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Extend your runway, cheap money is over
- p-christ 4y agohow much does this depend on the stage you're at? Pre-seed & seed funding should be pretty unaffected?
- EGreg 4y agoPersonally, in times like this I can think of three places to invest: 1. Government Bonds 2. Cash (hoarding it) 3. Early Stage Startups The most fun and promising is #3, because they will take a few years to reach public markets anyway, and by that time there should be another bull cycle. In the meantime, things need to be built anyway. Especially startups that build stuff that people need or things that save money (like metaverse saves on traveling) because they'll cut down on non-necessities (including entertainment, travel and fuel). The two companies I personally run are 10 and 4 years old, respectively, and have never taken VC, let alone IPO. They have been designed to help communities in the hard times ahead, with their own social networks, coins, etc. https://intercoin.org/overview.pdf https://intercoin.org/overview.pdf
- jupp0r 4y agoHow is hoarding cash at these inflation levels a good investment strategy?
- ebiester 4y agoWell, how much money are you making and how much are you spending? How much do you have in the bank? If you aren't going to be able to raise money in the next year, this is even more important, no?
- drx 4y agoTypically, even as a pre-seed or seed company, you can rely on being able to raise your next round if you hit certain milestones in your key metrics. For example, if you are a SaaS company, you have a good story and team, and your TAM makes sense, you could have previously hit $300k-$1M ARR and raised a Series A. Some startups were even raising A's pre-revenue. In the new environment, that ability will likely dry up.
- beambot 4y agoYCombinator is echoing the same sentiment: https://news.ycombinator.com/item?id=31435407 https://news.ycombinator.com/item?id=31435407 I've heard of VCs at all stages opting to sit out for a quarter or two to see how things shake up before resuming any deals. It was suggested that fundraising right now could take 9-12 months -- 1-2 quarters for folks to sit on the sidelines, and then another 1-2 quarters to kickstart their best deals. Plan accordingly.
- stareatgoats 4y agoInteresting, but the article is ultimately an ad for Canvas. Which tends to detract from the validity of the content, right or wrong.
- drx 4y agoYou're right, it's a little over the top. It was in response to some feedback I got on my draft which was "OK, I read the article, but what's the relation to Canvas?". I added a divider and a disclaimer. I try to write helpful content first, and only then plug the company, so this is good feedback, thanks.
- bengale 4y agoPersonally, I thought the content was good and then the plug at the end was fine. It didn't detract from the content in any way that I could tell or make me suspicious of your motives.
- pixiemaster 4y agoagree
- gervwyk 4y agoalso agree, great content well complemented by their product. well done to the team, it is a fine balance.
- carom 4y agoI thought the plug was good. I'm looking to start a startup soon, so I've been consuming a lot of this type of content. The topic is echoed among a lot of VCs right now, the charts were nice, and it tied into the app plug well. I even shared it to my friend who does managerial accounting.
- NickRandom 4y agoFWIW - I think you got the balance right. Doesn't mean I agree with it (or disagree with it)
- EGreg 4y agoWhere is all that money that VCs raised in Q1 of 2022 going to go? Or are the LPs going to reneg?
- streetcat1 4y agoProbably optimized for down rounds. Either save their existing investment, or get into other investment for penny on the dollar.
- jillesvangurp 4y agoThe same place as the rest of the money: misc investments that are now worth a lot less than a few weeks ago. Or did you think that cash was sitting in some bank account happily inflating month on month? To make that cash available, they'd have to sell shares, bonds, options, etc. that that money is currently invested in at a loss. The better strategy is to wait for a recovery. That might take some time. Selling at a loss to make risky investments in startups is not a good plan. The even better strategy is to invest whatever cash there is into those things more likely to recover quickly rather than sketchy startups as there are likely quite a few undervalued things in the market that could recover by a sweet 10-20% in the next month. And since that money technically belongs not to the investors but rather conservative entities they represent (like pension funds) they are going to have to do conservative things in times like this. Hence the temporary lack of liquidity for startups.
- yowlingcat 4y agoThat's not how the funds flow works. The capital call structure was baked into the GP's raise from the LP -- if that happens at ATH and is highly beneficial to the GP, then the LP has a contractual obligation to adhere to that structure. As sibling comments have mentioned, of course, whether the GP exercises that contractual right is far more complex and based on the relationship to the LP; and indeed, VC is a relationship driven game, so the natural behavior on part of the GP is to take their time, see how things shake out, use leverage to get better deals and take a wait and see approach. The point is, though, if a VC chose /not/ to take a wait and see approach and instead go out guns blazing to take advantage of a buyer's market -- they would be within their rights to do that.
- fundad 4y agoThe ever so clumsy phrase "printed cash" is the grump-signaling I'm here for.
- parkingrift 4y agoI don't see any signs that cheap money is over. What I'm seeing is the end of absurd valuations and easy money.
- onlyrealcuzzo 4y agoAbsurd valuations = cheap money in the context of startup fundraising.
- parkingrift 4y agoMaybe so. I don't conflate cheap with easy.
- lazide 4y agoCheap money means lenders or investors will be more likely to compete for what they perceive to be a good deal. More of a ‘sellers market’ from that perspective. If the buyers are hesitant to invest/lend because they’re worried they’ll catch a falling knife, it makes it much harder to close at all and valuations tend to err on the risk adverse rather than the ‘please pick us!’ side.
- ineedasername 4y agoMy own distinction is: Cheap money == fewer strings attached & better $$ to equity ratio. [0] Easy money == ideas or MVP's with weaker plans or market fit get funding at all. [0] this has the side effect of raising valuation.
- jxf 4y agoThe implication of the equality is backwards. Cheap money _drives_ absurd valuations.
- danuker 4y agoThen again, a company flush with cash will spend more, making money go round and more available. So maybe absurd valuations also drive cheap money. All income is someone else's expense.
- causi 4y agoNobody knows how long it will take for the market to be founder-friendly again, but it could be a while. Quite a while. Demographics meant an incredible amount of capital flow in the last two decades as the largest generation in American history, the boomers, reached the height of their careers and investments. That party is over. 2022 is the peak of the curve for boomer retirement. As they retire that money is leaving the market. Gen X is small and their capital peak won't be nearly as high. Millennials won't be reaching that level of earning for at least another decade if not longer.
- code_biologist 4y agoNice to see a fellow fan of Peter Zeihan style demographic analysis in the comments.
- causi 4y agoHis demographic analyses are good but I don't know how much I trust his general predictions. Too often he says things which are factually wrong that would've been very easy for him to research.
- code_biologist 4y ago100%. I love him, but his blockchain and battery tech analyses are pretty off factually.
- mysecretaccount 4y agoSame here. So many easily verifiable inaccuracies in his essays/videos, as well as a dogmatic adherence to demographic and geographic determinism. Still, a perspective I appreciate.
- missedthecue 4y agoThe silent gen preceeded the Boomers, and as they retired, Boomers moved up the career ladder. It's not as if Boomers expanded into a void.
- deleted 4y ago[deleted]
- api 4y agoIt's like clockwork: fed raises rates, cheap money dries up. Seems like all markets for the last 15 years (since 2007-2008) have just been tracking the fed.
- lazide 4y agoI can’t wait for the retconning to happen with the Modern Monetary Theory folks.
- big_youth 4y agoI'm no economist but my understanding is that even though we are printing money like MMT advocates, we are not implementing any of the policy decisions to combat inflation. Namely large tax increases on ultra rich. Since we've started printing we seen a huge rise in wealth inequality and more billionaires than ever, but we don't fight the inflation with high taxes on them so assets they use (high end real estate, art, crypto, yachts) have blown up as have things they invest the extra money into (middle class housing). We should be getting ride of the extra cash floating around with higher taxes.
- lazide 4y agoI guess we'll find out soon! I doubt taxing capital gains is going to go well startup wise though. :s
- api 4y agoReminds me of how we do Keynes: we spend countercyclically… and then also spend cyclically so really we just spend.
- missedthecue 4y agoIs inflation caused by the ultra rich? How much ground chuck does Jeff Bezos buy? Probably not much more than I do.
- cudgy 4y ago
- candiddevmike 4y agoToo bad I don't have any VC contacts so I was never able to raise a runway to begin with. Instead I've had to work multiple jobs to create my own runway and work on growing revenue. I'm not sure which path is easier right now.
- natly 4y agoYeah I'm seeing tons of "free money is over" articles lately but it feels like only a small percent of SF residents had that experinece in the first place. I doubt more than a tiny fraction of HN readers will be affected by this new development at all.
- draw_down 4y ago
- manquer 4y agoDirectly few enough founders on here sure , indirectly everyone is affected. That company with lot of easy money could be your customer or your customer’s customer , or the employer of your customer. You could be a neighborhood coffee shop in the bay, with belt tightening, your customers now will think twice about spending or worse be laid off with no money to spend at all. It could just be the number of people being laid off will depresses salary or getting a job harder if you are looking for a new role, or your company is now finding cheaper replacement to you now in the market easily, making your job lot less safe. It is easy to say that it was all too good to last everyone should have known, Many have staked their careers on the current market of 10 years . Taken loans for expensive college degrees, bought houses on mortgages assuming salary , got married started families and so on . Real lives are going to be damaged by this downturn .
- andreilys 4y agoEven without VC funding you still have debt based funding which is a lot easier to get when interest rates are at all time low.
- 4y ago
- mmaunder 4y agoOr make money. Even a small cashflow can extend a pre profit startup’s runway significantly.
- lazide 4y agoWhat happens is this rather quickly means a lot of startups (70%?) are going to rather quickly admit that their ‘5 year long term product vision’ they’ve been trying to sell and are ‘almost there’ on launching is not actually going to happen because not enough folks are willing to pay for it, and/or another company already ate their lunch. Which is… harsh.
- mikeg8 4y agoHow is this harsh? It seems healthy to me.
- ineedasername 4y agoHarsh on the people it's happening to. Healthy in a macro economic sense.
- lazide 4y agoYup. No one likes to fail, especially if they were actually close. And a lot of folks, including employees, will suffer due to lack of other options. My guess is it will likely be especially harsh because of the length of time this has been going on in tech. We’ve been doing so much stuff with dubious economic value for so long, we barely even notice it anymore. But there is also a ton of value being produced (in real life), so it’s not like tech overall is going nowhere.
- shostack 4y agoI'm reminded of this Silicon Valley scene... https://youtu.be/BzAdXyPYKQo https://youtu.be/BzAdXyPYKQo
- mise_en_place 4y agoAcross the board, producer prices are increasing. Which means the only solution for a lot of businesses is downsizing.
- mym1990 4y agoOr the consumer businesses can raise their own prices?
- UltraViolence 4y ago
- Upvoter33 4y agoI have heard some similar things - lots of belt tightening going on right now. But it may just be a blip... world events are hard to predict, it seems.
- puranjay 4y agoGood. I hope we get out of this by focusing on building businesses that actually make profits instead of, you know, play musical chairs with exit liquidity.
- freediver 4y agoNone of the recent advice on the topic mention 'having a profitable business model'. Raising money is not the method, it is a method to extend your runway. Designing a sustainable business is another one.
- jjoonathan 4y agoWhat do you mean? They all mention it, usually towards the start, and it's definitely the core idea under discussion. In this one, I'd point to the title ("Extend your Runway"), and if you really picked at those nits I might fall back to "Default Alive."
- freediver 4y agoWell among other things, a sustainable business does not ever need to "extend its runway" because it is infinite by definition (sustainable meaning profit > 0) and "default alive" is a mode it operated in since inception. All advice in these articles applies to the other kind of businesses ("makes $10k and spends $100k/month...") that likely got in that position by what in some cases is basically a ponzi scheme of fund raising, which was completely fine until just a few days ago and then they realized it's not going to work forever. This then resulted in a widespread panic and all this advice about "how to survive" and suddenly realizing that you should also "make the product amazing". These should be default rules to live by for any business, is all that I am saying.
- jjoonathan 4y agoAh, so you think Venture Capital should categorically not exist and everyone should bootstrap. I understand where you are coming from. Here's how to grok VC: first of all, realize that even the VCiest VC understands that VC is a niche, and they'll send you on your way if you walk up to them with a bootstrap opportunity, even if it's a good bootstrap opportunity. This is a site run by VCs as a funnel for the VC scene in a VC town, so you'll hear a lot about VC here -- but bootstrapping definitely has its place. If you listen closely you'll even hear people talk about opportunities being better suited to VC or bootstrapping. Opportunities that can be bootstrapped should be bootstrapped, because then you get to keep more equity. Here's the critical point though: not all businesses can be bootstrapped. What happens if you try to organically grow your way into a new wide-open opportunity in a winner-take-all market? Some other guy raises a boatload of VC, beats you to it, and shuts you out. VC eats bootstrapper lunch. In theory, the returns from these outsize victories are great enough to offset the failures, but as with any kind of investing it really comes down to educated guesswork. It's not a ponzi scheme because on occasion it is wildly successful. It systematically reduces the time required for industry to colonize new technological niches. However, it does fall flat on its face from time to time, because that's what happens when you run instead of walk (or perhaps parkour instead of run).
- jjcm 4y agoQuestion about investing in companies - given cheap money is hard to find now, from an investor side does it make more sense to try and invest in companies now than it did before, as I assume you'd get more for your money?
- djbusby 4y agoEvery deal is independent. In short: no, going forward it makes the same amount of sense as it did yesterday and also 10 years ago. Prevailing market forces aren't what makes a good investment.
- flyinglizard 4y agoYou’d be entering the market at risk that the company you invested in: a. Won’t be able to find follow on investors for its next rounds b. Will be encountering customers that want to freeze or downsize their spend That said, VCs raised a ton of money the last couple of years and eventually it has to get invested.
- mkl95 4y agoFrom a startup engineer's POV this is a non issue - a 18-24 month tenure is pretty standard. However I can't help but feel the bubble will burst eventually and it will be a success to run a VC-backed startup for a few months without seeing it become a shitshow. I can't complain though, salaries are skyrocketing in my area and getting a major raise is easier than ever. It must be scary for founders / owners though.
- nowherebeen 4y ago> founders Not all founders are VC backed . It’s only the ones that are and never thought about how to turn a profit that should be scared.
- majormajor 4y ago> From a startup engineer's POV this is a non issue - a 18-24 month tenure is pretty standard. This assumes there's another job waiting for you at the end of it. Raises and job offers remaining plentiful at the same time funding is drying up would require quite specific circumstances to continue - namely, that none of the companies driving today's offers depended on cheap money to get to where they are. If a substantial group of them did, there may not be much of a next round. That said, a lot of what we see right now appears to just be crowd-following, a lot of what really happens will depend on if businesses see substantial customer exits, not just funding tightening. But if, say, there's a big enough startup crunch to hit AWS's bottom line in such a large way that they start laying people off, suddenly you can start seeing potential feedback loops pushing salaries down and difficulty of finding a job up.
- deeptote 4y agoConsidering how much AWS recruiters message me constantly, an apocalyptic scenario where even the big players are having to lay off substantial amount of engineers is pretty low on the probability curve. Especially given the crunch to hire literally anyone of any skill, which is incredibly difficult at the moment. I will say there's probably about to be a bunch of WEB3 crypto bros about to need a new job, to which I say good riddance; the days of them grifting people is probably over.
- datalopers 4y agoThe most amusing part will be watching these VC-backed companies realize the tiny bit of revenue they do have is from other VC-backed startups in uncomfortably familiar positions to their own.
- jupp0r 4y agoMost VC-backed companies don't have other VC-backed companies as their primary customer segment.
- Apocryphon 4y agoNot most, but possibly many (see thread): https://news.ycombinator.com/item?id=31421716 https://news.ycombinator.com/item?id=31421716
- raffraffraff 4y agoBack when I worked at [vc backed start-up] we had to use [shitty product] because [other start-up] was also getting funded by [same vc]. And it wasn't just one shitty product either. But I still agree with you because most of our revenue came from large, well-known, public companies.
- sakopov 4y agoSo, in the dot-com bubble companies were rushing to market with ideas and no products because delivering products was a massive technical undertaking. It seems like we now have companies rushing to market with products -- which are seemingly much easier to build nowadays -- but without profitable business models. I wonder what the next bubble will look like.
- jupp0r 4y agoCrypto tokens for product ideas that never get realized.