9 ms·

Start-ups hit Cash Crunch in Silicon Valley

78 points by ahsanhilal 15y ago

larrys 15y ago
Indinero should consider pivoting. Compete.com only shows them at 800 or so uniques per month. But more importantly it will be extremely challenging for indinero to pick up enough small business accounts to make this idea work. While it's possible that this company could be an acquisition for Intuit that's not going to happen with anything like the user base they have. And getting time strapped small business owners to see value in this service in my opinion (with many years selling to small business and owning several) doesn't seem likely at all.
- Bartlet 15y ago
  Citing Compete is dangerous territory indeed.
- mlinsey 15y ago
  I don't have access to Indinero's data, but for my own startup, Compete's data is no more accurate than a random number generator. Both the absolute numbers and the shape of the graph have essentially zero resemblance to the real data.
  - larrys 15y ago
    If the sample is small then the data will be way off. That's the point. There is low traffic so there is nominal data. That being said comparing compete data to hundreds of parked domains that get enough traffic to have a decent data sample yes I would agree the data is off. But not anywhere near enough to make any difference in the point I was making.
    - mlinsey 15y ago
      Those numbers being off just by a factor of "only" 10-50X (which I think is reasonable given Compete's record) would make a big difference for a B2B site. Even more important from the perspective of a startup would be the presence of an upward trend - and with Compete, I've seen their estimate for our traffic fall by over 50% in months where we grew by around 40%. I'm pretty sure for a "decent sample" - at least, accurate enough for the data to be useful for anything - you need to be at least a top 100 site, and even then I've heard stuff from a couple webmasters of those sites that Compete data is off by an order of magnitude or so.
- dangrossman 15y ago
  What would Intuit want with them, though? Intuit already has Mint and their own service for syncing with all the banks. Indinero seems like a business branded Mint, which Intuit would be able to do themselves. It doesn't seem like there'd be much value in Indinero's brand or accounts either at this stage.
  - jen_h 15y ago
    Plus, Intuit's also using Fonzie to shill reverse mortgages to seniors these days: http://www.youtube.com/watch?v=CogQBgAFwI4 http://www.youtube.com/watch?v=CogQBgAFwI4 As a startup, I might want to steer clear of that particular borg unless prospects were truly dire.
    - callmevlad 15y ago
      The video you linked to is by Quicken Loans, which is in no way affiliated with Intuit. Quicken Loans was very briefly owned by Intuit (from 99-02), but the only thing they share now is the Quicken trademark. http://en.wikipedia.org/wiki/Quicken_Loans http://en.wikipedia.org/wiki/Quicken_Loans
      - jen_h 15y ago
        Interesting - I saw the "Quicken Loans is an Intuit Trademark" scroll at the bottom of the screen during a commercial a few nights back and assumed there was an association past trademark. Wonder if other consumers jump to the same conclusion...
- ericabiz 15y ago
  I own a popular blog, and Google Analytics shows 3x-4x the unique visitors Compete does. So, while I would say that yes, their stats tend to be inaccurate, that's still an alarming trend for InDinero. (Update: I also compared to my startup's site, and GA shows 10x the visitors that Compete does. But still, even if off by a factor of 10, that's not great traffic for such a high-profile startup.)
- jen_h 15y ago
  Using Compete as a sole-source gauging a site's success is a problem. As a data point, their estimate of a site I run is 500x off.
  - larrys 15y ago
    Which of your sites are you referring to? For heytell.com compete is showing 8,265 uniques. Certainly you aren't saying that that site is getting 4,000,000 uniques are you?
    - jen_h 15y ago
      Not at liberty to say. It does appear that Compete currently has a hole when it comes to divining mobile traffic.
- p2w 15y ago
  bingo. the small biz segment is crazy expensive from a cust. acquisition standpoint. you have to raise a fair amount of dough to get a sales beach-head established. aside from intuit and the credit card cartels there aren't a lot of folks who have succeeded in getting scale there.. square may have a good run in that space, but they really are just an optimization play on the cc processing flow..nttawwt....
  - startupcto 15y ago
    Or you have to just stay lean and execute well.
ahsanhilal 15y ago
What is so interesting to me is how everyone was worried about a start-up bubble earlier this year to now where start-up financing is drying up. The whole notion of media speculation by noting short-term trends makes for some great gossip columns, but in reality do not provide real news to the reader. Because in the end this is not news just speculation more fitting for the Sun rather than WSJ.
- tatsuke95 15y ago
  I'm not suggesting it will play out this way, but financing drying up can be a step in the bubble bursting.
pg 15y ago
If this is happening at all, it must be a very recent trend. There was no sign of valuations decreasing a month ago.
- startupcto 15y ago
  Really? I've talk to several VCs that were very active previously and they all agreed that valuations are frothy and now is not the time to invest. Naturally valuations are going to be lower since that's what the buyer's perception of that market.
  - perokreco 15y ago
    Well if the valuations are lower now, wouldn't that mean that now is the best time to invest?
    - chime 15y ago
      Not if it's trending downwards.
  - startupcto 15y ago
    @perokreco just like the stock market, the best time for entrance is when the market's at rock bottom.
    - DavidSJ 15y ago
      10 points to anyone who can reliably identify when the market is at rock bottom.
      - startupcto 15y ago
        Yea I would do that too.
      - fleitz 15y ago
        I'll bite, but you won't like the answer: when it gets to zero. Unless you know someone willing to pay people to take their stock?
startupcto 15y ago
It's disturbing to read XXXXX "has been burning through its $1.1 million quickly" and all they could think of is raising more money. Why about revenue? Did the idea of making money just drop off the face of the Silicon Valley? That's just to show that inexperience entrepreneurs like Jessica ( not saying she's not a smart person ) has hype caught up with reality. It's not surprising that these entrepreneurs will fight a long and tough battle ahead.
- chopsueyar 15y ago
  George Santayana?
- moses1400 15y ago
  Go read Jessica's blog post from August - she advocated raising as much money as you could, etc. I asked the same question as you did on her blog but never got a response. What's wrong with you know making money to grow instead of trying to just grab vc cash.
  - startupcto 15y ago
    The only time it make senses to grab as much money as you can is when you're building to flip. I've always viewed raising as little as you can if you are serious about building a sustainable business.
    - joshu 15y ago
      No. It makes sense to raise as little money as possible as you can when you are building to flip. Think about it. I'll explain the math if you can't figure it out. Not all new companies are startups. Startups are companies that are in search of a business model. They are building something that is at least somewhat capital intensive before they can get revenue. There is a lot to be said about bootstrapping, and if you can do it then that is awesome. But there are lots of ideas that require some cash to get off the ground.
      - 15y ago
Sol2Sol 15y ago
It would be interesting to know what these start-ups facing a cash crunch are all working on. Are they all chasing the same pie or are they a diverse bunch engaged in finding technology solutions for problems in a range of industries? I asked the question but I think I already know the answer.
jmjerlecki 15y ago
Lot of action on Twitter about this. Recent tweet from Chris Dixon: http://twitter.com/#!/cdixon/status/124297282274340864 http://twitter.com/#!/cdixon/status/124297282274340864
joshuamerrill 15y ago
I haven't observed web startups running into a "cash crunch." That said, it does seem to me that the market is exuberant right now. There are business cycles that imply things will go the other way at some point. I also want to point out that it's utterly specious to compare the 826 consumer web startups funded in the last two years against the 416 funded in 1998-2000. How much bigger is the total addressable market? ~200 million people in the late '90s vs. 2.1 billion today? And that doesn't include mobile. Similarly with the comparison of VC fundraising. The capital requirements of an Internet business are completely different today than they were in the '90s. (Does anyone from Web 1.0 remember budgeting $150,000 for servers?)
- alperakgun 15y ago
  This last wave of startups has brought an incredible number of successful ones, and innumerable number ones waiting for monetization. As you said, the audience grew to billions of people. I remember in 2000, we were still trying to convince people that Internet is here to stay,to shop and to do business.
  - joshuamerrill 15y ago
    Similarly in mobile, where worldwide subscribers have grown from ~400 million in 1999 to over 5 billion today. The smartphone segment of that is still relatively small, but it's growing 100% year over year. Meanwhile, today's largest Internet companies have five times as many users as the entire Internet subscriber base in 1999. My point is, startups that can profitably solve a problem have HUGE markets to sell to!
deepGem 15y ago
If a startup idea is really solid and has a potential for revenues, lets say in the short term ( < 1 year), do these market conditions affect funding such a startup idea. I mean, why would a VC or an angel not be convinced to invest in such an idea regardless of market conditions. Just trying to understand.
- skepsis 15y ago
  I don't believe there is a cash crunch, but investing wouldn't dry up completely if there was. There are often exceptions for the best of the best. Investing doesn't come to a full halt during hard times, investors are just more careful. Ideas without a product would be a tougher sell if there was in fact a cash crunch.
jpdoctor 15y ago
Having been through the tech crash v1, I cannot stress enough: You must always have an alternative to VC financing or you are playing russian roulette with the availability of new money.
- suking 15y ago
  Profitability - but VCs don't give a shit about that - in fact one told me that right on the phone... Maybe things will change.
  - jpdoctor 15y ago
    That should not be surprising: Profitability makes VCs less necessary, which gives you leverage to walk away from a term sheet. Google was a great example of that.
    - joshu 15y ago
      How so? Google raised a bunch of cash at the beginning.
      - jpdoctor 15y ago
        There was an angel round early, but when it came time for KP and Sequoia to enter, the dynamics were quite interesting. The company retained an enormous chunk of the ownership in part because they could (already!) walk away if they needed to.
        joshu 15y ago
        I don't believe they had revenue at that point.
        shadowsun7 15y ago
        They didn't have revenue at that point. In fact, they were close to going bankrupt a couple of years later, before Adsense kicked in. Source: In The Plex; also see Ron Conway's speech at Startup School 2010
sudonim 15y ago
My take-away from the article was that at most the stupid money is drying up, and very likely the article is wrong. Opportunities still abound to use technology to disrupt existing markets. If that can be demonstrated to people with capital, they will invest. Even better, if that can be demonstrated to customers, you don't need people to invest.
tworats 15y ago
Interesting twitter thread on this between @davemclure, @pkedrosky, @msuster, and others, part of which is here: http://twitter.com/#!/pkedrosky/status/124323109032574976 http://twitter.com/#!/pkedrosky/status/124323109032574976 (how do you capture a series of related tweets, btw?) Summary seems to be: the cash crunch is not happening (yet). McClure calls it "poor reporting". Looks like TechCrunch has captured a bunch of the related tweets: http://techcrunch.com/2011/10/12/web-start-ups-hit-cash-crunch-or-dont-depending-on-whom-you-ask/ http://techcrunch.com/2011/10/12/web-start-ups-hit-cash-crun...
chris_dcosta 15y ago
I can understand why startups need funding to get them off the ground, but I think this indicates that the focus might change away from "investing in tech that might turn into something" towards "only investing if there is a credible business model". There's a fundamental difference between funding great people with innovative ideas, and investing in proven business models. I'm not saying both can't happen to coincide in the same start-up, but there is some great start-ups with really promising technology, who haven't yet reached the stage where the business model should matter, and this would be like cutting them off at the knees. I guess this is a consequence of bad economic times, moreso than the enthusiasm fading away. At least I hope it is.
nknight 15y ago
Whether the trend is real or not, I note two highly encouraging, closely related things: 1) A hell of a lot less money overall is being poured into "Dot Com II". Even if Dot Bomb II happens, it won't be as bad. 2) A lot more companies are being funded, logically with a lot less money each. There might have been some "excesses" recently, but for once, people did learn. Moreover, using valuations as a proxy for this analysis is kind of misleading. If you put a million dollars in a company and the company goes bust, you're out the million, whether it "bought" you 5% of worthless shares or 50%. It only matters if the company actually does well.
kokey 15y ago
I like watching the discussions articles like this generate. It reminds me of both the dotcom and property bubbles and before it was obvious these were unraveling how people defended their positions. The biggest thing I get reminded of is those who bought property on credit at high values with the intention to flip them quickly at a profit. This reminds me of those who raise a lot of money for a company in order to flip it to the next guy. These are the people who will attack any perceived coming decline the hardest. They will tell you that this time it's different because 1% of China is now online. That technology is here to stay and will always grow and so will the market, with mobiles etc. This is true, but so was it true during the dotcom bubble. We got the timing wrong, and we got the business models wrong for sure. In reality, like after the dotcom bubble, there are startups that formed over the recent years that will survive all this and be as well known as the giants we have today that formed during the dotcom era. It's just that we'll have a decline of appetite to throw money at me-too ideas with unrealistic business plans apart from flipping the company to the next sucker.

78 points by ahsanhilal 15y ago

Indinero should consider pivoting. Compete.com only shows them at 800 or so uniques per month. But more importantly it will be extremely challenging for indinero to pick up enough small business accounts to make this idea work. While it's possible that this company could be an acquisition for Intuit that's not going to happen with anything like the user base they have. And getting time strapped small business owners to see value in this service in my opinion (with many years selling to small business and owning several) doesn't seem likely at all.

Bartlet 15y ago
Citing Compete is dangerous territory indeed.
mlinsey 15y ago
I don't have access to Indinero's data, but for my own startup, Compete's data is no more accurate than a random number generator. Both the absolute numbers and the shape of the graph have essentially zero resemblance to the real data.
- larrys 15y ago
  If the sample is small then the data will be way off. That's the point. There is low traffic so there is nominal data. That being said comparing compete data to hundreds of parked domains that get enough traffic to have a decent data sample yes I would agree the data is off. But not anywhere near enough to make any difference in the point I was making.
  - mlinsey 15y ago
    Those numbers being off just by a factor of "only" 10-50X (which I think is reasonable given Compete's record) would make a big difference for a B2B site. Even more important from the perspective of a startup would be the presence of an upward trend - and with Compete, I've seen their estimate for our traffic fall by over 50% in months where we grew by around 40%. I'm pretty sure for a "decent sample" - at least, accurate enough for the data to be useful for anything - you need to be at least a top 100 site, and even then I've heard stuff from a couple webmasters of those sites that Compete data is off by an order of magnitude or so.
dangrossman 15y ago
What would Intuit want with them, though? Intuit already has Mint and their own service for syncing with all the banks. Indinero seems like a business branded Mint, which Intuit would be able to do themselves. It doesn't seem like there'd be much value in Indinero's brand or accounts either at this stage.
- jen_h 15y ago
  Plus, Intuit's also using Fonzie to shill reverse mortgages to seniors these days: http://www.youtube.com/watch?v=CogQBgAFwI4 http://www.youtube.com/watch?v=CogQBgAFwI4 As a startup, I might want to steer clear of that particular borg unless prospects were truly dire.
  - callmevlad 15y ago
    The video you linked to is by Quicken Loans, which is in no way affiliated with Intuit. Quicken Loans was very briefly owned by Intuit (from 99-02), but the only thing they share now is the Quicken trademark. http://en.wikipedia.org/wiki/Quicken_Loans http://en.wikipedia.org/wiki/Quicken_Loans
    - jen_h 15y ago
      Interesting - I saw the "Quicken Loans is an Intuit Trademark" scroll at the bottom of the screen during a commercial a few nights back and assumed there was an association past trademark. Wonder if other consumers jump to the same conclusion...
ericabiz 15y ago
I own a popular blog, and Google Analytics shows 3x-4x the unique visitors Compete does. So, while I would say that yes, their stats tend to be inaccurate, that's still an alarming trend for InDinero. (Update: I also compared to my startup's site, and GA shows 10x the visitors that Compete does. But still, even if off by a factor of 10, that's not great traffic for such a high-profile startup.)
jen_h 15y ago
Using Compete as a sole-source gauging a site's success is a problem. As a data point, their estimate of a site I run is 500x off.
- larrys 15y ago
  Which of your sites are you referring to? For heytell.com compete is showing 8,265 uniques. Certainly you aren't saying that that site is getting 4,000,000 uniques are you?
  - jen_h 15y ago
    Not at liberty to say. It does appear that Compete currently has a hole when it comes to divining mobile traffic.
p2w 15y ago
bingo. the small biz segment is crazy expensive from a cust. acquisition standpoint. you have to raise a fair amount of dough to get a sales beach-head established. aside from intuit and the credit card cartels there aren't a lot of folks who have succeeded in getting scale there.. square may have a good run in that space, but they really are just an optimization play on the cc processing flow..nttawwt....
- startupcto 15y ago
  Or you have to just stay lean and execute well.

ahsanhilal 15y ago

What is so interesting to me is how everyone was worried about a start-up bubble earlier this year to now where start-up financing is drying up. The whole notion of media speculation by noting short-term trends makes for some great gossip columns, but in reality do not provide real news to the reader. Because in the end this is not news just speculation more fitting for the Sun rather than WSJ.

tatsuke95 15y ago
I'm not suggesting it will play out this way, but financing drying up can be a step in the bubble bursting.

pg 15y ago

If this is happening at all, it must be a very recent trend. There was no sign of valuations decreasing a month ago.

startupcto 15y ago
Really? I've talk to several VCs that were very active previously and they all agreed that valuations are frothy and now is not the time to invest. Naturally valuations are going to be lower since that's what the buyer's perception of that market.
- perokreco 15y ago
  Well if the valuations are lower now, wouldn't that mean that now is the best time to invest?
  - chime 15y ago
    Not if it's trending downwards.
- startupcto 15y ago
  @perokreco just like the stock market, the best time for entrance is when the market's at rock bottom.
  - DavidSJ 15y ago
    10 points to anyone who can reliably identify when the market is at rock bottom.
    - startupcto 15y ago
      Yea I would do that too.
    - fleitz 15y ago
      I'll bite, but you won't like the answer: when it gets to zero. Unless you know someone willing to pay people to take their stock?

startupcto 15y ago

It's disturbing to read XXXXX "has been burning through its $1.1 million quickly" and all they could think of is raising more money. Why about revenue? Did the idea of making money just drop off the face of the Silicon Valley? That's just to show that inexperience entrepreneurs like Jessica ( not saying she's not a smart person ) has hype caught up with reality. It's not surprising that these entrepreneurs will fight a long and tough battle ahead.

chopsueyar 15y ago
George Santayana?
moses1400 15y ago
Go read Jessica's blog post from August - she advocated raising as much money as you could, etc. I asked the same question as you did on her blog but never got a response. What's wrong with you know making money to grow instead of trying to just grab vc cash.
- startupcto 15y ago
  The only time it make senses to grab as much money as you can is when you're building to flip. I've always viewed raising as little as you can if you are serious about building a sustainable business.
  - joshu 15y ago
    No. It makes sense to raise as little money as possible as you can when you are building to flip. Think about it. I'll explain the math if you can't figure it out. Not all new companies are startups. Startups are companies that are in search of a business model. They are building something that is at least somewhat capital intensive before they can get revenue. There is a lot to be said about bootstrapping, and if you can do it then that is awesome. But there are lots of ideas that require some cash to get off the ground.
    - 15y ago

Sol2Sol 15y ago

It would be interesting to know what these start-ups facing a cash crunch are all working on. Are they all chasing the same pie or are they a diverse bunch engaged in finding technology solutions for problems in a range of industries? I asked the question but I think I already know the answer.

jmjerlecki 15y ago

Lot of action on Twitter about this. Recent tweet from Chris Dixon: http://twitter.com/#!/cdixon/status/124297282274340864 http://twitter.com/#!/cdixon/status/124297282274340864

joshuamerrill 15y ago

I haven't observed web startups running into a "cash crunch." That said, it does seem to me that the market is exuberant right now. There are business cycles that imply things will go the other way at some point. I also want to point out that it's utterly specious to compare the 826 consumer web startups funded in the last two years against the 416 funded in 1998-2000. How much bigger is the total addressable market? ~200 million people in the late '90s vs. 2.1 billion today? And that doesn't include mobile. Similarly with the comparison of VC fundraising. The capital requirements of an Internet business are completely different today than they were in the '90s. (Does anyone from Web 1.0 remember budgeting $150,000 for servers?)

alperakgun 15y ago
This last wave of startups has brought an incredible number of successful ones, and innumerable number ones waiting for monetization. As you said, the audience grew to billions of people. I remember in 2000, we were still trying to convince people that Internet is here to stay,to shop and to do business.
- joshuamerrill 15y ago
  Similarly in mobile, where worldwide subscribers have grown from ~400 million in 1999 to over 5 billion today. The smartphone segment of that is still relatively small, but it's growing 100% year over year. Meanwhile, today's largest Internet companies have five times as many users as the entire Internet subscriber base in 1999. My point is, startups that can profitably solve a problem have HUGE markets to sell to!

deepGem 15y ago

If a startup idea is really solid and has a potential for revenues, lets say in the short term ( < 1 year), do these market conditions affect funding such a startup idea. I mean, why would a VC or an angel not be convinced to invest in such an idea regardless of market conditions. Just trying to understand.

skepsis 15y ago
I don't believe there is a cash crunch, but investing wouldn't dry up completely if there was. There are often exceptions for the best of the best. Investing doesn't come to a full halt during hard times, investors are just more careful. Ideas without a product would be a tougher sell if there was in fact a cash crunch.

jpdoctor 15y ago

Having been through the tech crash v1, I cannot stress enough: You must always have an alternative to VC financing or you are playing russian roulette with the availability of new money.

suking 15y ago
Profitability - but VCs don't give a shit about that - in fact one told me that right on the phone... Maybe things will change.
- jpdoctor 15y ago
  That should not be surprising: Profitability makes VCs less necessary, which gives you leverage to walk away from a term sheet. Google was a great example of that.
  - joshu 15y ago
    How so? Google raised a bunch of cash at the beginning.
    - jpdoctor 15y ago
      There was an angel round early, but when it came time for KP and Sequoia to enter, the dynamics were quite interesting. The company retained an enormous chunk of the ownership in part because they could (already!) walk away if they needed to.
      - joshu 15y ago
        I don't believe they had revenue at that point.
      - shadowsun7 15y ago
        They didn't have revenue at that point. In fact, they were close to going bankrupt a couple of years later, before Adsense kicked in. Source: In The Plex; also see Ron Conway's speech at Startup School 2010

sudonim 15y ago

My take-away from the article was that at most the stupid money is drying up, and very likely the article is wrong. Opportunities still abound to use technology to disrupt existing markets. If that can be demonstrated to people with capital, they will invest. Even better, if that can be demonstrated to customers, you don't need people to invest.

tworats 15y ago

Interesting twitter thread on this between @davemclure, @pkedrosky, @msuster, and others, part of which is here: http://twitter.com/#!/pkedrosky/status/124323109032574976 http://twitter.com/#!/pkedrosky/status/124323109032574976 (how do you capture a series of related tweets, btw?) Summary seems to be: the cash crunch is not happening (yet). McClure calls it "poor reporting". Looks like TechCrunch has captured a bunch of the related tweets: http://techcrunch.com/2011/10/12/web-start-ups-hit-cash-crunch-or-dont-depending-on-whom-you-ask/ http://techcrunch.com/2011/10/12/web-start-ups-hit-cash-crun...

chris_dcosta 15y ago

I can understand why startups need funding to get them off the ground, but I think this indicates that the focus might change away from "investing in tech that might turn into something" towards "only investing if there is a credible business model". There's a fundamental difference between funding great people with innovative ideas, and investing in proven business models. I'm not saying both can't happen to coincide in the same start-up, but there is some great start-ups with really promising technology, who haven't yet reached the stage where the business model should matter, and this would be like cutting them off at the knees. I guess this is a consequence of bad economic times, moreso than the enthusiasm fading away. At least I hope it is.

nknight 15y ago

Whether the trend is real or not, I note two highly encouraging, closely related things: 1) A hell of a lot less money overall is being poured into "Dot Com II". Even if Dot Bomb II happens, it won't be as bad. 2) A lot more companies are being funded, logically with a lot less money each. There might have been some "excesses" recently, but for once, people did learn. Moreover, using valuations as a proxy for this analysis is kind of misleading. If you put a million dollars in a company and the company goes bust, you're out the million, whether it "bought" you 5% of worthless shares or 50%. It only matters if the company actually does well.

kokey 15y ago

I like watching the discussions articles like this generate. It reminds me of both the dotcom and property bubbles and before it was obvious these were unraveling how people defended their positions. The biggest thing I get reminded of is those who bought property on credit at high values with the intention to flip them quickly at a profit. This reminds me of those who raise a lot of money for a company in order to flip it to the next guy. These are the people who will attack any perceived coming decline the hardest. They will tell you that this time it's different because 1% of China is now online. That technology is here to stay and will always grow and so will the market, with mobiles etc. This is true, but so was it true during the dotcom bubble. We got the timing wrong, and we got the business models wrong for sure. In reality, like after the dotcom bubble, there are startups that formed over the recent years that will survive all this and be as well known as the giants we have today that formed during the dotcom era. It's just that we'll have a decline of appetite to throw money at me-too ideas with unrealistic business plans apart from flipping the company to the next sucker.