with real, substantial and growing revenue streams; and with a specific identified use for the capital invested, with plausible scenario for how it would be returned to investors (not IPO/acquisition lottery) -- they would have no reason to worry about the public market because the model for return on their investment would have to do with the income of the company and not the existence of lots of Greater Fools in the stock and M&A markets.

jonmc12 15y ago
This was my first notion too, but I think if you look more closely as Suster's arguments, he is really pointing out disparity between 2 forces: 1. The short-term economy (including stock markets, jobs, growth and politics) 2. The long-term (10-yr) tech investment opportunity So, he is saying "we know the returns are there over 10 years, but we've got to survive in the meantime". Equity markets aside, the fundamentals of business are effected by the short-term economy. I kept wondering too, is this true for private investment (ie, angels)? Are they susceptible to the same short-term concerns? Or will Angels keep pumping money into early stage independent of the economic conditions? Perhaps this post is doing nothing more than pointing out the obsolescence of the VC model through uncertain economic conditions..
- anamax 15y ago
  > I kept wondering too, is this true for private investment (ie, angels)? Are they susceptible to the same short-term concerns? Or will Angels keep pumping money into early stage independent of the economic conditions? Economic conditions have a huge effect on the number of angels. For example, the dot-bomb killed a lot of angels. So did the 2008 crash. The run-up this year created some.
- mapgrep 15y ago
  It's definitely possible that the "fundamentals of business are effected by the short-term economy." Good point. I just didn't see that point being established in the VC post, at least not well. It seemed much more focused on opportunities in equities. Maybe I need to read it more closely. It just seems to me that if you a product that can produce the sort of returns VCs are interested in, it should be valuable enough to customers that it could do well in virtually any macroeconomy. Google, for example, launched its cash cow AdWords just after the first dot-com meltdown.
dxbydt 15y ago
Largely disagree. The stock market indices have always been highly correlated with the tech sector. http://chart.finance.yahoo.com/z?s=XLK&t=5y&q=l&l=on&z=l&c=^GSPC http://chart.finance.yahoo.com/z?s=XLK&t=5y&q=l&... The actual asset correlation between the tech sector ( say the XLF spider ) and the broad stock market ( say SPY ) over a decent timeline say 1 decade is upwards of 85%. ( You can run the exact numbers here, use XLF vs SPY on 10 year http://www.assetcorrelation.com/user/enter_time_corr http://www.assetcorrelation.com/user/enter_time_corr ) The rest of your narrative is wishful thinking. Yes, splosky & pg write great essays, bootstrapped slow organic growth may be nicer than fast VC-backed explosive growth etc. But such slow growing startups generally yield slow growing revenue streams. If that's what you want, you are better off parking your assets in a Vanguard etf. The Greater Fools theory may be derisive but it's what propels every twitter, facebook, groupon, yc backed startups, non-yc backed ones and all the ones in between, for the past 20 years and out into the next 20.

by mapgrep 15y ago

jonmc12 15y ago

This was my first notion too, but I think if you look more closely as Suster's arguments, he is really pointing out disparity between 2 forces: 1. The short-term economy (including stock markets, jobs, growth and politics) 2. The long-term (10-yr) tech investment opportunity So, he is saying "we know the returns are there over 10 years, but we've got to survive in the meantime". Equity markets aside, the fundamentals of business are effected by the short-term economy. I kept wondering too, is this true for private investment (ie, angels)? Are they susceptible to the same short-term concerns? Or will Angels keep pumping money into early stage independent of the economic conditions? Perhaps this post is doing nothing more than pointing out the obsolescence of the VC model through uncertain economic conditions..

anamax 15y ago
> I kept wondering too, is this true for private investment (ie, angels)? Are they susceptible to the same short-term concerns? Or will Angels keep pumping money into early stage independent of the economic conditions? Economic conditions have a huge effect on the number of angels. For example, the dot-bomb killed a lot of angels. So did the 2008 crash. The run-up this year created some.
mapgrep 15y ago
It's definitely possible that the "fundamentals of business are effected by the short-term economy." Good point. I just didn't see that point being established in the VC post, at least not well. It seemed much more focused on opportunities in equities. Maybe I need to read it more closely. It just seems to me that if you a product that can produce the sort of returns VCs are interested in, it should be valuable enough to customers that it could do well in virtually any macroeconomy. Google, for example, launched its cash cow AdWords just after the first dot-com meltdown.

dxbydt 15y ago

Largely disagree. The stock market indices have always been highly correlated with the tech sector. http://chart.finance.yahoo.com/z?s=XLK&t=5y&q=l&l=on&z=l&c=^GSPC http://chart.finance.yahoo.com/z?s=XLK&t=5y&q=l&... The actual asset correlation between the tech sector ( say the XLF spider ) and the broad stock market ( say SPY ) over a decent timeline say 1 decade is upwards of 85%. ( You can run the exact numbers here, use XLF vs SPY on 10 year http://www.assetcorrelation.com/user/enter_time_corr http://www.assetcorrelation.com/user/enter_time_corr ) The rest of your narrative is wishful thinking. Yes, splosky & pg write great essays, bootstrapped slow organic growth may be nicer than fast VC-backed explosive growth etc. But such slow growing startups generally yield slow growing revenue streams. If that's what you want, you are better off parking your assets in a Vanguard etf. The Greater Fools theory may be derisive but it's what propels every twitter, facebook, groupon, yc backed startups, non-yc backed ones and all the ones in between, for the past 20 years and out into the next 20.