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Unless Draper Richards was under huge liquidity crunch, probably any investment at the bottom of a bubble would have paid out. Just a case of poor timing and ju

by joez 17y ago

Unless Draper Richards was under huge liquidity crunch, probably any investment at the bottom of a bubble would have paid out. Just a case of poor timing and judgment. And Techcrunch being smug.

pg 17y ago
Boy is that not true. A lot of startup investments at that time spectacularly failed to pay. Investing in startups is not like buying public stocks, where if you buy at the bottom of the market you're almost guaranteed a positive return. It's exactly the opposite, in fact. The returns depend almost entirely on which startups you pick, and hardly at all on market conditions when you invest.
grellas 17y ago
When the dot-bust occurred, the going rule with VCs was to rein in their investments, getting cash where they could and deploying their liquidation preferences to cash out where possible. It was not panic so much as it was an exercise of common sense by the VCs at the time. A lot of startups had been riding on fluff and, when the fluff went away, it was time to cut investment losses. A crude, but key, indicator is that the liquidation preference in the relatively few fundings that did occur went from a former standard of 1x out to a new one of 3x to 5x. Few deals were done, and those that were done were on terms perceived by founders to be onerous. In such a climate, it likely would have been deemed reckless conduct by the VC's managing partners not to cash in on the convertible note and to opt instead for an alternative outcome that was highly speculative at best. We can't really know without being privy to inside details, which we are not. In any case, that decision shouldn't be second-guessed by outsiders today.
- netsp 17y ago
  True. At the end of the day, Zappos is/was really just an online shop. Amazon at least were the first/biggest online shop in a field where infinite shelf space means a lot. Shoe stores on the other hand, could easily have been bigger if bigger meant better. What strong reason was there at the time to believe that Zappos would grow so much more then the many other online retailers with similar numbers. Growth: http://i.zdnet.com/blogs/zappos-revenue.png http://i.zdnet.com/blogs/zappos-revenue.png YC's 'How to Apply' recommends against saying you will win because your app will be well-designed and easy to use because presumably that is what everyone tries to achieve. Zappos eventually succeeded because they made the online shop equivalent: efficient back-end, excellent customer service, lots of products that people want to buy, low prices.

by joez 17y ago

Unless Draper Richards was under huge liquidity crunch, probably any investment at the bottom of a bubble would have paid out. Just a case of poor timing and judgment. And Techcrunch being smug.

pg 17y ago

Boy is that not true. A lot of startup investments at that time spectacularly failed to pay. Investing in startups is not like buying public stocks, where if you buy at the bottom of the market you're almost guaranteed a positive return. It's exactly the opposite, in fact. The returns depend almost entirely on which startups you pick, and hardly at all on market conditions when you invest.

grellas 17y ago

When the dot-bust occurred, the going rule with VCs was to rein in their investments, getting cash where they could and deploying their liquidation preferences to cash out where possible. It was not panic so much as it was an exercise of common sense by the VCs at the time. A lot of startups had been riding on fluff and, when the fluff went away, it was time to cut investment losses. A crude, but key, indicator is that the liquidation preference in the relatively few fundings that did occur went from a former standard of 1x out to a new one of 3x to 5x. Few deals were done, and those that were done were on terms perceived by founders to be onerous. In such a climate, it likely would have been deemed reckless conduct by the VC's managing partners not to cash in on the convertible note and to opt instead for an alternative outcome that was highly speculative at best. We can't really know without being privy to inside details, which we are not. In any case, that decision shouldn't be second-guessed by outsiders today.

netsp 17y ago
True. At the end of the day, Zappos is/was really just an online shop. Amazon at least were the first/biggest online shop in a field where infinite shelf space means a lot. Shoe stores on the other hand, could easily have been bigger if bigger meant better. What strong reason was there at the time to believe that Zappos would grow so much more then the many other online retailers with similar numbers. Growth: http://i.zdnet.com/blogs/zappos-revenue.png http://i.zdnet.com/blogs/zappos-revenue.png YC's 'How to Apply' recommends against saying you will win because your app will be well-designed and easy to use because presumably that is what everyone tries to achieve. Zappos eventually succeeded because they made the online shop equivalent: efficient back-end, excellent customer service, lots of products that people want to buy, low prices.