23 ms·

Y Combinator's Message to Founders

580 points by thesausageking 4y ago

thecleaner 4y ago
Honestly I would just go work for FB/Google/MS/Apple and maybe Amazon. I'll only consider a startup if I can grow with the company and corresponding opportunities don't exist in the big ones. If the YC theory is basically that employees are a toxic asset, they are bound to get people who turn out that way since the more performant and responsible folk will opt for bigger and more stable companies. Edit: I don't really think all YC backed companies think that low of employees.
- mrlatinos 4y ago
  FB and MS are freezing hiring. Apple slowing.
thecleaner 4y ago
Is it possible to raise a series A before reaching product market fit ? I thought it's more like you raise a Series A to scale up ? Why would someone give you 20M dollars to just do research ? Never did this myself btw do maybe all these questions are tosh.
- SpicyLemonZest 4y ago
  In the fundraising environment of the past few years, well-connected companies could raise a series A before even having a commercial product. (https://techcrunch.com/2019/12/17/anyscale-ray-project-distributed-computing-a16z/ https://techcrunch.com/2019/12/17/anyscale-ray-project-distr... is the example I remember most clearly)
  - foobiekr 4y ago
    This is actually traditional venture for real technology. The only companies with customer before the series A are variations of websites and apps, a narrow slice of the tech sector.
    - SpicyLemonZest 4y ago
      Interesting. I guess that makes a lot of sense now that you say it, it's gonna be hard to build anything physical without spending a lot first.
quadcore 4y ago
Layperson here, I didn't know we were in an economic crisis that bad, is it global? What are the reasons?
- rrrrrrrrrrrryan 4y ago
  Inflation and interest rates are rising (for lots of reasons), which means money is getting much more expensive. This means that high-growth companies and unprofitable companies are going to get burned hard in the near future, because their very existence relies on access to cheap money. The wider economy isn't terrible. Inflation is rising and GDP is pulling back a little bit, but unemployment is low, and wages are mostly flat. But the NASDAQ (comprised of mostly tech stocks) is down 26%+ year-to-date and falling. People on this forum mostly work in software, and this downturn will almost certainly shift the balance of power from unprofitable high-growth companies (especially crypto, Web3, etc.) to companies that actually make real money.
- gen220 4y ago
  There's a trend of global economic inflation, caused by supply issues in energy (oil, gas in all forms) related to the war in Ukraine, supply issues more broadly related to a hangover from COVID's supply/demand shocks. Interest rates are rising, to appease inflation. As the interest rate goes up, allocators of capital have less appetite for risky allocations. This makes access to capital for VC firms becomes more competitive. This makes access to capital for "startups" becomes more competitive. There's also a bigger macrotrend, which is another hangover from COVID: investment poured into the tech sector, which was booming during COVID. Investors over-bullishly priced-in the idea that this boom was, in fact, a new baseline or indicative of future exponential growth. As we recover from COVID, these pricings are increasingly revealed to be wrong as companies generally report post-COVID numbers that are closer to pre-COVID numbers. This is bad for investors leveraged on tech. Therefore, it's bad for VCs that raised LP capital on the basis of COVID performance. Therefore, it's bad for companies that raised >20x ARR multiples on the basis of COVID performance. Basically, it's a single or double whammy for most of the economy, but a double or triple whammy for unprofitable startups.
  - 4y ago
lvl102 4y ago
There were so many unicorns that were pulled forward to go public that I don’t even think there’s this gigantic fluff remaining (a la dotcom). They already busted and it doesn’t even feel like we crashed.
irthomasthomas 4y ago
Bleak. "No one cannot predict how bad the economy will get, but things don't look good." Clif notes: - Plan for the worst ... cut costs within 30 days... get to Default Alive[0] - Get money if you need it, and if you can - With or without money you must survive 24 months - VCs are people too, and subject to the same downturn. Adjust your fund raising expectations in the same direction. Expect lower valuations, lower rounds and many fewer deals. - Disproportionate impact on international, asset heavy, low margin, hardtech, high burn, long road to revenue companies - If you get a meeting, don't take that as a good sign, we still take a lot of meetings. - Future fundraises will be much more difficult than they have been in the last 5 years. - Don't expect more money until you demonstrate product market fit. - If you planned on raising money in the next 6-12 months, we recommend changing that plan, or you may be tryng to raise at the peak of the downturn - If you survive, and your competitor does not, you may pick up significant market share. [0] http://www.paulgraham.com/aord.html http://www.paulgraham.com/aord.html
- sbierwagen 4y ago
  >- If you get a meeting, don't take that as a good sign, we still take a lot of meetings. They don't explicitly spell this out, but this is because being a VC is still a job. Even if they're not actually making any deals, management doesn't want to see everyone sitting at a desk scrolling twitter for 8 hours, so instead they do pointless meetings. Matt Levine had a fun Great Recession story which I cannot find right now, which is that during 2008 in the M&A department at Goldman Sachs everyone still came to work, even though obviously merger and acquisition activity was way down. They would spend every day doing calls and making pitchbooks, all of which went nowhere. Goldman didn't close a deal for a full year. A floor full of people could have just collected a salary and stayed home for 12 months and it would have had an identical outcome.
  - deleted 4y ago
    [deleted]
  - CallMeJim 4y ago
    When the first deals started closing again, who would have won the deals? The company that stayed home for 12 months? or the company that continued working for 12 months? Imagine swimming hard against a strong current. You get nowhere (or maybe even go backwards slightly!), but when the current changes you make a lot of progress. If you don't swim at all, you go backwards. When the current changes, you may get to where you were at the start.
jonas_kgomo 4y ago
I was at Palintir, and one of the things I learned from visiting is that they thrive in times of war, pandemics and recessions. Why aren't companies designed to be antifragile like this
- missedthecue 4y ago
  ...? Companies, by definition, can only be thriving when people are spending money with them. By definition, a bad economy means people aren't spending much money. Specific sectors may do well during recessions. I knew of a business that used to publish bankruptcy notices for attorneys. A recession meant doubling their sales. But it's necessarily impossible that every business can be "anti-fragile".
- KptMarchewa 4y ago
  Defense companies profit from war, more at 11.
UncleOxidant 4y ago
I still get a couple dozen emails/week from recruiters in addition to phone calls, linkedIn connection requests,etc. - it seems like it's still close to the peak number. However, I suspect that's about to stop abruptly.
- deltree7 4y ago
  employment is a lagging indicator.
blobbers 4y ago
RIP Sequoia Times The king is dead Long live YC
geeky4qwerty 4y ago
That double negative hurt my head.
CHB0403085482 4y ago
>Posting a picture of words on twitter Wouldn't a blog serve the message better?
- vmception 4y ago
  It wasnt to us, it was to the people in the club
MichaelMoser123 4y ago
I don't remember that they said something like this during COVID, Did they say something like that in 2008, or is that an unprecedented statement? I mean they exist since 2005, what did they say during the "Great Recession" ? (i think they called it like that, at some point...) I mean, i mean: is this one going to be worse than 2008? Fortune magazine is trying to compare our current problems with 2008. They say that it might turn out to be worse, this time, as 2008 was merely a "black swan event", the difference being that inflation is coming "for real" right now. https://fortune.com/2022/03/26/great-recession-key-differences-us-economy-inflation/ https://fortune.com/2022/03/26/great-recession-key-differenc... Also this: "By some standards, stocks are now even more overvalued than they were back then, leading some experts to argue we’re experiencing an “everything bubble.” Dan Ives told Fortune. “Tech valuations relative to growth, in particular, are much cheaper today, by about 25%, than they were going back to ‘07.” Ives argued that the financial stability of tech stalwarts, which by some estimates represent over 20% of the S&P 500, is unparalleled, noting that the Great recession was mainly a “black swan driven event.” " So they might have to come up with a new name, if this one turns out to be worse. Maybe they should go for the "Even Greater Recession", abbreviated as EGR... Also the economists don't appear to have predicted it. Well, at least US Intel was right about the war in Ukraine...
- wozer 4y ago
  I believe YCombinator was still very small in 2008. Otherwise, they would probably have said something similar.
deleted 4y ago
[deleted]
rkagerer 4y ago
Can anyone post a copy with intact links?
- hoofhearted 4y ago
  https://news.ycombinator.com/item?id=31433221 https://news.ycombinator.com/item?id=31433221
- petesmithy 4y ago
  "Default Alive" - http://www.paulgraham.com/aord.html http://www.paulgraham.com/aord.html "pre-product market fit" - links to a list of resources: - The only thing that matters by Marc Andreessen https://pmarchive.com/guide_to_startups_part4.html https://pmarchive.com/guide_to_startups_part4.html - What is “product/market fit” by Emmett Shear: https://twitter.com/eshear/status/1155180521485242368?lang=en https://twitter.com/eshear/status/1155180521485242368?lang=e... - Andy Rachleff on “How to Know If You’ve Got Product Market Fit” https://greatness.floodgate.com/episodes/andy-rachleff-on-how-to-know-if-youve-got-product-market-fit-XxGvX8DH https://greatness.floodgate.com/episodes/andy-rachleff-on-ho... - How Superhuman Built an Engine to Find Product/Market Fit by Rahul Vohra https://firstround.com/review/how-superhuman-built-an-engine-to-find-product-market-fit/ https://firstround.com/review/how-superhuman-built-an-engine... - The real product market fit by Michael Seibel https://www.ycombinator.com/library/5z-the-real-product-market-fit https://www.ycombinator.com/library/5z-the-real-product-mark... - Jeff Chang's blog - specifically his take on retention as measure of PMF https://www.growthengblog.com/ https://www.growthengblog.com/ - Sequoia's Doug Leone discusses PMF https://streamable.com/rm7pr7 https://streamable.com/rm7pr7 - Dalton Caldwell & Michael Seibel discuss PMF https://youtu.be/UqKzpLqXuI0 https://youtu.be/UqKzpLqXuI0 "Series A Milestones" - links to a private resource available only to YC founders "Save your startup during an economic downturn" - https://www.youtube.com/watch?v=0OVSTWozvfY https://www.youtube.com/watch?v=0OVSTWozvfY
  - adamqureshi 4y ago
    THANK YOU!
  - 4y ago
SkipperCat 4y ago
Companies that have a good ideas and provide needed product/services will survive. I think the era of stupid money chasing silly ideas are over. Same thing happened at the end of the dot-com era.
- deleted 4y ago
  [deleted]
- altdataseller 4y ago
  Lots of startups provide needed products and services. I don't think that's enough. They need to provide needed products/services in a way that can be sold/marketed profitably, and scaled profitably.
  - TameAntelope 4y ago
    And the idea needs to be profitable quickly. Don't try starting a business where your sales cycle take months.
  - ackbar03 4y ago
    Yes. I always need 1 dollar for 95 cents.
    - rufus_foreman 4y ago
      Losing money on every transaction is no problem, they can always make it up on volume.
    - daniel-cussen 4y ago
      You know that's my pitch? Selling a commodity for half. Because I SUCK at selling, so that's my out, the same exact thing anybody can do in exactly the same way, that every company is on track to spend more than 10% of their revenue on, but for half. The bottleneck of machine learning in half. In fact you're being quite generous with your offer of 1 dollar for 95 cents, but I must decline. 50 might work much better for you, you might secretly need 1 dollar for 50 cents more than you need 1 dollar for 95 cents. But are embarrassed to ask. Provided we're talking about matrix multiplication. And like everyone's business plan is turning matrix multiplication, better known as AI, into money, so there could be a good synergy there. https://www.fgemm.com https://www.fgemm.com, coming soon.
pl0x 4y ago
candiddevmike 4y ago
Going to be interesting to see which free plans get cut, prices skyrocket, or what companies stop having "open core" software. Growth hacks like these have always traded revenue instead of cash for advertising/exposure, and I think it gave well-capitalized companies too much of an edge where they can effectively give things away and undercut competitors who are trying to be sustainable. Would've also been interesting if they had separate guidance for crypto startups.
- lumost 4y ago
  The guidance for crypto startups might be to fold and return investor money. There are a few ideas which seem "interesting" such as enterprise blockchains for bank accounting, or smart contracts for inter-bank contracts. These help large financial institutions prove to auditors that they met their contractual obligations and no funny business happened. BTC will probably stabilize as a tradeable store of value as a hedge against "unfriendly" governments. But there is a huge sea of blockchain startups which are trading alt-coins, or providing trading analytics software/exchanges for alt-coins, or simply making coins which have vague differentiators, or whatever web3 is supposed to be. I suspect that any crypto company that doesn't have a specific use case that customers pay for will struggle for the next few years.
deleted 4y ago
[deleted]
gz5 4y ago
Also an opportunity: 1. Good people will be more available (there will be public company cuts and private cuts, as well as resignations, especially people working for companies in the Series B to Series D range (who raised those rounds at the old multiples) who will need massive growth/patience for their options to grow into the new multiples). 2. As businesses cut costs, those are opportunities for products and services which enable efficiency.
- axlee 4y ago
  > As businesses cut costs, those are opportunities for products and services which enable efficiency. This is key. Innovation aside, if you can simply provide comparable services at a lower price point, the downturn just increased your customer base tenfolds: nobody is looking too much at cutting costs when things are looking up. Find niches that got too greedy over the past few years, and undercut them.
  - daniel-cussen 4y ago
    That's happening to me, I'm peddling the exact same thing at half the cost, and it's verifiable. You can just check that it's correct in a second with a laptop, after computing it for several hours on thousands of machines. https://www.fgemm.com https://www.fgemm.com, coming soon.
    - lelanthran 4y ago
      > You can just check that it's correct in a second with a laptop, after computing it for several hours on thousands of machines. Sounds like some blockhain thing - easy to verify, hard to compute.
  - gls2ro 4y ago
    I think this sounds good when you think about a very small nieche, but if you think about global market, then in a recession as many companies go bankrupt, then there are few chances to find cheap providers so that what you offer will stay at lower cost. I hope to be wrong about this as I would like very much to see some lower prices in some areas.
farzatv 4y ago
aresant 4y ago
Dagnabit. Here we go again - this is a fantastic, pragmatic amendment to those notes -> https://dalton.substack.com/p/letter-to-myself-in-late-2008?s=r https://dalton.substack.com/p/letter-to-myself-in-late-2008?... For a taste: "Doing multiple small layoffs is a form of cascading failure. Do one layoff, but much much deeper than seems correct. Do it decisively. Do it so that you get profitable. In your case that is something like a 70% cut, not a 5-10% cut. Yes you read that right: a 70% cut. Cutting once and cutting hard allows you to reassure the people that are still here that you are truly profitable and won’t need to do it again. Doing a layoff and remaining unprofitable and counting on fundraising to save you is a stupid plan."
- barkingcat 4y ago
  what if they try repeated 70% cuts?
- hn_throwaway_99 4y ago
  The thing that's interesting to me, is that this guy's company was imeem, https://en.m.wikipedia.org/wiki/Imeem https://en.m.wikipedia.org/wiki/Imeem, which was sold to MySpace for reportedly less than $1 million in 2009. I know nothing about the company, but they seemed to have a decent go at it, founded in 2003. At the end of the day, though, I just can't imagine their business model succeeding, Great Recession or not. Sure, perhaps they could have pivoted into basically something completely different, but at that point, if they were a 5-year old company, how much value would they really have been able to salvage? Given he talks about high burn rate and one of his bullet points is "Renegotiate all of your contracts with the music industry.", my guess is that their model was just fundamentally unprofitable given how much they were paying for licenses. You'll hear lots of stories and theories about what companies could have done to save themselves, but recessions also serve a very important function of really sussing out who was selling dollars for 90 cents, and honestly that's what it sounded like his company was doing.
- gadders 4y ago
  I called it: https://news.ycombinator.com/item?id=31422495 https://news.ycombinator.com/item?id=31422495
- 4y ago
MontyCarloHall 4y ago
Translation: as has been the case since the dawn of capitalism, companies going forward will have to turn a real, liquid profit from selling an actual good or service. Gone are the (highly anomalous) days of starting a purposefully unprofitable company whose only path towards “profitability” is a) getting acquired or b) endless rounds of VC funding.
- rchaud 4y ago
  >> starting a purposefully unprofitable company whose only path towards “profitability” is a) getting acquired or b) endless rounds of VC funding. and worst of all, c)pursuing a predatory pricing strategy to monopolize the market and crowd out competitors.
  - MontyCarloHall 4y ago
    Yup. I think that fits under b), since it’s only possible to run out the clock on competitors with a predatory pricing strategy with endless rounds of VC funding.
nopenopenopeno 4y ago
I am currently graduating with a CS degree and interpreting this as a warning to not accept the offer from the exciting startup and instead accept the offer from the big corporate fintech company. Is there any reason I could be wrong?
- tschellenbach 4y ago
  This issue impacts any high growth companies. It's pretty much all of tech both public and private. You can't avoid it unless you go work outside of tech
- rufus_foreman 4y ago
  The corporate job might be less risky than the startup, but neither one is a guarantee. Either way, you need to ask yourself if 6 months out you get laid off and there is no one hiring, what's your plan?
- heurist 4y ago
  Find a strong engineering team and learn.
- AdamH12113 4y ago
  You should definitely ask lots of questions about a startup's operations, revenue situation, funding status, etc. before you join, no matter what the economic circumstances. You should also consider whether the big company might have large layoffs soon. Which one you should choose depends very much on the specifics of the companies, as well as your financial situation, career goals, and personal temperament.
- cheeseblubber 4y ago
  Choosing between a startup vs a big corporate is a separate topic. There are advantages and disadvantages to each. In essence you trade learning for stability. It really depends on what you are looking for and type of environment you want to be in. If you have done the calculus and are more interested in a startup I would recommend asking what the run rate of the company is and do they have any plans to hit profitability.
- 4y ago
babelfish 4y ago
What are the Series A Milestones linked in the email?
- forgingahead 4y ago
  Might be this? https://www.ycombinator.com/library/1k-benchmarks https://www.ycombinator.com/library/1k-benchmarks
drcongo 4y ago
> No one cannot predict how bad the economy will get Make an effort YC.
- thom 4y ago
  Works on contingency? No[,] one cannot predict how bad the economy will get.
  - junon 4y ago
    Aha, yeah. Hadn't thought of that. Amazing the difference a comma makes.
  - drcongo 4y ago
    Beautiful Simpsons reference, thank you.
- daniel-cussen 4y ago
  Predicting how bad it will get is possible, it's just apocalyptic thinking, which is frowned upon and dangerous. Like the whole paranoia bullshit thing about how paranoid people are inferior, or something I can't listen to such bullshit. Ties in nicely to making everyone buy and hold, value investors. Well earlier this week I myself made a prediction this week there would two days were the market would fall, one down -2.9%, the other down -2.2%[1]. I told this to a friend who speculates. Telling him we should talk that day, Sunday, instead of later in the week, because after those shitstorm days he would have no fucking time. Just booked solid, bailing out shit from those storms. I was wrong, there was one day down -4%, another down I think down -1%. So I was wrong. No one can predict how bad a market will get. At the same time, my speculator friend hasn't written back. [1] Yeah I realize down -2.2% might be interpreted as a double negative. In other languages like French and Spanish, and African languages, negatives are emphasis. It's an English thing to say even number of negations is positive. Basically so the words in people's denials could be deformed into admissions. Making their defection defective. Obviously the way to express a market rise is "the stock market went up +2%." Note also the + symbol, very rarely seen.
- junon 4y ago
eqmvii 4y ago
Hard to believe there isn't a storm coming at this point.
- throwanem 4y ago
  Well, I wouldn't say it's coming.
- wolverine876 4y ago
  Perception is reality.
- jollybean 4y ago
  It will be harder for startups than other companies. The 'storm' will be focused heavily on capital and so all that liquidity will tighten up. Big waves up, big waves down. Healthcare won't miss a beat.
  - sgrinich 4y ago
    Would you add more detail as to your comment on healthcare? Are you saying that this downturn will not affect healthcare investments? Curious as I am a digital health founder looking to raise our pre-seed soon
    - jollybean 4y ago
      Startups depend on free flowing capital, i.e. excess liquidity, and so we tend to do more big moonshots during times of easy money, and there are lower rates of return elsewhere. When capital is tight, funds want to more direct ROI, and are less willing to shell out dollars for 'long term opportunities'. So companies doing '10 minute delivery' and need 10 years of 'losing money' to be profitable are in trouble. Healthcare is an economy that tends to be much more recession proof, for a variety of reasons. First is obviously less elastic demand - if your arm is broken, well, you need to fix it. Second, is that it's really institutional and operational. Healthcare is not a highly leveraged industry, like Crypto - they're not subject so much to the whims of the market. Healthcare is not quite as 'capitalist' as other industries either, obviously in some ways it is, but there's an underlying kind of goodwill. Third, is that 1/2 the industry is government spending, which doesn't get hit bad like markets, so there's a smoothing effect. Fourth, is that investment cycles are much longer, to the point where they almost rise above most of the short term 5-10 year macro cycles. Beyond that, there are indications that people 'get sick more' in downturns and there may be an increase in demand in some ways. Healthcare tends to be a bit recession proof for those reasons. You may want to Google up on that a bit.
vagab0nd 4y ago
Could someone post the date of the email? I assume it's around the same time as the tweet?
dredmorbius 4y ago
https://nitter.kavin.rocks/refsrc/status/1527238287471292417 https://nitter.kavin.rocks/refsrc/status/1527238287471292417 OCR'd text: 4:11 Greetings YC Founders, During this week we've done office hours with a large number of YC companies. They reached out to ask whether they should change their plans around spending, runway, hiring, and funding rounds based on the current state of public markets. What we've told them is that economic downturns often become huge opportunities for the founders who quickly change their mindset, plan ahead, and make sure their company survives. Here are some thoughts to consider when making your plans: 1. No one cannot predict how bad the economy will get, but things don't look good. 2. The safe move is to plan for the worst. If the current situation is as bad as the last two economic downturns, the best way to prepare is to cut costs and extend your runway within the next 30 days. Your goal should be to get to Default Alive.[1] 3. If you don't have the runway to reach default alive and your existing investors or new investors are willing to give you more money right now (even on the same terms as your last round) you should strongly consider taking it. 4. Regardless of your ability to fundraise, it's your responsibility to ensure your company will survive if you cannot raise money for the next 24 months. 5. Understand that the poor public market performance of tech companies significantly impacts VC investing. VCs will have a much harder time raising money and their LPs will expect more investment discipline. As a result, during economic downturns even the top tier VC funds with a lot of money slow down their deployment of capital (lesser funds often stop investing or die). This causes less competition between funds for deals which results in lower valuations, lower round sizes, and many fewer deals completed. In these situations, investors also reserve more capital to backstop their best performing companies, which further reduces the number of new financings. This slow down will have a disproportionate impact on international companies, asset heavy companies, low margin companies, hardtech, and other companies with high burn long time to revenue. Note that the numbers of meetings investors take don't decrease in proportion to the reduction in total investment. It's easy to be fooled into thinking a fund is actively investing when it is not. 6. For those of you who have started your company within the last 5 years, question what you believe to be the normal fundraising environment. Your fundraising experience was most likely not normal and future fundraises will be much more difficult. 7. If you are post Series A and pre-product market fit,[2] don't expect another round to happen at all until you have obviously hit product market fit. The Series A Milestones[3] we publish here might even turn out to be a bit too low. 8. If your plan is to raise money in the next 6-12 months, you might be raising at the peak of the downturn. Remember that your chances of success are extremely low even if your company is doing well. We recommend you change your plan. 9. Remember, that many of your competitors will not plan well, maintain high burn, and only figure out they are screwed when they try to raise their next round. You can often pick up significant market share in an economic downturn by just staying alive. 10. For more thoughts watch this video we've created: Save Your Startup during an Economic Downturn.[4] Best, YC ________________________________ Notes: Presumed links (I do not have a copy of the original message). See also https://news.ycombinator.com/item?id=31436244 https://news.ycombinator.com/item?id=31436244 1. Default Alive: http://www.paulgraham.com/aord.html http://www.paulgraham.com/aord.html 2. Pre-product market fit: See: https://www.ycombinator.com/blog/ycs-essential-startup-advice/ https://www.ycombinator.com/blog/ycs-essential-startup-advic... "do things that don’t scale: remain small/nimble" 3. Series A Milestones: Presumably private. 4. Save Your Startup during an Economic Downturn: https://yewtu.be/watch?v=0OVSTWozvfY?vq=hd720 https://yewtu.be/watch?v=0OVSTWozvfY?vq=hd720
wolverine876 4y ago
Like inflation, it's self-fulfilling. Perception is reality. Some people who strongly influence public perception - to whom we seem to have ceded our power to think critically and independently - who look for social disruption, want it. If businesses pull in their horns, stop supporting innovation, the economic result is easy to predict.
- guerrilla 4y ago
  This comment seems crazy given that we just had COVID-19, a war causing a massive energy crisis and multiple systemic commodities problems and then climate change... Also you're assuming interest rate hikes have no effect? I have no idea how you could think what's coming isn't entirely material... How can you just ignore all that?
  - liuliu 4y ago
    We had COVID-19 for 2 years. The U.S. is surging back with unique challenge of spending transition from goods back to services. It is a challenge. "A war causing a massive energy crisis" seems to be a good time to increase energy production with more investment in things like fracking, which from what I heard, people are reluctant to invest due to the economy and rates concerns (they borrow from banks too). Interest rate hike certainly has impact, but that is the Fed to decide. Remember, Trump asked Fed to not raise rate before and JPow kowtowed to that just fine. China's shutdown is a Black Swan. The market apparently haven't digested that yet (APPL "only" down 20% YTD).
    - wolverine876 4y ago
      > "A war causing a massive energy crisis" seems to be a good time to increase energy production with more investment in things like fracking, which from what I heard, people are reluctant to invest due to the economy and rates concerns (they borrow from banks too). Also a bad idea for climate change, which is becoming very expensive.
      - liuliu 4y ago
mcguire 4y ago
"No one cannot predict how bad the economy will get..." ??? I get that it's twitter, but grammar is still a thing.
- deleted 4y ago
  [deleted]
- deleted 4y ago
  [deleted]
- somewhereoutth 4y ago
  To be honest 'I could care less'
- fastball 4y ago
  I'm betting the sentence started as "We cannot predict..." and someone decided that phrasing sounds a bit too much like YC specifically is bad at predictions (instead of the intended collective 'we'), so they switched it to "No one", forgetting to swap out 'cannot' for 'can' in the process. Interestingly, I've been learning Indonesian and they actually have a solution for this ambiguity: two words for 'we'. There is 'kita', which is a 'we' that includes the listener (or reader in this case) and 'kami' which excludes them. So in this case YC could've used 'kita' to mean "we (including you the reader) cannot predict...".
  - rahtoken 4y ago
    You bring up a good example with regards to ‘clusivity’ in Indonesian; quite a few Indian languages have such constructs too[0]. [0]: https://youtu.be/YqbT-YuIwCg https://youtu.be/YqbT-YuIwCg
ditonal 4y ago
This “default alive” advice is repeatedly shared. One thing it obviously does not address is the human element of who you cut and whether they will be “default alive” unemployed in a recession. A huge amount of YC advice in general positions founders as protagonists and employees as NPCs then are shocked people pick Google over their startup offer. Funny thing is I’ve seen this exact advice destroy a company. In March 2020 they did deep layoffs and cited the need to be “default alive.” Then their main market surprisingly quickly grew in the rest of 2020 , they wanted to capitalize on that, but they had laid off too many engineers who knew their infra and had enough outages and slow product development that they lost to their competitors and are now way underwater on their valuation. They decided to be serious and prudent and go “default alive” which ironically killed them. Of course if 2020 had gotten worse maybe they would look smart but the takeaway is there’s no easy answers. I would just like to see the human impact of layoffs at least lightly considered in these conversations which it rarely is. And it’s bad for business to as Im sure many people are hesitant to join companies that will have a gut reaction of doing 70% layoffs. If you even think about doing 70% layoffs you clearly over hired and are not making good leadership decisions leading up to the layoff.
- thecleaner 4y ago
  That's just bad software engineering. In general, I would expect software to scale well as far as traffic is concerned esp in today's environment where scaling infra is not really a big deal. Coping with feature requests on a shoestring staff is a different story.
  - ditonal 4y ago
    Maybe it’s bad software engineering but it’s a reality that most companies have “bad engineering”, there’s always piles of tech debt and even stuff out of your control. For example, one outage related to Google Ads API changing their parameters. This led to ads not being run which directly cost revenue since those ads were profitable. The outage went on for much longer than it needed to since people with expertise on the marketing pipelines were gone. Id say the “bad engineering” here is mostly Google ads who should version their API changes. But if Google can’t do good engineering, I’m not counting on too many other companies to do so. This idea that infra is a “set and forget” operation because autoscaling exists is a fantasy for conference talks, not reality.
deleted 4y ago
[deleted]
domvillela 4y ago
Our VC firm just did a response to this... https://www.linkedin.com/pulse/shot-ventures-responds-economic-downturn-letter-dominique-villela https://www.linkedin.com/pulse/shot-ventures-responds-econom...

Honestly I would just go work for FB/Google/MS/Apple and maybe Amazon. I'll only consider a startup if I can grow with the company and corresponding opportunities don't exist in the big ones. If the YC theory is basically that employees are a toxic asset, they are bound to get people who turn out that way since the more performant and responsible folk will opt for bigger and more stable companies. Edit: I don't really think all YC backed companies think that low of employees.

mrlatinos 4y ago
FB and MS are freezing hiring. Apple slowing.

thecleaner 4y ago

Is it possible to raise a series A before reaching product market fit ? I thought it's more like you raise a Series A to scale up ? Why would someone give you 20M dollars to just do research ? Never did this myself btw do maybe all these questions are tosh.

SpicyLemonZest 4y ago
In the fundraising environment of the past few years, well-connected companies could raise a series A before even having a commercial product. (https://techcrunch.com/2019/12/17/anyscale-ray-project-distributed-computing-a16z/ https://techcrunch.com/2019/12/17/anyscale-ray-project-distr... is the example I remember most clearly)
- foobiekr 4y ago
  This is actually traditional venture for real technology. The only companies with customer before the series A are variations of websites and apps, a narrow slice of the tech sector.
  - SpicyLemonZest 4y ago
    Interesting. I guess that makes a lot of sense now that you say it, it's gonna be hard to build anything physical without spending a lot first.

quadcore 4y ago

Layperson here, I didn't know we were in an economic crisis that bad, is it global? What are the reasons?

rrrrrrrrrrrryan 4y ago
Inflation and interest rates are rising (for lots of reasons), which means money is getting much more expensive. This means that high-growth companies and unprofitable companies are going to get burned hard in the near future, because their very existence relies on access to cheap money. The wider economy isn't terrible. Inflation is rising and GDP is pulling back a little bit, but unemployment is low, and wages are mostly flat. But the NASDAQ (comprised of mostly tech stocks) is down 26%+ year-to-date and falling. People on this forum mostly work in software, and this downturn will almost certainly shift the balance of power from unprofitable high-growth companies (especially crypto, Web3, etc.) to companies that actually make real money.
gen220 4y ago
There's a trend of global economic inflation, caused by supply issues in energy (oil, gas in all forms) related to the war in Ukraine, supply issues more broadly related to a hangover from COVID's supply/demand shocks. Interest rates are rising, to appease inflation. As the interest rate goes up, allocators of capital have less appetite for risky allocations. This makes access to capital for VC firms becomes more competitive. This makes access to capital for "startups" becomes more competitive. There's also a bigger macrotrend, which is another hangover from COVID: investment poured into the tech sector, which was booming during COVID. Investors over-bullishly priced-in the idea that this boom was, in fact, a new baseline or indicative of future exponential growth. As we recover from COVID, these pricings are increasingly revealed to be wrong as companies generally report post-COVID numbers that are closer to pre-COVID numbers. This is bad for investors leveraged on tech. Therefore, it's bad for VCs that raised LP capital on the basis of COVID performance. Therefore, it's bad for companies that raised >20x ARR multiples on the basis of COVID performance. Basically, it's a single or double whammy for most of the economy, but a double or triple whammy for unprofitable startups.
- 4y ago

lvl102 4y ago

There were so many unicorns that were pulled forward to go public that I don’t even think there’s this gigantic fluff remaining (a la dotcom). They already busted and it doesn’t even feel like we crashed.

irthomasthomas 4y ago

Bleak. "No one cannot predict how bad the economy will get, but things don't look good." Clif notes: - Plan for the worst ... cut costs within 30 days... get to Default Alive[0] - Get money if you need it, and if you can - With or without money you must survive 24 months - VCs are people too, and subject to the same downturn. Adjust your fund raising expectations in the same direction. Expect lower valuations, lower rounds and many fewer deals. - Disproportionate impact on international, asset heavy, low margin, hardtech, high burn, long road to revenue companies - If you get a meeting, don't take that as a good sign, we still take a lot of meetings. - Future fundraises will be much more difficult than they have been in the last 5 years. - Don't expect more money until you demonstrate product market fit. - If you planned on raising money in the next 6-12 months, we recommend changing that plan, or you may be tryng to raise at the peak of the downturn - If you survive, and your competitor does not, you may pick up significant market share. [0] http://www.paulgraham.com/aord.html http://www.paulgraham.com/aord.html

sbierwagen 4y ago
>- If you get a meeting, don't take that as a good sign, we still take a lot of meetings. They don't explicitly spell this out, but this is because being a VC is still a job. Even if they're not actually making any deals, management doesn't want to see everyone sitting at a desk scrolling twitter for 8 hours, so instead they do pointless meetings. Matt Levine had a fun Great Recession story which I cannot find right now, which is that during 2008 in the M&A department at Goldman Sachs everyone still came to work, even though obviously merger and acquisition activity was way down. They would spend every day doing calls and making pitchbooks, all of which went nowhere. Goldman didn't close a deal for a full year. A floor full of people could have just collected a salary and stayed home for 12 months and it would have had an identical outcome.
- deleted 4y ago
  [deleted]
- CallMeJim 4y ago
  When the first deals started closing again, who would have won the deals? The company that stayed home for 12 months? or the company that continued working for 12 months? Imagine swimming hard against a strong current. You get nowhere (or maybe even go backwards slightly!), but when the current changes you make a lot of progress. If you don't swim at all, you go backwards. When the current changes, you may get to where you were at the start.

jonas_kgomo 4y ago

I was at Palintir, and one of the things I learned from visiting is that they thrive in times of war, pandemics and recessions. Why aren't companies designed to be antifragile like this

missedthecue 4y ago
...? Companies, by definition, can only be thriving when people are spending money with them. By definition, a bad economy means people aren't spending much money. Specific sectors may do well during recessions. I knew of a business that used to publish bankruptcy notices for attorneys. A recession meant doubling their sales. But it's necessarily impossible that every business can be "anti-fragile".
KptMarchewa 4y ago
Defense companies profit from war, more at 11.

UncleOxidant 4y ago

I still get a couple dozen emails/week from recruiters in addition to phone calls, linkedIn connection requests,etc. - it seems like it's still close to the peak number. However, I suspect that's about to stop abruptly.

deltree7 4y ago
employment is a lagging indicator.

blobbers 4y ago

RIP Sequoia Times The king is dead Long live YC

geeky4qwerty 4y ago

That double negative hurt my head.

CHB0403085482 4y ago

>Posting a picture of words on twitter Wouldn't a blog serve the message better?

vmception 4y ago
It wasnt to us, it was to the people in the club

MichaelMoser123 4y ago

I don't remember that they said something like this during COVID, Did they say something like that in 2008, or is that an unprecedented statement? I mean they exist since 2005, what did they say during the "Great Recession" ? (i think they called it like that, at some point...) I mean, i mean: is this one going to be worse than 2008? Fortune magazine is trying to compare our current problems with 2008. They say that it might turn out to be worse, this time, as 2008 was merely a "black swan event", the difference being that inflation is coming "for real" right now. https://fortune.com/2022/03/26/great-recession-key-differences-us-economy-inflation/ https://fortune.com/2022/03/26/great-recession-key-differenc... Also this: "By some standards, stocks are now even more overvalued than they were back then, leading some experts to argue we’re experiencing an “everything bubble.” Dan Ives told Fortune. “Tech valuations relative to growth, in particular, are much cheaper today, by about 25%, than they were going back to ‘07.” Ives argued that the financial stability of tech stalwarts, which by some estimates represent over 20% of the S&P 500, is unparalleled, noting that the Great recession was mainly a “black swan driven event.” " So they might have to come up with a new name, if this one turns out to be worse. Maybe they should go for the "Even Greater Recession", abbreviated as EGR... Also the economists don't appear to have predicted it. Well, at least US Intel was right about the war in Ukraine...

wozer 4y ago
I believe YCombinator was still very small in 2008. Otherwise, they would probably have said something similar.

deleted 4y ago

[deleted]

rkagerer 4y ago

Can anyone post a copy with intact links?

hoofhearted 4y ago
https://news.ycombinator.com/item?id=31433221 https://news.ycombinator.com/item?id=31433221
petesmithy 4y ago
"Default Alive" - http://www.paulgraham.com/aord.html http://www.paulgraham.com/aord.html "pre-product market fit" - links to a list of resources: - The only thing that matters by Marc Andreessen https://pmarchive.com/guide_to_startups_part4.html https://pmarchive.com/guide_to_startups_part4.html - What is “product/market fit” by Emmett Shear: https://twitter.com/eshear/status/1155180521485242368?lang=en https://twitter.com/eshear/status/1155180521485242368?lang=e... - Andy Rachleff on “How to Know If You’ve Got Product Market Fit” https://greatness.floodgate.com/episodes/andy-rachleff-on-how-to-know-if-youve-got-product-market-fit-XxGvX8DH https://greatness.floodgate.com/episodes/andy-rachleff-on-ho... - How Superhuman Built an Engine to Find Product/Market Fit by Rahul Vohra https://firstround.com/review/how-superhuman-built-an-engine-to-find-product-market-fit/ https://firstround.com/review/how-superhuman-built-an-engine... - The real product market fit by Michael Seibel https://www.ycombinator.com/library/5z-the-real-product-market-fit https://www.ycombinator.com/library/5z-the-real-product-mark... - Jeff Chang's blog - specifically his take on retention as measure of PMF https://www.growthengblog.com/ https://www.growthengblog.com/ - Sequoia's Doug Leone discusses PMF https://streamable.com/rm7pr7 https://streamable.com/rm7pr7 - Dalton Caldwell & Michael Seibel discuss PMF https://youtu.be/UqKzpLqXuI0 https://youtu.be/UqKzpLqXuI0 "Series A Milestones" - links to a private resource available only to YC founders "Save your startup during an economic downturn" - https://www.youtube.com/watch?v=0OVSTWozvfY https://www.youtube.com/watch?v=0OVSTWozvfY
- adamqureshi 4y ago
  THANK YOU!
- 4y ago

SkipperCat 4y ago

Companies that have a good ideas and provide needed product/services will survive. I think the era of stupid money chasing silly ideas are over. Same thing happened at the end of the dot-com era.

deleted 4y ago
[deleted]
altdataseller 4y ago
Lots of startups provide needed products and services. I don't think that's enough. They need to provide needed products/services in a way that can be sold/marketed profitably, and scaled profitably.
- TameAntelope 4y ago
  And the idea needs to be profitable quickly. Don't try starting a business where your sales cycle take months.
- ackbar03 4y ago
  Yes. I always need 1 dollar for 95 cents.
  - rufus_foreman 4y ago
    Losing money on every transaction is no problem, they can always make it up on volume.
  - daniel-cussen 4y ago
    You know that's my pitch? Selling a commodity for half. Because I SUCK at selling, so that's my out, the same exact thing anybody can do in exactly the same way, that every company is on track to spend more than 10% of their revenue on, but for half. The bottleneck of machine learning in half. In fact you're being quite generous with your offer of 1 dollar for 95 cents, but I must decline. 50 might work much better for you, you might secretly need 1 dollar for 50 cents more than you need 1 dollar for 95 cents. But are embarrassed to ask. Provided we're talking about matrix multiplication. And like everyone's business plan is turning matrix multiplication, better known as AI, into money, so there could be a good synergy there. https://www.fgemm.com https://www.fgemm.com, coming soon.

pl0x 4y ago

candiddevmike 4y ago

Going to be interesting to see which free plans get cut, prices skyrocket, or what companies stop having "open core" software. Growth hacks like these have always traded revenue instead of cash for advertising/exposure, and I think it gave well-capitalized companies too much of an edge where they can effectively give things away and undercut competitors who are trying to be sustainable. Would've also been interesting if they had separate guidance for crypto startups.

lumost 4y ago
The guidance for crypto startups might be to fold and return investor money. There are a few ideas which seem "interesting" such as enterprise blockchains for bank accounting, or smart contracts for inter-bank contracts. These help large financial institutions prove to auditors that they met their contractual obligations and no funny business happened. BTC will probably stabilize as a tradeable store of value as a hedge against "unfriendly" governments. But there is a huge sea of blockchain startups which are trading alt-coins, or providing trading analytics software/exchanges for alt-coins, or simply making coins which have vague differentiators, or whatever web3 is supposed to be. I suspect that any crypto company that doesn't have a specific use case that customers pay for will struggle for the next few years.

deleted 4y ago

[deleted]

gz5 4y ago

Also an opportunity: 1. Good people will be more available (there will be public company cuts and private cuts, as well as resignations, especially people working for companies in the Series B to Series D range (who raised those rounds at the old multiples) who will need massive growth/patience for their options to grow into the new multiples). 2. As businesses cut costs, those are opportunities for products and services which enable efficiency.

axlee 4y ago
> As businesses cut costs, those are opportunities for products and services which enable efficiency. This is key. Innovation aside, if you can simply provide comparable services at a lower price point, the downturn just increased your customer base tenfolds: nobody is looking too much at cutting costs when things are looking up. Find niches that got too greedy over the past few years, and undercut them.
- daniel-cussen 4y ago
  That's happening to me, I'm peddling the exact same thing at half the cost, and it's verifiable. You can just check that it's correct in a second with a laptop, after computing it for several hours on thousands of machines. https://www.fgemm.com https://www.fgemm.com, coming soon.
  - lelanthran 4y ago
    > You can just check that it's correct in a second with a laptop, after computing it for several hours on thousands of machines. Sounds like some blockhain thing - easy to verify, hard to compute.
- gls2ro 4y ago
  I think this sounds good when you think about a very small nieche, but if you think about global market, then in a recession as many companies go bankrupt, then there are few chances to find cheap providers so that what you offer will stay at lower cost. I hope to be wrong about this as I would like very much to see some lower prices in some areas.

farzatv 4y ago

aresant 4y ago

Dagnabit. Here we go again - this is a fantastic, pragmatic amendment to those notes -> https://dalton.substack.com/p/letter-to-myself-in-late-2008?s=r https://dalton.substack.com/p/letter-to-myself-in-late-2008?... For a taste: "Doing multiple small layoffs is a form of cascading failure. Do one layoff, but much much deeper than seems correct. Do it decisively. Do it so that you get profitable. In your case that is something like a 70% cut, not a 5-10% cut. Yes you read that right: a 70% cut. Cutting once and cutting hard allows you to reassure the people that are still here that you are truly profitable and won’t need to do it again. Doing a layoff and remaining unprofitable and counting on fundraising to save you is a stupid plan."

barkingcat 4y ago
what if they try repeated 70% cuts?
hn_throwaway_99 4y ago
The thing that's interesting to me, is that this guy's company was imeem, https://en.m.wikipedia.org/wiki/Imeem https://en.m.wikipedia.org/wiki/Imeem, which was sold to MySpace for reportedly less than $1 million in 2009. I know nothing about the company, but they seemed to have a decent go at it, founded in 2003. At the end of the day, though, I just can't imagine their business model succeeding, Great Recession or not. Sure, perhaps they could have pivoted into basically something completely different, but at that point, if they were a 5-year old company, how much value would they really have been able to salvage? Given he talks about high burn rate and one of his bullet points is "Renegotiate all of your contracts with the music industry.", my guess is that their model was just fundamentally unprofitable given how much they were paying for licenses. You'll hear lots of stories and theories about what companies could have done to save themselves, but recessions also serve a very important function of really sussing out who was selling dollars for 90 cents, and honestly that's what it sounded like his company was doing.
gadders 4y ago
I called it: https://news.ycombinator.com/item?id=31422495 https://news.ycombinator.com/item?id=31422495
4y ago

MontyCarloHall 4y ago

Translation: as has been the case since the dawn of capitalism, companies going forward will have to turn a real, liquid profit from selling an actual good or service. Gone are the (highly anomalous) days of starting a purposefully unprofitable company whose only path towards “profitability” is a) getting acquired or b) endless rounds of VC funding.

rchaud 4y ago
>> starting a purposefully unprofitable company whose only path towards “profitability” is a) getting acquired or b) endless rounds of VC funding. and worst of all, c)pursuing a predatory pricing strategy to monopolize the market and crowd out competitors.
- MontyCarloHall 4y ago
  Yup. I think that fits under b), since it’s only possible to run out the clock on competitors with a predatory pricing strategy with endless rounds of VC funding.

nopenopenopeno 4y ago

I am currently graduating with a CS degree and interpreting this as a warning to not accept the offer from the exciting startup and instead accept the offer from the big corporate fintech company. Is there any reason I could be wrong?

tschellenbach 4y ago
This issue impacts any high growth companies. It's pretty much all of tech both public and private. You can't avoid it unless you go work outside of tech
rufus_foreman 4y ago
The corporate job might be less risky than the startup, but neither one is a guarantee. Either way, you need to ask yourself if 6 months out you get laid off and there is no one hiring, what's your plan?
heurist 4y ago
Find a strong engineering team and learn.
AdamH12113 4y ago
You should definitely ask lots of questions about a startup's operations, revenue situation, funding status, etc. before you join, no matter what the economic circumstances. You should also consider whether the big company might have large layoffs soon. Which one you should choose depends very much on the specifics of the companies, as well as your financial situation, career goals, and personal temperament.
cheeseblubber 4y ago
Choosing between a startup vs a big corporate is a separate topic. There are advantages and disadvantages to each. In essence you trade learning for stability. It really depends on what you are looking for and type of environment you want to be in. If you have done the calculus and are more interested in a startup I would recommend asking what the run rate of the company is and do they have any plans to hit profitability.
4y ago

babelfish 4y ago

What are the Series A Milestones linked in the email?

forgingahead 4y ago
Might be this? https://www.ycombinator.com/library/1k-benchmarks https://www.ycombinator.com/library/1k-benchmarks

drcongo 4y ago

> No one cannot predict how bad the economy will get Make an effort YC.

thom 4y ago
Works on contingency? No[,] one cannot predict how bad the economy will get.
- junon 4y ago
  Aha, yeah. Hadn't thought of that. Amazing the difference a comma makes.
- drcongo 4y ago
  Beautiful Simpsons reference, thank you.
daniel-cussen 4y ago
Predicting how bad it will get is possible, it's just apocalyptic thinking, which is frowned upon and dangerous. Like the whole paranoia bullshit thing about how paranoid people are inferior, or something I can't listen to such bullshit. Ties in nicely to making everyone buy and hold, value investors. Well earlier this week I myself made a prediction this week there would two days were the market would fall, one down -2.9%, the other down -2.2%[1]. I told this to a friend who speculates. Telling him we should talk that day, Sunday, instead of later in the week, because after those shitstorm days he would have no fucking time. Just booked solid, bailing out shit from those storms. I was wrong, there was one day down -4%, another down I think down -1%. So I was wrong. No one can predict how bad a market will get. At the same time, my speculator friend hasn't written back. [1] Yeah I realize down -2.2% might be interpreted as a double negative. In other languages like French and Spanish, and African languages, negatives are emphasis. It's an English thing to say even number of negations is positive. Basically so the words in people's denials could be deformed into admissions. Making their defection defective. Obviously the way to express a market rise is "the stock market went up +2%." Note also the + symbol, very rarely seen.
junon 4y ago

eqmvii 4y ago

Hard to believe there isn't a storm coming at this point.

throwanem 4y ago
Well, I wouldn't say it's coming.
wolverine876 4y ago
Perception is reality.
jollybean 4y ago
It will be harder for startups than other companies. The 'storm' will be focused heavily on capital and so all that liquidity will tighten up. Big waves up, big waves down. Healthcare won't miss a beat.
- sgrinich 4y ago
  Would you add more detail as to your comment on healthcare? Are you saying that this downturn will not affect healthcare investments? Curious as I am a digital health founder looking to raise our pre-seed soon
  - jollybean 4y ago
    Startups depend on free flowing capital, i.e. excess liquidity, and so we tend to do more big moonshots during times of easy money, and there are lower rates of return elsewhere. When capital is tight, funds want to more direct ROI, and are less willing to shell out dollars for 'long term opportunities'. So companies doing '10 minute delivery' and need 10 years of 'losing money' to be profitable are in trouble. Healthcare is an economy that tends to be much more recession proof, for a variety of reasons. First is obviously less elastic demand - if your arm is broken, well, you need to fix it. Second, is that it's really institutional and operational. Healthcare is not a highly leveraged industry, like Crypto - they're not subject so much to the whims of the market. Healthcare is not quite as 'capitalist' as other industries either, obviously in some ways it is, but there's an underlying kind of goodwill. Third, is that 1/2 the industry is government spending, which doesn't get hit bad like markets, so there's a smoothing effect. Fourth, is that investment cycles are much longer, to the point where they almost rise above most of the short term 5-10 year macro cycles. Beyond that, there are indications that people 'get sick more' in downturns and there may be an increase in demand in some ways. Healthcare tends to be a bit recession proof for those reasons. You may want to Google up on that a bit.

vagab0nd 4y ago

Could someone post the date of the email? I assume it's around the same time as the tweet?

dredmorbius 4y ago

https://nitter.kavin.rocks/refsrc/status/1527238287471292417 https://nitter.kavin.rocks/refsrc/status/1527238287471292417 OCR'd text: 4:11 Greetings YC Founders, During this week we've done office hours with a large number of YC companies. They reached out to ask whether they should change their plans around spending, runway, hiring, and funding rounds based on the current state of public markets. What we've told them is that economic downturns often become huge opportunities for the founders who quickly change their mindset, plan ahead, and make sure their company survives. Here are some thoughts to consider when making your plans: 1. No one cannot predict how bad the economy will get, but things don't look good. 2. The safe move is to plan for the worst. If the current situation is as bad as the last two economic downturns, the best way to prepare is to cut costs and extend your runway within the next 30 days. Your goal should be to get to Default Alive.[1] 3. If you don't have the runway to reach default alive and your existing investors or new investors are willing to give you more money right now (even on the same terms as your last round) you should strongly consider taking it. 4. Regardless of your ability to fundraise, it's your responsibility to ensure your company will survive if you cannot raise money for the next 24 months. 5. Understand that the poor public market performance of tech companies significantly impacts VC investing. VCs will have a much harder time raising money and their LPs will expect more investment discipline. As a result, during economic downturns even the top tier VC funds with a lot of money slow down their deployment of capital (lesser funds often stop investing or die). This causes less competition between funds for deals which results in lower valuations, lower round sizes, and many fewer deals completed. In these situations, investors also reserve more capital to backstop their best performing companies, which further reduces the number of new financings. This slow down will have a disproportionate impact on international companies, asset heavy companies, low margin companies, hardtech, and other companies with high burn long time to revenue. Note that the numbers of meetings investors take don't decrease in proportion to the reduction in total investment. It's easy to be fooled into thinking a fund is actively investing when it is not. 6. For those of you who have started your company within the last 5 years, question what you believe to be the normal fundraising environment. Your fundraising experience was most likely not normal and future fundraises will be much more difficult. 7. If you are post Series A and pre-product market fit,[2] don't expect another round to happen at all until you have obviously hit product market fit. The Series A Milestones[3] we publish here might even turn out to be a bit too low. 8. If your plan is to raise money in the next 6-12 months, you might be raising at the peak of the downturn. Remember that your chances of success are extremely low even if your company is doing well. We recommend you change your plan. 9. Remember, that many of your competitors will not plan well, maintain high burn, and only figure out they are screwed when they try to raise their next round. You can often pick up significant market share in an economic downturn by just staying alive. 10. For more thoughts watch this video we've created: Save Your Startup during an Economic Downturn.[4] Best, YC ________________________________ Notes: Presumed links (I do not have a copy of the original message). See also https://news.ycombinator.com/item?id=31436244 https://news.ycombinator.com/item?id=31436244 1. Default Alive: http://www.paulgraham.com/aord.html http://www.paulgraham.com/aord.html 2. Pre-product market fit: See: https://www.ycombinator.com/blog/ycs-essential-startup-advice/ https://www.ycombinator.com/blog/ycs-essential-startup-advic... "do things that don’t scale: remain small/nimble" 3. Series A Milestones: Presumably private. 4. Save Your Startup during an Economic Downturn: https://yewtu.be/watch?v=0OVSTWozvfY?vq=hd720 https://yewtu.be/watch?v=0OVSTWozvfY?vq=hd720

wolverine876 4y ago

Like inflation, it's self-fulfilling. Perception is reality. Some people who strongly influence public perception - to whom we seem to have ceded our power to think critically and independently - who look for social disruption, want it. If businesses pull in their horns, stop supporting innovation, the economic result is easy to predict.

guerrilla 4y ago
This comment seems crazy given that we just had COVID-19, a war causing a massive energy crisis and multiple systemic commodities problems and then climate change... Also you're assuming interest rate hikes have no effect? I have no idea how you could think what's coming isn't entirely material... How can you just ignore all that?
- liuliu 4y ago
  We had COVID-19 for 2 years. The U.S. is surging back with unique challenge of spending transition from goods back to services. It is a challenge. "A war causing a massive energy crisis" seems to be a good time to increase energy production with more investment in things like fracking, which from what I heard, people are reluctant to invest due to the economy and rates concerns (they borrow from banks too). Interest rate hike certainly has impact, but that is the Fed to decide. Remember, Trump asked Fed to not raise rate before and JPow kowtowed to that just fine. China's shutdown is a Black Swan. The market apparently haven't digested that yet (APPL "only" down 20% YTD).
  - wolverine876 4y ago
    > "A war causing a massive energy crisis" seems to be a good time to increase energy production with more investment in things like fracking, which from what I heard, people are reluctant to invest due to the economy and rates concerns (they borrow from banks too). Also a bad idea for climate change, which is becoming very expensive.
    - liuliu 4y ago

mcguire 4y ago

"No one cannot predict how bad the economy will get..." ??? I get that it's twitter, but grammar is still a thing.

deleted 4y ago
[deleted]
deleted 4y ago
[deleted]
somewhereoutth 4y ago
To be honest 'I could care less'
fastball 4y ago
I'm betting the sentence started as "We cannot predict..." and someone decided that phrasing sounds a bit too much like YC specifically is bad at predictions (instead of the intended collective 'we'), so they switched it to "No one", forgetting to swap out 'cannot' for 'can' in the process. Interestingly, I've been learning Indonesian and they actually have a solution for this ambiguity: two words for 'we'. There is 'kita', which is a 'we' that includes the listener (or reader in this case) and 'kami' which excludes them. So in this case YC could've used 'kita' to mean "we (including you the reader) cannot predict...".
- rahtoken 4y ago
  You bring up a good example with regards to ‘clusivity’ in Indonesian; quite a few Indian languages have such constructs too[0]. [0]: https://youtu.be/YqbT-YuIwCg https://youtu.be/YqbT-YuIwCg

ditonal 4y ago

This “default alive” advice is repeatedly shared. One thing it obviously does not address is the human element of who you cut and whether they will be “default alive” unemployed in a recession. A huge amount of YC advice in general positions founders as protagonists and employees as NPCs then are shocked people pick Google over their startup offer. Funny thing is I’ve seen this exact advice destroy a company. In March 2020 they did deep layoffs and cited the need to be “default alive.” Then their main market surprisingly quickly grew in the rest of 2020 , they wanted to capitalize on that, but they had laid off too many engineers who knew their infra and had enough outages and slow product development that they lost to their competitors and are now way underwater on their valuation. They decided to be serious and prudent and go “default alive” which ironically killed them. Of course if 2020 had gotten worse maybe they would look smart but the takeaway is there’s no easy answers. I would just like to see the human impact of layoffs at least lightly considered in these conversations which it rarely is. And it’s bad for business to as Im sure many people are hesitant to join companies that will have a gut reaction of doing 70% layoffs. If you even think about doing 70% layoffs you clearly over hired and are not making good leadership decisions leading up to the layoff.

thecleaner 4y ago
That's just bad software engineering. In general, I would expect software to scale well as far as traffic is concerned esp in today's environment where scaling infra is not really a big deal. Coping with feature requests on a shoestring staff is a different story.
- ditonal 4y ago
  Maybe it’s bad software engineering but it’s a reality that most companies have “bad engineering”, there’s always piles of tech debt and even stuff out of your control. For example, one outage related to Google Ads API changing their parameters. This led to ads not being run which directly cost revenue since those ads were profitable. The outage went on for much longer than it needed to since people with expertise on the marketing pipelines were gone. Id say the “bad engineering” here is mostly Google ads who should version their API changes. But if Google can’t do good engineering, I’m not counting on too many other companies to do so. This idea that infra is a “set and forget” operation because autoscaling exists is a fantasy for conference talks, not reality.

deleted 4y ago

[deleted]

domvillela 4y ago

Our VC firm just did a response to this... https://www.linkedin.com/pulse/shot-ventures-responds-economic-downturn-letter-dominique-villela https://www.linkedin.com/pulse/shot-ventures-responds-econom...