5 ms·

And yet so many modern day startups have no viable exit strategy beyond acquisition- what does that say about the state of the industry, and of founders' commit

And yet so many modern day startups have no viable exit strategy beyond acquisition- what does that say about the state of the industry, and of founders' commitments towards building a sustainable product?

andai 5y ago
Doesn't exiting necessarily imply a change in leadership?
- Apocryphon 5y ago
  IPOs are the alternative form of exit and they certainly don't.
  - dundarious 5y ago
    Where does the drive for an "exit" come from? It's a jargon term not used in the entrepreneurial side of most other industries.
    - projectazorian 5y ago
      Many people are attracted to this industry by the stories of Google/FB/etc early employees walking away with 8 figure sums and retiring after a few years of work. Thus the exit obsession.
    - ska 5y ago
      > It's a jargon term not used in the entrepreneurial side of most other industries. That's because in most of the industries you are thinking of, you can get traditional financing. The need for an exit of some sort follows from the financial structure.
      - dundarious 5y ago
        I don't think elsewhere it's called an "exit strategy" to seek financing, be that IPO, Shark Tank, or the much more common and mundane options. I'm not even naively proposing that it's somehow bad to sell a profitable business in this way. I know selling a piece of your business involves diluting your control, but it is nearly always contractually required to not involve an "exit" (in terms of involvement) outside of tech. (Selling it wholesale does in any industry) I'm just confused by two interlinked things. The terminology of "exit" and the implicit need for an "exit". To me, the focus on "exit" does imply moving away from involvement with the business (in how the phrase sounds, and most importantly, in how it seems to be most often used). Which to me signifies a culture built around starting businesses and ultimately around becoming a VC yourself. Doing this is not notable, but presuming it is. So either "exit" is any kind of large financing, and it doesn't involve "exit" in terms of involvement, in which case the term "exit" is strange to me. Or "exit" is selling control and does imply "exit" in terms of involvement, in which case it's interesting that this is presumed to be the goal of starting a profitable business. It seems in practice to be just jargon that covers both, but more the latter.
        ska 5y ago
        > I don't think elsewhere it's called an "exit strategy" to seek financing I don't think that's how it is used in this context either. A lot of early stage money in tech startups is there for the short(ish) term, and they definitely want to get their money out (i.e. "exit") at some point, not build a business over decades. It's their usage of "exit", and the need to have a strategy for it, which drives the usage more broadly, I think. Agree it can be a bit confusing by confounding the above needs.
        dundarious 5y ago
        Right, it's the focus on "exit" also for founders (who also run the business) that puzzles me. As for the "exit=financing" association, I made that based on your comment: > > It's a jargon term not used in the entrepreneurial side of most other industries. > That's because in most of the industries you are thinking of, you can get traditional financing. > The need for an exit of some sort follows from the financial structure. But I think I misunderstood and you were saying something more like that the lack of traditional financing leads to a form of financing that necessitates selling the business wholesale.
    - deleted 5y ago
      [deleted]
BaseballPhysics 5y ago
> And yet so many modern day startups have no viable exit strategy beyond acquisition Bandcamp was already profitable and has been for years. The pandemic dramatically increased their sales. They were doing fine. Why did they need an exit? That is the real flaw of SV thinking: that simply being a profitable, going concern is somehow inadequate. The result is monopoly accretion as small companies are repeatedly swallowed up by bigger ones.
- Invictus0 5y ago
  SV is not a homogeneous thought-entity. Maybe the founders were tired of running it or wanted to move on to do something else. Businesses get bought and sold all the time and don't need to be a lifetime commitment for the founder (it would still get sold or shutdown at that point anyway).
  - pketh 5y ago
    You make a good point, but I wonder what the real world business equivalent of this is? Is it the destiny of every successful café to become acquired by Starbucks one day? (assuming there's not a better comparison I should be thinking of)
    - ribosometronome 5y ago
      Successful restaurants, bars, etc do change owners from time to time as owners retire or simply want a change of pace. I imagine the difference is the amount of money involved. It's possible for an individual to save up several hundred thousand to a million to buy an existing, profitable small business. Less so the hundreds of millions to billion+ a business like this might go for.
      - bigiain 5y ago
        Around me in Sydney, there is a major “hospitality group” that’s spent the last 10+ years buying up bars and pubs. There’s a few smaller operations doing it as well. The big one, Merivale, seems to have practically unlimited money to throw at interesting or struggling venues. While I really don’t like the changes they eventually make to most places they buy, I have a grudging respect for the business acumen of Justin Hemmes the owner. He seems to have an uncanny knack for having bought a good sized venue a year or two before, in every area that becomes cool and popular. Often they’ll barely change for a few years, while the demographics around them shift, then one day they’ve suddenly been renovated and there’s a queue of b-grade celebrities all dressed up and lined up around the block waiting to get in every weekend for a month or two. I totally get that my demographic spends less over the bar than the crowd he’s so good at attracting, but he’s ruined two of my local ex-favourite pubs in the last few years, and over decades he’s turned some of my favourite music venues in things like trashy Mexican restaurant/bars. But yeah, even as successful as he is in his field, I doubt it’ll get him into the three comma club.
antihero 5y ago
Why do things need an exit strategy, why can they not simply exist and do good work and pay people fairly? Does everything have to exist purely to maximise profit?
- heleninboodler 5y ago
  The employees who traded compensation for equity probably don't agree. Bandcamp's success is built partially on this trade and at some point it needs to pay off for them. I suppose they could stay private forever and give out profit-sharing bonuses, but I think people go into this expecting an exit.
  - Apocryphon 5y ago
    Did Bandcamp offer employee equity?
    - heleninboodler 5y ago
      Would they have ever managed to hire anyone if they didn't?
      - Apocryphon 5y ago
        Who's to say they didn't? As mentioned elsewhere (https://news.ycombinator.com/item?id=30532741 https://news.ycombinator.com/item?id=30532741), they were always focused on slow and steady growth and seemed to be more lifestyle business than wannabe unicorn. Not the shop to join if you wanted lottery ticket options. Maybe they didn't.
      - BaseballPhysics 5y ago
        Some people just want to work at a decent company for reasonable pay, and aren't looking to get filthy rich busting their asses for a FAANG. Bandcamp is absolutely a company I would've considered working for. I'm long past the point in my career where I care about a lottery ticket. They were profitable, big enough to be sustainable, but small enough to be nimble. The management seemed to make all the right noises regarding their values and motivations. I'll take that over a massive tech company or a tiny startup any day of the week.
feoren 5y ago
The very term "exit strategy" answers your own question: if you're committed to building a sustainable product, with long-term sustainable profits, caring for your employees and your customers, without any explicit plans to sell off your company to random megacorp, where it will be scrapped for parts, then you're a dumb loser trying to build a lifestyle business and you deserve to be shamed out of Silicon Valley! How dare you waste our precious venture capitalist time with that crap!? I get it: venture capitalists are interested in the most efficient possible way to loot the economy, and funding non-viable startups until they're so overhyped that some other idiot buys the over-inflated toxic asset from them before it blows is a great way to do that. Of course speaking out against VC and startup culture on Hacker News is going to get me downvoted to oblivion, so go ahead and mash that down arrow. Don't forget to dislike and unsubscribe!
- deleted 5y ago
  [deleted]
- cgrealy 5y ago
  I completely agree, but this isn't just a VC problem. The entire current economic system incentivises this.
  - hedora 5y ago
    Yeah. They also could have IPOed, but either way the fundamental issue is that people looking for long term investments are willing to pay 10x forward earnings. How do you compete with that without getting employees to make major personal sacrifices?
- Apocryphon 5y ago
  HN is a lot more jaded towards startups and founders’ games these days. Back in late 2019 there was this thread about a Garry Tan video where the tone of the discussion was fiercely against working for startups, saying it was better to join FAANG or start your own company instead: https://news.ycombinator.com/item?id=21865065 https://news.ycombinator.com/item?id=21865065

andai 5y ago

Doesn't exiting necessarily imply a change in leadership?

Apocryphon 5y ago
IPOs are the alternative form of exit and they certainly don't.
- dundarious 5y ago
  Where does the drive for an "exit" come from? It's a jargon term not used in the entrepreneurial side of most other industries.
  - projectazorian 5y ago
    Many people are attracted to this industry by the stories of Google/FB/etc early employees walking away with 8 figure sums and retiring after a few years of work. Thus the exit obsession.
  - ska 5y ago
    > It's a jargon term not used in the entrepreneurial side of most other industries. That's because in most of the industries you are thinking of, you can get traditional financing. The need for an exit of some sort follows from the financial structure.
    - dundarious 5y ago
      I don't think elsewhere it's called an "exit strategy" to seek financing, be that IPO, Shark Tank, or the much more common and mundane options. I'm not even naively proposing that it's somehow bad to sell a profitable business in this way. I know selling a piece of your business involves diluting your control, but it is nearly always contractually required to not involve an "exit" (in terms of involvement) outside of tech. (Selling it wholesale does in any industry) I'm just confused by two interlinked things. The terminology of "exit" and the implicit need for an "exit". To me, the focus on "exit" does imply moving away from involvement with the business (in how the phrase sounds, and most importantly, in how it seems to be most often used). Which to me signifies a culture built around starting businesses and ultimately around becoming a VC yourself. Doing this is not notable, but presuming it is. So either "exit" is any kind of large financing, and it doesn't involve "exit" in terms of involvement, in which case the term "exit" is strange to me. Or "exit" is selling control and does imply "exit" in terms of involvement, in which case it's interesting that this is presumed to be the goal of starting a profitable business. It seems in practice to be just jargon that covers both, but more the latter.
      - ska 5y ago
        > I don't think elsewhere it's called an "exit strategy" to seek financing I don't think that's how it is used in this context either. A lot of early stage money in tech startups is there for the short(ish) term, and they definitely want to get their money out (i.e. "exit") at some point, not build a business over decades. It's their usage of "exit", and the need to have a strategy for it, which drives the usage more broadly, I think. Agree it can be a bit confusing by confounding the above needs.
        dundarious 5y ago
        Right, it's the focus on "exit" also for founders (who also run the business) that puzzles me. As for the "exit=financing" association, I made that based on your comment: > > It's a jargon term not used in the entrepreneurial side of most other industries. > That's because in most of the industries you are thinking of, you can get traditional financing. > The need for an exit of some sort follows from the financial structure. But I think I misunderstood and you were saying something more like that the lack of traditional financing leads to a form of financing that necessitates selling the business wholesale.
  - deleted 5y ago
    [deleted]

BaseballPhysics 5y ago

> And yet so many modern day startups have no viable exit strategy beyond acquisition Bandcamp was already profitable and has been for years. The pandemic dramatically increased their sales. They were doing fine. Why did they need an exit? That is the real flaw of SV thinking: that simply being a profitable, going concern is somehow inadequate. The result is monopoly accretion as small companies are repeatedly swallowed up by bigger ones.

Invictus0 5y ago
SV is not a homogeneous thought-entity. Maybe the founders were tired of running it or wanted to move on to do something else. Businesses get bought and sold all the time and don't need to be a lifetime commitment for the founder (it would still get sold or shutdown at that point anyway).
- pketh 5y ago
  You make a good point, but I wonder what the real world business equivalent of this is? Is it the destiny of every successful café to become acquired by Starbucks one day? (assuming there's not a better comparison I should be thinking of)
  - ribosometronome 5y ago
    Successful restaurants, bars, etc do change owners from time to time as owners retire or simply want a change of pace. I imagine the difference is the amount of money involved. It's possible for an individual to save up several hundred thousand to a million to buy an existing, profitable small business. Less so the hundreds of millions to billion+ a business like this might go for.
    - bigiain 5y ago
      Around me in Sydney, there is a major “hospitality group” that’s spent the last 10+ years buying up bars and pubs. There’s a few smaller operations doing it as well. The big one, Merivale, seems to have practically unlimited money to throw at interesting or struggling venues. While I really don’t like the changes they eventually make to most places they buy, I have a grudging respect for the business acumen of Justin Hemmes the owner. He seems to have an uncanny knack for having bought a good sized venue a year or two before, in every area that becomes cool and popular. Often they’ll barely change for a few years, while the demographics around them shift, then one day they’ve suddenly been renovated and there’s a queue of b-grade celebrities all dressed up and lined up around the block waiting to get in every weekend for a month or two. I totally get that my demographic spends less over the bar than the crowd he’s so good at attracting, but he’s ruined two of my local ex-favourite pubs in the last few years, and over decades he’s turned some of my favourite music venues in things like trashy Mexican restaurant/bars. But yeah, even as successful as he is in his field, I doubt it’ll get him into the three comma club.

antihero 5y ago

Why do things need an exit strategy, why can they not simply exist and do good work and pay people fairly? Does everything have to exist purely to maximise profit?

heleninboodler 5y ago
The employees who traded compensation for equity probably don't agree. Bandcamp's success is built partially on this trade and at some point it needs to pay off for them. I suppose they could stay private forever and give out profit-sharing bonuses, but I think people go into this expecting an exit.
- Apocryphon 5y ago
  Did Bandcamp offer employee equity?
  - heleninboodler 5y ago
    Would they have ever managed to hire anyone if they didn't?
    - Apocryphon 5y ago
      Who's to say they didn't? As mentioned elsewhere (https://news.ycombinator.com/item?id=30532741 https://news.ycombinator.com/item?id=30532741), they were always focused on slow and steady growth and seemed to be more lifestyle business than wannabe unicorn. Not the shop to join if you wanted lottery ticket options. Maybe they didn't.
    - BaseballPhysics 5y ago
      Some people just want to work at a decent company for reasonable pay, and aren't looking to get filthy rich busting their asses for a FAANG. Bandcamp is absolutely a company I would've considered working for. I'm long past the point in my career where I care about a lottery ticket. They were profitable, big enough to be sustainable, but small enough to be nimble. The management seemed to make all the right noises regarding their values and motivations. I'll take that over a massive tech company or a tiny startup any day of the week.

feoren 5y ago

The very term "exit strategy" answers your own question: if you're committed to building a sustainable product, with long-term sustainable profits, caring for your employees and your customers, without any explicit plans to sell off your company to random megacorp, where it will be scrapped for parts, then you're a dumb loser trying to build a lifestyle business and you deserve to be shamed out of Silicon Valley! How dare you waste our precious venture capitalist time with that crap!? I get it: venture capitalists are interested in the most efficient possible way to loot the economy, and funding non-viable startups until they're so overhyped that some other idiot buys the over-inflated toxic asset from them before it blows is a great way to do that. Of course speaking out against VC and startup culture on Hacker News is going to get me downvoted to oblivion, so go ahead and mash that down arrow. Don't forget to dislike and unsubscribe!

deleted 5y ago
[deleted]
cgrealy 5y ago
I completely agree, but this isn't just a VC problem. The entire current economic system incentivises this.
- hedora 5y ago
  Yeah. They also could have IPOed, but either way the fundamental issue is that people looking for long term investments are willing to pay 10x forward earnings. How do you compete with that without getting employees to make major personal sacrifices?
Apocryphon 5y ago
HN is a lot more jaded towards startups and founders’ games these days. Back in late 2019 there was this thread about a Garry Tan video where the tone of the discussion was fiercely against working for startups, saying it was better to join FAANG or start your own company instead: https://news.ycombinator.com/item?id=21865065 https://news.ycombinator.com/item?id=21865065