10 ms·

Burn Baby Burn

224 points by jrwit 12y ago

jacquesm 12y ago
There is something supremely funny about VCs complaining that their start-ups behave like funded start-ups and not like bootstrappers, who focus on revenues and profits right from day 1. "At some point you have to build a real business, generate real profits, sustain the company without the largess of investor’s capital, and start producing value the old fashioned way. " Exactly. So how annoying it is when you're bootstrapping a company, you have your price-points carefully set, you're doing a cracker job at concentrating on 'how to sustain the company without investors capital' and then boom. Out of the blue some never-heard-of before company that does the same thing you do starts to hit your customers with a price point that you simply can not beat because they are able to 'burn baby burn' or maybe even give away that identical product for free because they're racing for an acquisition before the money runs out. That's real trouble. Sometimes it's not just one. But there is good news: they usually don't survive in the longer term because they don't have a business model. Once it's free you can't really go back to 'old-fashioned'. So once they've folded up, you've bought their Aeron chairs at 5 cents on the dollar and you're re-connecting with your old customers and picking up the pieces you have a fairly clear field. Contaminated by an over-promising under-performing competitor that thought that 'growth' is equal to 'health'. (If that were true then cancer or a locust plague would be good news.) How you're going to survive the interregnum of unfair VC funded competition is a really hard question for which I have no other advice than to cut every bit of spending and go into 'cockroach' or 'spore' mode, hang on to your core team at any price. VCs should be far far more critical about the companies that they invest in, that the path to break even is clear and that they are not going to invest in a company whose business model is broken but where the cracks are paved over with marketing and growth by burning investors money. That just spoils the soup for everybody and sometimes it kills entire segments. Especially companies where investment is made in B, C or even later rounds should be looked at very carefully. A healthy company would survive and grow even without VC investment, it's supposed to be an accelerator, not life support. So burn, but burn with care and a very good plan. Concentrate on your bottom line taking into account that VC capital will not last forever and make sure that the transition from 'supported' to 'unsupported' is a smooth one and that your business model does not somehow depend on the 'supported' bit in a hidden way. If you're partying like it's 1999 you're definitely doing it wrong and your bubble will almost certainly pop, the more VC money there is the more of it will be dumb.
- brazzy 12y ago
  > VCs should be far far more critical about the companies that they invest in, that the path to break even is clear Or should they? My impression is that many VCs are seeing bigger gains in shooting for $100mm+ acquisitions by Google/Facebook/Apple/Microsoft and cutting their losses on startups that don't make it, rather than trying to build sustainable businesses. Hence, our very own pg's "Startup = Growth" essay: http://www.paulgraham.com/growth.html http://www.paulgraham.com/growth.html Hence, the rumors that some VCs actively discourage startups from making any revenue at all (let alone profits), since those could act as anchors that drag down the acquisition valuation.
  - jacquesm 12y ago
    > Hence, the rumors that some VCs actively discourage startups from making any revenue at all (let alone profits), since those could act as anchors that drag down the acquisition valuation. That's totally bonkers. But it's also 'rumors', do you have concrete examples?
    - brazzy 12y ago
      No examples (it's hardly something they'd be talking about openly). This article spells it out pretty explicitly (with at least one named source) and is probably where I got the idea from: http://bits.blogs.nytimes.com/2012/04/29/disruptions-with-no-revenue-an-illusion-of-value/ http://bits.blogs.nytimes.com/2012/04/29/disruptions-with-no...
    - bhouston 12y ago
      I was told this. The idea is you can make up any numbers regarding future revenues and it is hard to dispute when you haven't implemented any serious conversions, but as soon as you show what your true conversion rate is, it becomes possible to make projections.
      - mcguire 12y ago
        Many years ago, I watched a TV interview with an Austin startup who said things like, "We can't tell anyone what we are actually doing, because some larger company will jump in and take over our market." That was the moment when I said, "We're done here." I'm suddenly having that same feeling. If you had solid examples, I'd probably have more than just a feeling.
droopyEyelids 12y ago
If a company was going to reduce its spend to a sustainable rate, why would it want to mortgage itself to an investment firm? I thought the main point of selling your soul to investors was to increase your burn rate. If you were bootstrapping your company it seems like you'd want to maintain control and ownership.
- jacquesm 12y ago
  No, if you're playing it smart then VC is used to accelerate development and roll-out, but the business model is already there and deemed viable. This will allow you to capture a large(r) share of the market before you run into your competition.
  - k3oni 12y ago
    Interesting take, was just thinking about this a few weeks ago talking with my wife about an idea i have.
- jasonwen 12y ago
  A good use of investor money is when you have a proven and controllable conversion from signups -> paying customers. For example if you need $200 averagely to acquire a customer and the LifeTime value of the customer is $500 over a 10 months timespan. With a positive conversion, you can scale very aggressively with almost no risk, whereas if you re-invest your profit, it will take much longer to reach the same point. If you are in a competitive space, you especially might benefit from investor money.
  - peterjancelis 12y ago
    Such a company with a proven ROI on its marketing should go for venture debt, not venture capital. If you can 2.5x your money in 10 months and capital is at 0% interest out there, why would you sell a huge stake of your business to get to that 0% capital?
_craft 12y ago
Where's the data?
- jacquesm 12y ago
  What you are asking for is asking for a VC to talk down their own book. That's a ridiculous request. Fred and his colleague are already taking a pretty daring step in writing this, you can bet that any future potential acquisition party will make damn sure they're not buying into one of the companies that Fred is apparently unhappy about today, and that a whole horde of junior associates at various establishments is currently looking through their portfolio to try to figure out which companies were the ones he was talking about. VCs will never talk about specific portfolio companies in a negative way (in public) unless they have a direct financial motive for doing so (in which case storm is brewing or in progress, and likely the press has already had a field day with something).
  - deleted 12y ago
    [deleted]
netcan 12y ago
There is something missing in the startup mind-cluster, I think. A lot of the ideas make sense from a certain perspective, even these incredible valuations and exits. There really is a chance to create or invest in the next Facebook. It's not a big chance, but the payoff is so big that it can fuel funding and building thousands of attempts. One of the premises of this complexes is the idea that highly impactful businesses can be started fast and cheap leveraging the internet as a marketing and distribution channel, open source software, cheap computing power and other levers of these times. If they focus on building popular useful things, the scale can get so big that monetization is likely enough to come. That is, likely enough for the investors formulas. But, what of businesses that become popular and useful and financially successful relative to the financial needs of running the business? Reddit. OKCupid. The proverbial Craigslist. What if a business can employ 100 people comfortably, serve 100,000s of customers usefully and reward the founders to the tune of millions, but not billions. Can these exist? Can they last for decades? Generations? Is it efficient to roll the dice on a hundred $10m per year businesses for the chance at one $10bn business. On paper it's a 10X improvement? I'm not trying to ad my voice to the sour grapes tasting comments about valuations and such. I'm just wondering if we can let a million flowers bloom for a longer stretch, not just for their ability to win the big-or- go-home game. I think I might be saying this backwards. Let me try it another way. A lot of the current startup thinking is premised on the idea that small teams can have a big impact relative to the cash requirements. A second idea is that a startup making a big impact has a decent chance of turning into a multi billion dollar company or a $100m+ acquisition for a multi billion dollar company. Is there no room to build on the first premise without later building on the second premise? Could Facebook have connected people as well as a 500 person company? This is a tangent to Fred Wilson's point, but I feel like it might boil down to a similar enquiry.
- idlewords 12y ago
  Venture capital is supposed to be mechanism for funding at the highest levels of risk and reward. But somehow we've decided that it's the only model for Internet companies. So a lot of companies and individuals with perfectly workable small or medium-size ideas end up inflating them to VC size to get funding, and then fizzling out. A sad side effect is that it discredits the ideas. We have a grandiosity problem in Silicon Valley. The problem isn't really VC, but the lack of alternatives along the other parts of the risk/reward curve.
deleted 12y ago
[deleted]
vasilipupkin 12y ago
Fred Wilson has lived through a few booms and busts so he is kind of concerned about the next bust being very likely. I would just say, there is a very high likelihood of cheap money continuing for a while, given the stance of the Federal Reserve and the condition of U.S. economy. And, as long as money stays cheap, I do not see the bubble bursting 2001 style. Money will continue flowing into private and public equities because it really has nowhere else to go
- icpmacdo 12y ago
  > given the stance of the Federal Reserve Could you expand on that point?
  - jacquesm 12y ago
    Directly from the mouth of the horse: http://online.wsj.com/articles/fed-ups-projections-for-short-term-interest-rates-1403114981 http://online.wsj.com/articles/fed-ups-projections-for-short...
- mnglkhn2 12y ago
  When the cheap money stop that's when the adjustment happens. Until then, as Fred said, they have to keep on dancing. And eyeballing intensely the next empty chair.
  - vasilipupkin 12y ago
    perhaps, what I'm saying is cheap money is unlikely to stop for years to come
    - adventured 12y ago
      That's only true if the Fed's hand isn't forced and the QE equation can remain the same in regards to both the results they get per dollar of QE and the inflation they cause per dollar of QE. However that's not how it works. The Fed is in a downward spiral scenario, in which their policies have ever less of a positive impact and ever greater of a negative impact, and that's what arbitrarily low interest rates also function based on: the longer you hold them low below absolute optimal, the greater the damage as a result at an accelerating rate. The cheap money party is very likely to destroy itself in a way that is both hard for the Fed to predict and control. Just like it did the prior two times the Fed made the mistake of unleashing a wave of cheap money. You can read their minutes and speeches, they were so oblivious they (supposedly) had no idea the real estate bubble was underway or about to implode (true for both Greenspan and Bernanke). What ends the cheap money is the asset bubbles get so large their downside poses a threat to the integrity of the entire economy. They have to raise interest rates to stop the extreme asset bubbles that cheap money causes. We're at that line right now, which is why they keep pushing headlines about raising interest rates, it's meant to artificially hold down asset prices without the Fed having to actually raise rates. The stock market is already approaching the highest valuation it has ever had in a 'bull market' outside of the dotcom era and maybe 1929x. Real estate has almost entirely recovered, and in many markets is now higher than the peak of the bubble of 2005/06. You throw another 30% gain on the stock market, and 20% on the real estate market, with continued mediocre earnings growth and 1% to 2% GDP growth, with little to no wage growth or full-time employment growth, while Europe is in a continuing depression, Japan is in a recession, and China is melting toward zero real growth, and you're priming for a crash across numerous asset classes that will send the US into a true depression. 15 years of horrifically bad monetary policy has yet to be paid for. They keep trying to prevent recessions from happening. The price for that bad behavior will keep climbing day by day. If they don't raise rates, they crash the economy as asset bubbles become increasingly unsustainable. And even though the Fed will attempt to keep the cost of money low in that scenario, nobody will be able to get access to that cheap money (ala 2009/2010 but far worse).
calewis 12y ago
The words; Horse, Stable and Bolted come to mind. VC's and their stupid valuations have created this problem. The idea that a business isn't worth investing in because it's only going to make millions, not billions, also doesn't help. VC's would be better off diversifying in lots more companies that have a better chance of making a more modest profit, than a few that are then pressured to make 10's of billions. I guess ultimately it comes down to the point in which they exit, the dumb PE ratios of Facebook, Twitter etc allowed someone to cash out nicely when they floated, but for the suckers that brought the stock on the public market have no hope of recovering their cash.
- adventured 12y ago
  You're referring to an extremely small percentage of the venture investment community that is dealing with concerning itself about making billions. I'd argue that's 0.1% of the venture investment activity in the US market (but not 0.1% of the dollars). It's basically a few markets on earth. Go to St. Louis or Dallas and you'll find venture investing going on all over the place that focuses on companies that will make millions and not billions. When you start a hotdog stand, and raise $50,000 from your cousin, that's venture capital too. The US economy is not lacking in VC activity around million dollar businesses. There are more venture capitalists running around funding smaller ventures than at any other time. As I'm sure you know, $50k - $250k is not what it used to be 30 years ago, and it's now very inexpensive to start internet companies. In my experience and observation it has never been easier to raise money for a x million dollar business venture, and I believe this to be true for nearly any city in the US. That investment activity however does not make the headlines, and few people bother to do their research into how many 'boring' deals are being done by investors worth sub $10m that put $25k or $75k into a startup in Cleveland.
- tg3 12y ago
  Just to fact check you a bit: - Facebook is trading at $76, IPO'ed at $40 - Twitter is trading at $51, IPO'ed at $42
idlewords 12y ago
Sometimes this happens when you give people free money to play with. What did you think was going to happen?
lmg643 12y ago
Wow - I posted what I thought was a thoughtful comment on Fred's blog, disagreeing with his throw-away intro on paid content - and it seems to have disappeared? My point was, why should we reward Business Insider for ripping off content, instead of rewarding WSJ? Why not reward originators of content, instead of recyclers? Clearly, he liked the interview enough to link to it - why should BI get a benefit instead of WSJ? He seems to think that it is "inevitable" that digital content will get ripped off, but perhaps that's only true if they (a) don't innovate on payment models, (b) don't innovate on fair use rules. One of the digital currency companies in USV's portfolio could surely work out a micropayments deal with WSJ to allow people to pay-per-use for content, instead of subscribe. So - that was the gist of what I had to say. Insightful, maybe not. But now I'll add to it - I much prefer the YC approach, where my comments are free to sit there, and get ranked accordingly.
- tomjakubowski 12y ago
  > But now I'll add to it - I much prefer the YC approach, where my comments are free to sit there, and get ranked accordingly. Sure, assuming you haven't been shadowbanned for some arbitrary reason years ago, in which case your comments are free to sit there invisible to most without you knowing.
dsugarman 12y ago
sanity impending
mnglkhn2 12y ago
It says something when the money people (VCs) complain high real estate rents: changes might be afoot. It is possible that the property owners feel/know that the current situation is untenable and that new properties will be allowed to be built, hence their desire to lock in leases for 10yrs.
tlogan 12y ago
I'm not sure if I understand the point of this blog post. VCs give money to startups so these startups can grow faster than they would without external investment. So they will spend that money. It is not like startup come to VC and said: I need $10M and I will put that money in the bank. Maybe the blog should be how it is important that startups are more focused when they spent? Or maybe how VCs are investing into companies with not so great ideas? I'm just confused here.
jeffreyrogers 12y ago
So why are these companies in your portfolio in the first place?
jroseattle 12y ago
Honestly, this sounds like Monday morning quarterbacking. When all these companies lined up and raised umpteen million dollars, I'm all but certain they were asked about their planned use of funds. Further, I'm nearly certain they said they were going to spend in order to grow their business in their chosen market. And many are doing just that. And who the hell provided them with these funds? Maybe Fred (and Bill Gurley) should be directing their criticism at those stewards of investors' monies and consider their own part in this cycle.
mathattack 12y ago
"At some point you have to build a real business, generate real profits" The companies that seem to be able to switch off the growth and become cash flow positive will be fine no matter what.

224 points by jrwit 12y ago

There is something supremely funny about VCs complaining that their start-ups behave like funded start-ups and not like bootstrappers, who focus on revenues and profits right from day 1. "At some point you have to build a real business, generate real profits, sustain the company without the largess of investor’s capital, and start producing value the old fashioned way. " Exactly. So how annoying it is when you're bootstrapping a company, you have your price-points carefully set, you're doing a cracker job at concentrating on 'how to sustain the company without investors capital' and then boom. Out of the blue some never-heard-of before company that does the same thing you do starts to hit your customers with a price point that you simply can not beat because they are able to 'burn baby burn' or maybe even give away that identical product for free because they're racing for an acquisition before the money runs out. That's real trouble. Sometimes it's not just one. But there is good news: they usually don't survive in the longer term because they don't have a business model. Once it's free you can't really go back to 'old-fashioned'. So once they've folded up, you've bought their Aeron chairs at 5 cents on the dollar and you're re-connecting with your old customers and picking up the pieces you have a fairly clear field. Contaminated by an over-promising under-performing competitor that thought that 'growth' is equal to 'health'. (If that were true then cancer or a locust plague would be good news.) How you're going to survive the interregnum of unfair VC funded competition is a really hard question for which I have no other advice than to cut every bit of spending and go into 'cockroach' or 'spore' mode, hang on to your core team at any price. VCs should be far far more critical about the companies that they invest in, that the path to break even is clear and that they are not going to invest in a company whose business model is broken but where the cracks are paved over with marketing and growth by burning investors money. That just spoils the soup for everybody and sometimes it kills entire segments. Especially companies where investment is made in B, C or even later rounds should be looked at very carefully. A healthy company would survive and grow even without VC investment, it's supposed to be an accelerator, not life support. So burn, but burn with care and a very good plan. Concentrate on your bottom line taking into account that VC capital will not last forever and make sure that the transition from 'supported' to 'unsupported' is a smooth one and that your business model does not somehow depend on the 'supported' bit in a hidden way. If you're partying like it's 1999 you're definitely doing it wrong and your bubble will almost certainly pop, the more VC money there is the more of it will be dumb.

brazzy 12y ago
> VCs should be far far more critical about the companies that they invest in, that the path to break even is clear Or should they? My impression is that many VCs are seeing bigger gains in shooting for $100mm+ acquisitions by Google/Facebook/Apple/Microsoft and cutting their losses on startups that don't make it, rather than trying to build sustainable businesses. Hence, our very own pg's "Startup = Growth" essay: http://www.paulgraham.com/growth.html http://www.paulgraham.com/growth.html Hence, the rumors that some VCs actively discourage startups from making any revenue at all (let alone profits), since those could act as anchors that drag down the acquisition valuation.
- jacquesm 12y ago
  > Hence, the rumors that some VCs actively discourage startups from making any revenue at all (let alone profits), since those could act as anchors that drag down the acquisition valuation. That's totally bonkers. But it's also 'rumors', do you have concrete examples?
  - brazzy 12y ago
    No examples (it's hardly something they'd be talking about openly). This article spells it out pretty explicitly (with at least one named source) and is probably where I got the idea from: http://bits.blogs.nytimes.com/2012/04/29/disruptions-with-no-revenue-an-illusion-of-value/ http://bits.blogs.nytimes.com/2012/04/29/disruptions-with-no...
  - bhouston 12y ago
    I was told this. The idea is you can make up any numbers regarding future revenues and it is hard to dispute when you haven't implemented any serious conversions, but as soon as you show what your true conversion rate is, it becomes possible to make projections.
    - mcguire 12y ago
      Many years ago, I watched a TV interview with an Austin startup who said things like, "We can't tell anyone what we are actually doing, because some larger company will jump in and take over our market." That was the moment when I said, "We're done here." I'm suddenly having that same feeling. If you had solid examples, I'd probably have more than just a feeling.

droopyEyelids 12y ago

If a company was going to reduce its spend to a sustainable rate, why would it want to mortgage itself to an investment firm? I thought the main point of selling your soul to investors was to increase your burn rate. If you were bootstrapping your company it seems like you'd want to maintain control and ownership.

jacquesm 12y ago
No, if you're playing it smart then VC is used to accelerate development and roll-out, but the business model is already there and deemed viable. This will allow you to capture a large(r) share of the market before you run into your competition.
- k3oni 12y ago
  Interesting take, was just thinking about this a few weeks ago talking with my wife about an idea i have.
jasonwen 12y ago
A good use of investor money is when you have a proven and controllable conversion from signups -> paying customers. For example if you need $200 averagely to acquire a customer and the LifeTime value of the customer is $500 over a 10 months timespan. With a positive conversion, you can scale very aggressively with almost no risk, whereas if you re-invest your profit, it will take much longer to reach the same point. If you are in a competitive space, you especially might benefit from investor money.
- peterjancelis 12y ago
  Such a company with a proven ROI on its marketing should go for venture debt, not venture capital. If you can 2.5x your money in 10 months and capital is at 0% interest out there, why would you sell a huge stake of your business to get to that 0% capital?

_craft 12y ago

Where's the data?

jacquesm 12y ago
What you are asking for is asking for a VC to talk down their own book. That's a ridiculous request. Fred and his colleague are already taking a pretty daring step in writing this, you can bet that any future potential acquisition party will make damn sure they're not buying into one of the companies that Fred is apparently unhappy about today, and that a whole horde of junior associates at various establishments is currently looking through their portfolio to try to figure out which companies were the ones he was talking about. VCs will never talk about specific portfolio companies in a negative way (in public) unless they have a direct financial motive for doing so (in which case storm is brewing or in progress, and likely the press has already had a field day with something).
- deleted 12y ago
  [deleted]

netcan 12y ago

There is something missing in the startup mind-cluster, I think. A lot of the ideas make sense from a certain perspective, even these incredible valuations and exits. There really is a chance to create or invest in the next Facebook. It's not a big chance, but the payoff is so big that it can fuel funding and building thousands of attempts. One of the premises of this complexes is the idea that highly impactful businesses can be started fast and cheap leveraging the internet as a marketing and distribution channel, open source software, cheap computing power and other levers of these times. If they focus on building popular useful things, the scale can get so big that monetization is likely enough to come. That is, likely enough for the investors formulas. But, what of businesses that become popular and useful and financially successful relative to the financial needs of running the business? Reddit. OKCupid. The proverbial Craigslist. What if a business can employ 100 people comfortably, serve 100,000s of customers usefully and reward the founders to the tune of millions, but not billions. Can these exist? Can they last for decades? Generations? Is it efficient to roll the dice on a hundred $10m per year businesses for the chance at one $10bn business. On paper it's a 10X improvement? I'm not trying to ad my voice to the sour grapes tasting comments about valuations and such. I'm just wondering if we can let a million flowers bloom for a longer stretch, not just for their ability to win the big-or- go-home game. I think I might be saying this backwards. Let me try it another way. A lot of the current startup thinking is premised on the idea that small teams can have a big impact relative to the cash requirements. A second idea is that a startup making a big impact has a decent chance of turning into a multi billion dollar company or a $100m+ acquisition for a multi billion dollar company. Is there no room to build on the first premise without later building on the second premise? Could Facebook have connected people as well as a 500 person company? This is a tangent to Fred Wilson's point, but I feel like it might boil down to a similar enquiry.

idlewords 12y ago
Venture capital is supposed to be mechanism for funding at the highest levels of risk and reward. But somehow we've decided that it's the only model for Internet companies. So a lot of companies and individuals with perfectly workable small or medium-size ideas end up inflating them to VC size to get funding, and then fizzling out. A sad side effect is that it discredits the ideas. We have a grandiosity problem in Silicon Valley. The problem isn't really VC, but the lack of alternatives along the other parts of the risk/reward curve.

deleted 12y ago

[deleted]

vasilipupkin 12y ago

Fred Wilson has lived through a few booms and busts so he is kind of concerned about the next bust being very likely. I would just say, there is a very high likelihood of cheap money continuing for a while, given the stance of the Federal Reserve and the condition of U.S. economy. And, as long as money stays cheap, I do not see the bubble bursting 2001 style. Money will continue flowing into private and public equities because it really has nowhere else to go

icpmacdo 12y ago
> given the stance of the Federal Reserve Could you expand on that point?
- jacquesm 12y ago
  Directly from the mouth of the horse: http://online.wsj.com/articles/fed-ups-projections-for-short-term-interest-rates-1403114981 http://online.wsj.com/articles/fed-ups-projections-for-short...
mnglkhn2 12y ago
When the cheap money stop that's when the adjustment happens. Until then, as Fred said, they have to keep on dancing. And eyeballing intensely the next empty chair.
- vasilipupkin 12y ago
  perhaps, what I'm saying is cheap money is unlikely to stop for years to come
  - adventured 12y ago
    That's only true if the Fed's hand isn't forced and the QE equation can remain the same in regards to both the results they get per dollar of QE and the inflation they cause per dollar of QE. However that's not how it works. The Fed is in a downward spiral scenario, in which their policies have ever less of a positive impact and ever greater of a negative impact, and that's what arbitrarily low interest rates also function based on: the longer you hold them low below absolute optimal, the greater the damage as a result at an accelerating rate. The cheap money party is very likely to destroy itself in a way that is both hard for the Fed to predict and control. Just like it did the prior two times the Fed made the mistake of unleashing a wave of cheap money. You can read their minutes and speeches, they were so oblivious they (supposedly) had no idea the real estate bubble was underway or about to implode (true for both Greenspan and Bernanke). What ends the cheap money is the asset bubbles get so large their downside poses a threat to the integrity of the entire economy. They have to raise interest rates to stop the extreme asset bubbles that cheap money causes. We're at that line right now, which is why they keep pushing headlines about raising interest rates, it's meant to artificially hold down asset prices without the Fed having to actually raise rates. The stock market is already approaching the highest valuation it has ever had in a 'bull market' outside of the dotcom era and maybe 1929x. Real estate has almost entirely recovered, and in many markets is now higher than the peak of the bubble of 2005/06. You throw another 30% gain on the stock market, and 20% on the real estate market, with continued mediocre earnings growth and 1% to 2% GDP growth, with little to no wage growth or full-time employment growth, while Europe is in a continuing depression, Japan is in a recession, and China is melting toward zero real growth, and you're priming for a crash across numerous asset classes that will send the US into a true depression. 15 years of horrifically bad monetary policy has yet to be paid for. They keep trying to prevent recessions from happening. The price for that bad behavior will keep climbing day by day. If they don't raise rates, they crash the economy as asset bubbles become increasingly unsustainable. And even though the Fed will attempt to keep the cost of money low in that scenario, nobody will be able to get access to that cheap money (ala 2009/2010 but far worse).

calewis 12y ago

The words; Horse, Stable and Bolted come to mind. VC's and their stupid valuations have created this problem. The idea that a business isn't worth investing in because it's only going to make millions, not billions, also doesn't help. VC's would be better off diversifying in lots more companies that have a better chance of making a more modest profit, than a few that are then pressured to make 10's of billions. I guess ultimately it comes down to the point in which they exit, the dumb PE ratios of Facebook, Twitter etc allowed someone to cash out nicely when they floated, but for the suckers that brought the stock on the public market have no hope of recovering their cash.

adventured 12y ago
You're referring to an extremely small percentage of the venture investment community that is dealing with concerning itself about making billions. I'd argue that's 0.1% of the venture investment activity in the US market (but not 0.1% of the dollars). It's basically a few markets on earth. Go to St. Louis or Dallas and you'll find venture investing going on all over the place that focuses on companies that will make millions and not billions. When you start a hotdog stand, and raise $50,000 from your cousin, that's venture capital too. The US economy is not lacking in VC activity around million dollar businesses. There are more venture capitalists running around funding smaller ventures than at any other time. As I'm sure you know, $50k - $250k is not what it used to be 30 years ago, and it's now very inexpensive to start internet companies. In my experience and observation it has never been easier to raise money for a x million dollar business venture, and I believe this to be true for nearly any city in the US. That investment activity however does not make the headlines, and few people bother to do their research into how many 'boring' deals are being done by investors worth sub $10m that put $25k or $75k into a startup in Cleveland.
tg3 12y ago
Just to fact check you a bit: - Facebook is trading at $76, IPO'ed at $40 - Twitter is trading at $51, IPO'ed at $42

idlewords 12y ago

Sometimes this happens when you give people free money to play with. What did you think was going to happen?

lmg643 12y ago

Wow - I posted what I thought was a thoughtful comment on Fred's blog, disagreeing with his throw-away intro on paid content - and it seems to have disappeared? My point was, why should we reward Business Insider for ripping off content, instead of rewarding WSJ? Why not reward originators of content, instead of recyclers? Clearly, he liked the interview enough to link to it - why should BI get a benefit instead of WSJ? He seems to think that it is "inevitable" that digital content will get ripped off, but perhaps that's only true if they (a) don't innovate on payment models, (b) don't innovate on fair use rules. One of the digital currency companies in USV's portfolio could surely work out a micropayments deal with WSJ to allow people to pay-per-use for content, instead of subscribe. So - that was the gist of what I had to say. Insightful, maybe not. But now I'll add to it - I much prefer the YC approach, where my comments are free to sit there, and get ranked accordingly.

tomjakubowski 12y ago
> But now I'll add to it - I much prefer the YC approach, where my comments are free to sit there, and get ranked accordingly. Sure, assuming you haven't been shadowbanned for some arbitrary reason years ago, in which case your comments are free to sit there invisible to most without you knowing.

dsugarman 12y ago

sanity impending

mnglkhn2 12y ago

It says something when the money people (VCs) complain high real estate rents: changes might be afoot. It is possible that the property owners feel/know that the current situation is untenable and that new properties will be allowed to be built, hence their desire to lock in leases for 10yrs.

tlogan 12y ago

I'm not sure if I understand the point of this blog post. VCs give money to startups so these startups can grow faster than they would without external investment. So they will spend that money. It is not like startup come to VC and said: I need $10M and I will put that money in the bank. Maybe the blog should be how it is important that startups are more focused when they spent? Or maybe how VCs are investing into companies with not so great ideas? I'm just confused here.

jeffreyrogers 12y ago

So why are these companies in your portfolio in the first place?

jroseattle 12y ago

Honestly, this sounds like Monday morning quarterbacking. When all these companies lined up and raised umpteen million dollars, I'm all but certain they were asked about their planned use of funds. Further, I'm nearly certain they said they were going to spend in order to grow their business in their chosen market. And many are doing just that. And who the hell provided them with these funds? Maybe Fred (and Bill Gurley) should be directing their criticism at those stewards of investors' monies and consider their own part in this cycle.

mathattack 12y ago

"At some point you have to build a real business, generate real profits" The companies that seem to be able to switch off the growth and become cash flow positive will be fine no matter what.