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"...the Facebook IPO will hurt the funding market for earlier stage startups. But no one knows yet how much. Possibly only a little. Possibly a lot, if it becom

"...the Facebook IPO will hurt the funding market for earlier stage startups. But no one knows yet how much. Possibly only a little. Possibly a lot, if it becomes a vicious circle." - PG [1] "I think it will be particularly impactful on the late stage and secondary markets where most of the IPO valuation speculation is happening." - AVC [2] We are now in a contracting market where funding for earlier stage startups, late stage and secondary markets is drying up. AVC referenced PG's letter, but didn't address the letter. Now that we are in a post-frothy market and the froth is drying up, where does this leave early stage startups that are feeding the late stage startups with talent? It would be nice for AVC to address PG's letter directly and not just provide financial analysis to the Facebook valuation. [1] http://news.ycombinator.com/item?id=4067297 http://news.ycombinator.com/item?id=4067297 [2] http://www.avc.com/a_vc/2012/06/some-perspective.html http://www.avc.com/a_vc/2012/06/some-perspective.html

rgrieselhuber 14y ago
> We are now in a contracting market where funding for earlier stage startups, late stage and secondary markets is drying up. Have some data for that assertion? PG's letter never said that. He just identified sentiment and provided warning advice. I think it's still too early to see if there is a material impact.
- startupfounder 14y ago
  "Jessica and I had dinner recently with a prominent investor. He seemed sure the bad performance of the Facebook IPO will hurt the funding market for earlier stage startups." - PG What part of this is unclear? PG was sure enough to write a letter to the startups warning of the oncoming contraction. I am guessing the VC was someone of the caliber of Ron Conway. I do not have data as data is a historical record (in this context), not a prediction of the future. This is why it is a warning of thing will come, but the question is HOW MUCH will the market contract, not IF if will contract. "I think it's still too early to see if there is a material impact." I believe this should read, "I think it's still too early to know the extent of the impact." EDIT: I don't have any hard data, I am using PG and AVC to assert that what they say is true based on the information they know.
  - rgrieselhuber 14y ago
    "He seemed sure" is not data. You said "late stage and secondary markets is drying up." You need actual data (even if it is a few months old) to back that up. What actually happened in the case of Facebook is that the price was run up so high on the secondary markets that the public markets missed out. That's not the same thing as drying up. It could lead to that in the future but I think it's still premature to say it is happening now (especially with no data).
samstave 14y ago
So are you saying that the bubble did not burst with the FB IPO, but rather the FB IPO has caused a leak in the bubble which is (still rather rapidly) deflating? While i feel this is (mostly) true, I also think that we are in so much of a stronger position than the last time the bubble burst that the tech market is not going anywhere any time soon. Valuations will be lower (which is a good thing) but investment will still be strong.
- startupfounder 14y ago
  I am saying that the bubble saw its reflection in the mirror with the Facebook IPO and is contracting to "reflect" that understanding of self. What this means for early stage startups is that they will have to be built upon solid small business cash flow business models while the market is contracting. If they do this and are dependent of investment they will likely attract the attention of investors. This contracting will filter out the startups that lack a business model that works in the "real world" (aka small business).
  - samstave 14y ago
    >...the bubble saw its reflection in the mirror with the Facebook IPO and is contracting to "reflect" that understanding of self. Beautifully put. I'd imagine then, that the Instagram deal at $1B+ is the sweetest deal of this bubble era. Those guys got bought out when facebook was thinking their IPO was going to result in ~250 share price.
    - jaredsohn 14y ago
      From some Google searching, it seems like Instagram got $300 million cash and 23 million shares (http://blogs.wsj.com/digits/2012/04/23/facebook-bought-instagram-for-23m-shares-300m-cash/ http://blogs.wsj.com/digits/2012/04/23/facebook-bought-insta...) and assumed the shares were valued at $30/each. So if they aren't able to sell the shares yet, then as of right now Instagram actually lost $100 million on the deal due to the declining stock price. (Although if they were able to sell right away, then they would have made more money.) I'm not understanding what you mean by "~250 share price".
pnathan 14y ago
It's also important to think of the market outside of tech: it's been intensely downsliding in the last month or two. The "European Question" is kind of a Big Deal. A draining tide sinks all ships.
- startupfounder 14y ago
  Very true, but the Facebook IPO was the signal for the tech industry of the coming contraction for early stage startups regardless of the "outside tech" market.

rgrieselhuber 14y ago

> We are now in a contracting market where funding for earlier stage startups, late stage and secondary markets is drying up. Have some data for that assertion? PG's letter never said that. He just identified sentiment and provided warning advice. I think it's still too early to see if there is a material impact.

startupfounder 14y ago
"Jessica and I had dinner recently with a prominent investor. He seemed sure the bad performance of the Facebook IPO will hurt the funding market for earlier stage startups." - PG What part of this is unclear? PG was sure enough to write a letter to the startups warning of the oncoming contraction. I am guessing the VC was someone of the caliber of Ron Conway. I do not have data as data is a historical record (in this context), not a prediction of the future. This is why it is a warning of thing will come, but the question is HOW MUCH will the market contract, not IF if will contract. "I think it's still too early to see if there is a material impact." I believe this should read, "I think it's still too early to know the extent of the impact." EDIT: I don't have any hard data, I am using PG and AVC to assert that what they say is true based on the information they know.
- rgrieselhuber 14y ago
  "He seemed sure" is not data. You said "late stage and secondary markets is drying up." You need actual data (even if it is a few months old) to back that up. What actually happened in the case of Facebook is that the price was run up so high on the secondary markets that the public markets missed out. That's not the same thing as drying up. It could lead to that in the future but I think it's still premature to say it is happening now (especially with no data).

samstave 14y ago

So are you saying that the bubble did not burst with the FB IPO, but rather the FB IPO has caused a leak in the bubble which is (still rather rapidly) deflating? While i feel this is (mostly) true, I also think that we are in so much of a stronger position than the last time the bubble burst that the tech market is not going anywhere any time soon. Valuations will be lower (which is a good thing) but investment will still be strong.

startupfounder 14y ago
I am saying that the bubble saw its reflection in the mirror with the Facebook IPO and is contracting to "reflect" that understanding of self. What this means for early stage startups is that they will have to be built upon solid small business cash flow business models while the market is contracting. If they do this and are dependent of investment they will likely attract the attention of investors. This contracting will filter out the startups that lack a business model that works in the "real world" (aka small business).
- samstave 14y ago
  >...the bubble saw its reflection in the mirror with the Facebook IPO and is contracting to "reflect" that understanding of self. Beautifully put. I'd imagine then, that the Instagram deal at $1B+ is the sweetest deal of this bubble era. Those guys got bought out when facebook was thinking their IPO was going to result in ~250 share price.
  - jaredsohn 14y ago
    From some Google searching, it seems like Instagram got $300 million cash and 23 million shares (http://blogs.wsj.com/digits/2012/04/23/facebook-bought-instagram-for-23m-shares-300m-cash/ http://blogs.wsj.com/digits/2012/04/23/facebook-bought-insta...) and assumed the shares were valued at $30/each. So if they aren't able to sell the shares yet, then as of right now Instagram actually lost $100 million on the deal due to the declining stock price. (Although if they were able to sell right away, then they would have made more money.) I'm not understanding what you mean by "~250 share price".

pnathan 14y ago

It's also important to think of the market outside of tech: it's been intensely downsliding in the last month or two. The "European Question" is kind of a Big Deal. A draining tide sinks all ships.

startupfounder 14y ago
Very true, but the Facebook IPO was the signal for the tech industry of the coming contraction for early stage startups regardless of the "outside tech" market.