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With YC, Craft, and Sequoia all urging their portfolio companies to operate at a < 2x burn multiple, it would make sense to see these growth stage companies sta

With YC, Craft, and Sequoia all urging their portfolio companies to operate at a < 2x burn multiple, it would make sense to see these growth stage companies start to panic. When you’re small, and have revenue, it might only take a handful of layoffs to get to “default alive” as a startup. But once you go beyond a series A and start dumping gasoline on every part of your business to scale faster, the risk starts to grow exponentially. These companies with hundreds of employees are insanely inefficient, but that’s the game. You run hot until you get above everyone else and then you start to figure out how to actually make money. During a recession that type of growth probably doesn’t work. We might still see a few companies blitz scale, but if the capital is risk off there’s unlikely to an abundance of these types of companies. In a way it’ll be an end of an era. Probably for the better, but the run was great while it lasted (depending on how you view great). I think any startup caught in the middle right now needs to effectively assume they’re dead unless they get to operational break even with their current runway.

xiphias2 4y ago
> it’ll be an end of an era I don’t think it will, but even a 1-2 year recession is enough to destroy these companies. The leverage in / structure of the current financial system makes it extremely hard to not decrease interest rates again.
hef19898 4y ago
Couldn't agree more! Being at now-puplic start-up that needs somewhere north of, IMHO, 500 million to become somewhat profitable (industry specific, some hardware products simply cost a shit ton of money to develop) that is something I think a lot about lately. Especially the, up until now, habbit of inefficiently thtowing money and people at a problem hoping something sticks. In hardware, so nothing that can be growth-hacked.
- ETHisso2017 4y ago
  Rivian?
  - hef19898 4y ago
    Close enough!
- vishnugupta 4y ago
  > habbit of inefficiently thtowing money and people at a problem I've repeatedly commented on this phenomenon. In my experience this has never worked and unlikely to work. I've seen at least 2-3 startups doing well go completely offtrack by sudden infusion of big VC money. They are then expected to ship features like no tomorrow which leads to rampant hiring. As a result salaries go through the roof messing up internal compensation parity. Also, money attracts a certain persona of people who are good at building empires and not creating value. I guess what I'm trying to say is; a big infusion of VC money is rarely a good thing for an org. They stop being efficient and innovative orgs. When money is abundant the first response to any challenge is to throw money at it. Is website not able to handle traffic? Throw bigger DB, more machines. Not able to ship a feature on time? Hire a dozen more. Is user sign up down? Run a cash back campaign. This may help them crush a competitor in the short run but by the the music stops and money dries up once efficiency driven org would have lost that DNA.
  - nowherebeen 4y ago
    It also create a false sense of product market fit. When you are literally spending millions to acquire customers, you will have revenue no matter what you sell, but how much of that revenue is actually because you built something people want. I suspect this this is the case with Bolt. One-click checkout isn't that innovative to begin with.
- kareemm 4y ago
  > Being at now-puplic start-up that needs somewhere north of, IMHO, 500 million to become somewhat profitable Maybe it’s just me. But I don’t consider publicly traded companies to be anywhere near a startup.
  - lighttower 4y ago
    Boom supersonic?
  - hef19898 4y ago
    Normaly me neither. In that particular case so it makes sense. Hardware development costs tons of money, especially when done by throwing highly paid engineers at the problem as the only idea. And when it is easier to get funding through a listing, but not enough yet, the company doesn't have a product yet but is public. Not an ideal place to be, for sure.
kolmogorov 4y ago
What do you mean by <2x burn multiple ?
- ryanSrich 4y ago
  Less than a 2x burn multiple. If you don’t know what a burn multiple is, read this → https://sacks.substack.com/p/the-burn-multiple-51a7e43cb200?s=r https://sacks.substack.com/p/the-burn-multiple-51a7e43cb200?...
- yreg 4y ago
  burn multiple = net_burn / net_new_annual_recurring_revenue I guess net burn = net loss?

xiphias2 4y ago

> it’ll be an end of an era I don’t think it will, but even a 1-2 year recession is enough to destroy these companies. The leverage in / structure of the current financial system makes it extremely hard to not decrease interest rates again.

hef19898 4y ago

Couldn't agree more! Being at now-puplic start-up that needs somewhere north of, IMHO, 500 million to become somewhat profitable (industry specific, some hardware products simply cost a shit ton of money to develop) that is something I think a lot about lately. Especially the, up until now, habbit of inefficiently thtowing money and people at a problem hoping something sticks. In hardware, so nothing that can be growth-hacked.

ETHisso2017 4y ago
Rivian?
- hef19898 4y ago
  Close enough!
vishnugupta 4y ago
> habbit of inefficiently thtowing money and people at a problem I've repeatedly commented on this phenomenon. In my experience this has never worked and unlikely to work. I've seen at least 2-3 startups doing well go completely offtrack by sudden infusion of big VC money. They are then expected to ship features like no tomorrow which leads to rampant hiring. As a result salaries go through the roof messing up internal compensation parity. Also, money attracts a certain persona of people who are good at building empires and not creating value. I guess what I'm trying to say is; a big infusion of VC money is rarely a good thing for an org. They stop being efficient and innovative orgs. When money is abundant the first response to any challenge is to throw money at it. Is website not able to handle traffic? Throw bigger DB, more machines. Not able to ship a feature on time? Hire a dozen more. Is user sign up down? Run a cash back campaign. This may help them crush a competitor in the short run but by the the music stops and money dries up once efficiency driven org would have lost that DNA.
- nowherebeen 4y ago
  It also create a false sense of product market fit. When you are literally spending millions to acquire customers, you will have revenue no matter what you sell, but how much of that revenue is actually because you built something people want. I suspect this this is the case with Bolt. One-click checkout isn't that innovative to begin with.
kareemm 4y ago
> Being at now-puplic start-up that needs somewhere north of, IMHO, 500 million to become somewhat profitable Maybe it’s just me. But I don’t consider publicly traded companies to be anywhere near a startup.
- lighttower 4y ago
  Boom supersonic?
- hef19898 4y ago
  Normaly me neither. In that particular case so it makes sense. Hardware development costs tons of money, especially when done by throwing highly paid engineers at the problem as the only idea. And when it is easier to get funding through a listing, but not enough yet, the company doesn't have a product yet but is public. Not an ideal place to be, for sure.

kolmogorov 4y ago

What do you mean by <2x burn multiple ?

ryanSrich 4y ago
Less than a 2x burn multiple. If you don’t know what a burn multiple is, read this → https://sacks.substack.com/p/the-burn-multiple-51a7e43cb200?s=r https://sacks.substack.com/p/the-burn-multiple-51a7e43cb200?...
yreg 4y ago
burn multiple = net_burn / net_new_annual_recurring_revenue I guess net burn = net loss?